Archive for the ‘poverty’ Category

Extreme land value follies in Vancouver

Credit: tglucas500 via flickr

Credit: tdlucas5000 via flickr

Up in Vancouver BC, analyst Jens von Bergmann calculates that the increase in land value for single family houses over the past year exceeded the total income earned by the entire population of the City.  Median increase was $262,000, average was $318,877.  Von Bergmann estimates this to be equivalent to $126/hour, assuming people work a 40 hour week 62 weeks per year (allowing for multiple-worker households).  By comparison, actual labor yields an average income of $26/hour (all figures in multicolored Canadian dollars, of course).

But the land price appreciates every hour of every day, so it might make more sense to calculate the median increase as $29.89 (mean $36.38) per hour.

Of course this cannot continue indefinitely, but something like it has been going on for a long time in Vancouver, as well as a few other cities.  Wealthy international buyers from less stable places want a refuge, as well as perhaps an investment.  But even this group, depending on developments overseas, must eventually be limited.  Some analysts — Garth Turner comes to mind — have been warning of a crash for years and years.

What really impresses me about von Bergmann’s analysis is that BC assessment authorities appear to do a decent job of estimating land value, and making the data broadly available.  It’d be worth something to live in a place like that.

h/t Wealth and Want.

Low wages mean low productivity

source: Wikimedia Commons

source: Wikimedia Commons

source: Wikimedia Commons

source: Wikimedia Commons

[L]abor is most productive where its wages are largest. Poorly paid labor is inefficient labor, the world over…. The efficiency of labor always increases with the habitual wages of labor—for high wages mean increased self-respect, intelligence, hope, and energy.

–Henry George (Progress & Poverty, Book IX, Chapter 2)

George gives plenty of examples from his time, but modern examples abound too.  I happened on a 2006 article (pdf) by Wayne Cascio comparing how Sam’s Club and Costco treat their labor.  The short answer is: Costco treats their workers much better, including higher wages, better benefits, and more job security. And, the article continues, the results are consistent with Henry George. Based on 2005 data,

 Costco’s hourly labor rates are more than 40 percent higher than those at Sam’s Club ($17 versus $10.11), but when employee productivity is considered (sales per employee), Costco’s labor costs are lower than those at Sam’s Club (5.55 percent at Costco versus 6.25 percent at Sam’s Club).

Similar differences are cited in sales per square foot, and operating profit per employee.  Obviously, the figures nearly a decade later would be different, but I suspect the comparison would be similar.

It matters how we own what nobody produced

Tenant farmers paid rent here

Tenant farmers paid rent here

[I]n Bill Clinton’s encapsulation of political strategy, “It’s the economy, stupid.” But the success of an economy can only be measured by its growth.  Since growth requires the accelerated consumption of limited natural resources, it is not a sustainable model in the long run.

If you concentrate on how a place is owned, however, the perspective changes.  As this book demonstrates, matters of laws, of rights and of politics become crucial, taking precedence over economics.  From that point of view… “It’s the neighborhood, stupid.”

…Around the world and throughout history, neighborhoods have succeeded in a million different ways.  It all depends on how the earth is owned.

That, the conclusion of Andro Linklater’s Owning the Earth, illustrates what is right and what is wrong with the book.  Our quality of life does does depend on how the earth is owned, and Georgists are aware of the importance and practicality of recognizing each individual’s right to what no one produced. But must a sound economy necessarily use more of the earth’s limited resources? Is there no practical way to use resources more efficiently? And is there no possibility that economic improvement could be measured by anything other than economic growth?

The book is wide-ranging and (mostly) well-written, making connections in place after place between how the right to use nature is recognized, and how well the community developed. It draws some connections that I hadn’t seen before, such as how the growth in mortgages on American farms followed logically from the end of homesteading.

And Linklater does devote a couple of pages to Henry George, but seriously misunderstands why George’s proposals weren’t widely adopted, saying  “[I]t is notoriously difficult to arrive at a valuation system that can clearly separate earned from unearned capital appreciation.” Here he means “separate improvement value from land value,” and he is wrong.  Practical methods of doing so on a mass basis were described back in 1970 in TRED #5  (outline), which is not posted on line to my knowledge, and in this more recent paper by Ted Gwartney, MAI.   And, of course, land values are routinely estimated by appraisers and are a component of almost every U S income tax return that involves commercial or investment real estate.

It is true that, with limited exceptions, George’s proposals weren’t adopted, but for a different reason.  Mason Gaffney has provided a compelling and well-sourced explanation (also available in a book), and it is unfortunate that Linklater seems to have been unaware of it. One wonders what else he did not know.

March 1 2015 update: I just discovered that Ed Dodson has produced a more thoughtful and detailed review of Linklater’s book.

 

Using gifts to promote thought about taxes

As Tolstoy pointed out in slightly different words, anyone who understands the fundamentals of public finance cannot fail to agree that the smartest way to fund our governments is to collect economic rent. So the challenge for Georgists is simply to get the 99% of the population who really don’t think about these things to do so.

Which brings to mind some cards printed many many years ago by Advocates for Self Government.

front

front

back

back. The phone numbers and addresses may no longer have any connection to the organization, because the card is probably over 30 years old.

 

 

 

 

 

The idea is, of course, that if you like (or respect or admire) the person who served you, you don’t tip, but give a gift. A gift to an individual is taxable to the giver, not the recipient, but as long as you don’t give any one person more than $14,000 you won’t pay gift tax. (I get my information from Wikipedia, which is no more likely to be incorrect than other sources I know of.) I find tipping disconcerting,  but I do admire and respect the ability of many  baristas, waiters, cabdrivers, barbers, etc who have skills I could never hope to develop.  I like some of them too, and have had a few of them as students learning the fundamentals of political economy.

So this is an approach Georgists might try, to encourage more folks to think about important issues, while making their lives just a teeny bit easier.  No, I have no idea what happens if you put a card and a small amount of money in a tip jar. Maybe new regulations will be issued requiring separate gift jars, and auditors dispatched to assure compliance..

NY Times reports another benefit of the citizens dividend

photo credit: coal dubya via flickr (cc)

photo credit: coal dubya via flickr (cc)

If the earth belongs to the people, then whatever is paid for the use thereof belongs to them in some equitable fashion also.  Therefore, beyond what’s needed for legitimate government purposes, there would seem to be enough for a considerable “citizen’s dividend” for everyone.  Plenty of discussion on this subject can be found here.

My guess is that it would likely be enough to replace most of the aid programs which provide funds — rarely enough but maybe better than nothing — to low income people.  One advantage is that it could be administered at relatively modest expense.  A related advantage is that it can probably be made to work, with everyone getting what they’re entitled to. This latter aspect is what came to mind when I read this NY Times article, in which a Georgetown law professor summarizes “a litany of automation and contracting meltdowns” whereby the poor were unable to obtain benefits to which they were entitled under various aid programs and which may have been essential to their support.

His point seems to be that, while healthcare.gov suffered major problems initially, it was soon repaired because its failure affected many non-poor people. (I have no idea how well-repaired it might be, but will assume he is correct about this.)  He does not mention the citizens dividend, perhaps is unaware of it, or maybe ignores it because it would likely reduce the demand for lawyers. But he makes the case. A regular check for everyone, as a just entitlement, would be a far simpler system than most of the means-tested (and otherwise-restricted) aid programs which cost taxpayers so much money.

And while we’re on the subject of means-tested programs, consider this:

[I]f a single mother has two children in childcare and she’s making $36,000, she’ll pay about $310 a month for childcare. Then, if she gets a raise to $37,000, she’ll need to pay $1,200 a month for childcare because of the loss of a subsidy.

Of course, it needn’t be a raise, it might just be a decision to work a bit of overtime. I have written about this before and I will probably have to write about it again. Means-tested aid is a disgrace.

 

Feeding a growing population on an earth that isn’t

image credit: Antwelm via flickr (cc)

image credit: Antwelm via flickr (cc)

Yesterday’s Guardian carried a very encouraging report from India, where rice farmers are multiplying their production figures by carefully and methodically managing their crops. This has nothing to do with genetic modification, pesticides, or chemical fertilizers, and no need for “protecting” “intellectual” “property.”  Of course it may require more labor per acre than other methods, but growing population means growing supply of labor.  And it may work best on relatively small, owner-operated farms.  The method, known as System of Root (or Rice) Intensification, can be applied to other crops.  It’s based on a French Jesuit’s observations of practices in Madagascar, promoted by Cornell’s International Institute for Food, Agriculture and Development.

The Guardian article asserts that Cornell’s work was funded by “an anonymous billionaire,” altho links from the Cornell site imply that “actor Jim Carrey” is somehow involved.   At this writing, there are 205 comments on the Guardian article, some of which are insightful.  One suggests that the reported results are quite exaggerated, but to read beyond the abstract of the source cited seems to cost $19.95.

I have no idea whether this particular method is as beneficial as described, but just last week I spoke to an Illinois farmer who reported that four adults were gainfully employed, supporting themselves, by intensively cultivating an acre of vegetables.  One way or another, people will find ways to coax more food from the earth, if they have a need (or desire) and are permitted to do so.

 

 

Another report ignores the citizens dividend

marginal rate chart

From C. Eugene Steuerle’s June 27, 2012 statement at http://www.urban.org/UploadedPDF/901508-Marginal-Tax-Rates-Work-and-the-Nations-Real-Tax-System.pdf

I’ve written before about the wild effects of graduated taxes and means-tested benefits which can dump low-income workers into effective tax brackets in excess of 100%.  That is, once the effects on eligibility for earned income tax credit, child tax credit, medicaid, SNAP (food stamps), subsidized housing, and so forth are taken into account, an extra $1000 of income can easily cost more than that amount in increased taxes plus reduced benefits.  (Worse, most low-income people don’t have professional accountants who keep track of this, and so they don’t know in advance what the effects of getting a raise, or taking some overtime, might be.)

This is hardly original with me, and most recently the Congressional Budget Office has issued a report on the subject, summarized here by Evan Soltas of  Bloomberg. What can be done to fix this?  Not much, conclude most writers including Soltas.  We need tax revenue, we need to target aid to those with the greatest need, we can’t expect the rich to pay everything (since they have the lobbyists, lawyers and accountants to limit the taxes they pay.)

None of the writers who get attention seem to consider the citizens dividend. The basic idea is that government collects all the land rent — that is, the effective rental value of private control of natural resources — and share it with all citizens, everyone getting an equal share. It’s done on a small scale in several jurisdictions, including Alaska where each state resident gets a thousand dollars or so, each year, as a share of investments funded by mineral resources.  Of course, natural resources include not only oil, gas, and ore, but also the electromagnetic spectrum, agricultural land, forests, and much of the value of land sites (except of course those which have no market value.)  Suppose this rental value, or just a substantial part of it, were collected by the federal government and distributed, equally, to every U S citizen (maybe legal permanent residents should get a share also). How much would that be?  Would it be enough to pretty much replace most means-tested programs?  Wouldn’t that solve our problem?

Of course, arguments for collecting economic rent go far beyond fixing the screwed-up incentives of means-tested programs and graduated income taxes,  (visit a Henry George School or the Henry George Institute to learn more), but let’s not forget this benefit.

And by the way, it isn’t only the poor who can face these >100% marginal rates.  I wrote before about how certain Cook County homeowners with incomes in the $75,000 – $100,000 could face such rates; I don’t know whether these limits remain in effect. More broadly, it seems that affluent Americans subject to Medicare face a similar situation: As explained here, should your “modified adjusted gross income” amount to $107,001, then your Medicare cost will be $754.80 more than if your income had been only $107,000.  The effective tax rate on that particular dollar is 75,480%.  (Of course if you have a really alert accountant keeping track of all your financial affairs, she will alert you and find a way to avoid that extra dollar. And that accountant knows that the rates quoted above are for 2011 income, at least I think they are, and different limits will be in effect for the current year.)

 

Value capture is different from collecting the land rent

Photo by Sean Munson via Flickr (cc)

Henry George phrased his main proposal in various ways, from “make land common property” to the more pragmatic “abolish all taxation save that upon land values.”  Certainly a land value tax is a practical way of capturing land rent, and to the extent land value figures in existing assessments and taxation we are already capturing some of it.

But it’s important to recognize that land value, or more properly the selling price of land,  is only a close relative, not an identical twin, to land rent. One difference is that selling price is affected by estimates of what the future rent will be.  And land selling price is much more directly affected by the cost and availability of credit than is land rent.  Use of credit, in turn means an opportunity for banksters to get involved, decreasing the likelihood of real public benefit from public investment.

Which brings us to the World Bank’s 2008 report on Unlocking land values to finance urban infrastructure.  This report really could be entitled “Worldwide Catalog of Methods More Complicated and Prone to Corruption than Collection of Land Rent, Which Could Be Used to Finance Some Infrastructure But More Importantly Involve Borrowing and Lending of Large Sums Which Is, After All, What The World Bank Does.” In addition to involving large loans, the outstanding feature of all of these methods is that none provide any resources for operation or maintenance, thus they can help bring about the need for new infrastructure in the not-too-distant future.

Avoiding the drag of safety nets

Perry Willis’ recent post  distinguishes two alternative ways in which the state might transfer wealth to ordinary citizens:

  • Dragnets, in which everyone receives the wealth, regardless of need
  • Safety nets, in which only those who are in difficulty receive the wealth.

He characterizes Social Security and Medicare as dragnets, since virtually everyone is covered regardless of need.  Costing 15% of wage and salary for typical workers, these are very expensive programs which might be cheaper if the affluent were excluded from receiving benefits.  He also claims that  “Dragnet programs usually have one other feature — fraud.”

He does not cite any example of a government-funded safety net, tho it seems that Medicaid, which is offered only to those who can meet some need-related criteria, would be a good example. Like any “need-based” government program, it presupposes an apparatus for monitoring everyone’s income from all sources. And does it have fraud?  Take a look.

Perhaps the safety net isn’t much superior than the drag net.  Is there a better approach? Of course. The citizens dividend does not take anything from wages and salaries, does not require an income-monitoring apparatus (altho it might require some kind of citizenship certification), and gives each of us a fair share of what belongs to all of us.

 

 

Hong Kong’s “citizens dividend”

I have previously discussed Hong Kong’s land tenure system, under which the land is publicly owned, but improvement owners have security of tenure in exchange for paying significant land rent.  One result is that most working people don’t have to pay any sales or income taxes.  Another is that land is efficiently used.

But there are a couple of concerns:

  • Since Hong Kong doesn’t collect all the economic rent, speculation can still drive up the cost of housing as well as any activity which uses land (and they all do).
  • Wealthy mainland residents are moving to Hong Kong to take advantage of the increased liberties which HK residents get, further driving up costs for local people.

Now we read that every HK has declared a sort of citizens’ dividend, every permanent resident will get HK$6,000 (US$773, currently).  Bloomberg calls it a “handout,” but I think “share of economic rent” might be more appropriate.  Opponents of the move say it will be inflationary, and certainly it could lead to higher economic rent, with speculation driving land costs even higher. Of course, if people expected the government to collect all the economic rent, speculation would not occur. While the cost of living might still increase, giving an equal dividend to every resident would tend to flatten the income distribution, helping the poor much more than the wealthy.