Author Archives: Administrator

Having no expertise in epidemiology nor politics…

…I still feel qualified to express opinions regarding COVID-19

Here’s a chart from the excellent 91-divoc site:

(The country you can’t see, overwritten by Switzerland, is Canada.)  What I make of this is that maybe the Swedish approach, relatively unrestricted, works about as well as the Illinois approach, pretty locked down except for big demonstrations. Otoh, if the Danes are similar to Swedes, then the former nation’s lockdown might have been quite helpful in reducing deaths.  To a level almost as low as Texas, tho we’ll see how that works out in the coming month or so.

Go play with the site, recently enhanced to allow comparisons between U S states and nations.  It’s great fun.

Who should be defunded?

Image credit: Rodney Choice/Choice Photography (CC BY-NC-SA 2.0)

I was only a bit surprised to find that Chicago’s 2020 police budget is $1,778,002,408, or $660 for each of the 2,693,976 folks that DJ Trump’s Census Bureau estimates live in Chicago.  This doesn’t include $737.5 million for the police pension fund, nor $204,867,834 for the Office of Emergency Mgt and Communications, nor $135 million for “judgments and settlements against the City,” (including but not limited to police misbehavior), nor the police-related portion of the City’s capital budget, which seems to include the “joint public safety training academy” ($85 million, but just $15.75 million in the current year), and some other facilities.  All told, and without doing the detailed analysis which I wish the Civic Federation would do, it seems the the City spends something like $1000/person/year for police.  That doesn’t necessarily mean that police should be defunded in whole or in part; after all, reported crime has for the most part been declining, so perhaps we are getting something for our money. But it gives some idea of the dollars involved. (And it turns out that, as I was writing this, the Civic Federation produced a post covering much the same ground, with better context and detail and colorful charts, and noting that I failed to include some undetermined but substantial benefit costs among the cost of police.)

Compare police costs to Chicago Public Schools.  CPS is a separate unit of government, but controlled by the Mayor and funded mainly by Chicago property tax payers.  For the current year, it’s planning to spend $7.84 billion, or $2910 per Chicago resident.  Enrollment continues to decline, 13% in ten years (roughly the same amount as reported crime, but that might just be a coincidence).

Summing the police and school expenses, Chicago spends $3910/person.  For the hypothetical family of four, that’s over $15,000.  I wonder how many two-worker households would prefer to have one stay home, help educate the children, hiring tutors as needed, and keep an eye on the neighborhood, if their income increased by that amount.  Just a thought.

High land prices as a banking problem

image credit: Ann Priestley (cc) via flickr

Here’s an (audio) interview with economist Richard Werner, who remarks on the problems high land prices have posed for the Japanese economy in recent decades, and the relevance for the U S and other nations.  Dropping interest rates supports higher land prices, as well as facilitating financial engineering, but does little for actual investment in the real economy.  Small businesses, who actually provide useful goods or services, still have trouble borrowing because big banks don’t want to deal with them. The number of small “community” banks, more likely to actually meet the needs of small businesses,  in the U S has been declining.  He suggests that having more local banks, especially co-operative banks, would be an effective way to make loans available.   This seems plausible, as ILSR says that “In 2018, community-based financial institutions made 52 percent of all small business loans, even though they controlled only 16 percent of banking assets.”  Yet it seems there’s no shortage of local banks, as least in medium and larger cities.

In this interview he never mentions the possibility of a substantial land value tax as a way to curb land speculation.  As Keizo Takagi wrote in 1989, Japan’s land value tax “has been so low that [it] has not functioned properly as a holding cost,” [p. 129] thus failing to control speculative prices.

Perhaps deliberately or perhaps ignorantly, the Bloomberg interviewers didn’t bother to bring this up in the interview. Werner’s conclusion seems to be that, rather than ZIRP, interest rates should be allowed to rise to a level where local banks could more easily find loans profitable.  I suppose that might be better than nothing.

 

Distributing privilege differently

Some land in Woodlawn (15 years ago). Image credit: Eric Allix Rogers CC BY-NC-ND 2.0

A D Quig reports in Crains that the City of Chicago’s Housing Commissioner  says “everyone who lives in Woodlawn now should be able to stay in Woodlawn.”  This can be a challenge as housing costs in the area rise.  According to Crains (not corroborated by any press release I can find on web sites of the Department of Housing or the Mayor’s Office), support for housing affordabiity in the area will involve six strategies:

  • Right of refusal for large apartment building tenants if a landlord seeks to sell his or her building
  • Helping apartment building owners refinance properties to keep renters in place with affordable rates
  • Giving grants to long-term homeowners to help with home repairs
  • Financing the rehab of vacant buildings
  • Setting guidelines for how city-owned, vacant, residentially zoned land can be developed into affordable or mixed-income housing
  • Requiring developers that receive city-owned land to meet enhanced local hiring requirements

Details, of course, are yet to be defined, and the whole thing requires action by the City Council.  Still, assuming that the program is effectively structured and implemented, what we have is the designation of a privileged class– people who live in Woodlawn– receiving benefits that might otherwise accrue to another privileged class — people who own land in Woodlawn, with a new layer of bureaucracy established (or repurposed) to administer it, including investigating and monitoring the reported income and behavior of the people who are granted permission to live in the area.

Whereas, under a land value tax, the area would now have little vacant land, presumably a lot more housing, probably quite “affordable.”

Of course if you’re the Mayor, you do what you figure is politically feasible and within your power, not what is morally right and economically efficient, but would require persuading a lot of uninformed voters and obtaining cooperation from quite a few other governmental actors.

Who Owns Silicon Valley?

View of Silicon Valley in 2012, showing major employers

Vintage 2012 view of Silicon Valley showing major employers. “Silicon Valley IT Company Topography” by Wayan Vota is licensed under CC BY-NC-SA 2.0

Or more precisely, who owns Santa Clara County? With the cooperation of local officials including the County Assessor, a consortium including the Mercury News has determined who owns the greatest value of real estate in the County.  Tech giants Alphabet and Apple are second and third, but the number one owner turns out to be Stanford University.

Some other important information:

Proposition 13 is mentioned, but the incentive which keeps old people in their homes which become unaffordable to most families is not explored.

Local opposition to development, preventing housing construction which might otherwise occur, is discussed.

Stanford’s existing holdings include commercial property, but their current acquisitions seem mainly to provide housing for some of their elite employees.  These people are able to buy houses at favorable prices (relative to the area), however Stanford retains the land and retains the right to buy the house back eventually. Local non-Stanford people complain, of course, but do not offer to sell their properties at a discount.

Apparently California practice is to assess all real estate, even that which is exempt.  This enables meaningful estimates of ownership even tho $13.3 billion of Stanford’s $19.7 billion in real estate is exempt.

Several local officials were interviewed.  They don’t discuss how it feels to know that your opposition, Apple and/or Google, has control of much of your communications and might be monitoring them.

Well worth a read for those interested.

 

Costs of medical services still out of control– and some ideas for improvement

book coverIt’s pretty well-known that medical care is absorbing an increasing proportion of GDP, and putting many Americans into financial (and, in many cases, medical) distress.  One source of the problem is poverty– people whose incomes are too low to afford decent housing, food etc. are unlikely to have much left over to pay for medical treatments.  And another cause might be an aging population who demand advanced treatments to further extend their lives.  Both important issues, but this post focuses on another, probably more important one: The medical system is full of rentiers and other thieves, who, pretending to improve health or efficiency, impose tolls or promote unnecessary treatment, resulting in higher and rising costs.  That’s the book Marty Makary (MD) has written.

Using a conversational style, well-organized, packed with personal anecdotes, Makary, a cancer surgeon at Johns Hopkins, works his way thru some of the reasons medical care costs so much.  Sources are meticulously cited in endnotes.  I think his findings can be pretty well summarized:

  • Some medical professionals offer screenings and other promotions to entice folks to get treatment they really don’t need.
  • Hospital charges are, not quite random, but pretty much void of any relationship to actual costs or what other customers pay for the same service.
  • Some hospitals take advantage of their quasi-monopoly status to charge excessive prices, and aggressively sue customers who don’t pay promptly.  On the other hand, at least a few hospitals in similar circumstances find they can prosper while charging more reasonable prices.
  • Air ambulance (and, to some extent, surface ambulances) have been largely taken over by private equity firms, and impose excessive (mostly unregulated) charges on people who are in no position to bargain.
  • Some doctors are outliers in terms of types of birth delivery and various surgeries, meaning that they perform invasive and/or expensive procedures at a much higher rate than the norm.  This may be because they’re selfish and inconsiderate, or maybe they just haven’t thought about it and, when shown the data, mend their ways.
  • The opioid problem, as reported elsewhere, is partly due to some doctors prescribing more pills than really necessary.
  • Overtreatment is a problem; often a more conservative approach is more effective (as well as less expensive).
  • A few organizations have managed to rethink how medical care is provided, giving more autonomy to practitioners as well as more support to patients. Also, a few payers (meaning, typically, employers who pay for insurance) are managing to learn the charges imposed by various providers, and incentivizing their insureds to choose less costly providers.
  • “Health insurance,” which is really a care financing arrangement and not insurance in the conventional sense, is an even sleazier business than I thought, and insurance brokers are incentivized to maximize costs.
  • Pharmacy benefit managers may have seemed like a good idea at one time, but basically are toll collectors between the payer and the drug provider.  Similarly, “group purchasing organizations” charge a toll on hospital purchases of equipment and supplies.  In both cases it’s rarely possible to get accurate data on who is paying who how much for what.
  • Then there’s the “wellness” industry. Of course sensible diets and some exercise are good things, but “wellness” seems to have evolved to divert attention from the main causes of escalating costs.

The book concludes with a few recommendations, mostly for providers and legislators, but also for consumers, who are encouraged shop around, and ask for prices before agreeing to treatment.

A few important concepts are missed.

  • The scandal of “Certificate of Need” laws, which protect hospital monopolies and still exist in several backward states, isn’t mentioned.
  • While the cost of drugs receives attention, no mention is made of the patent games by which the U S Government enables drug manufacturers to extend protection, and collect rents, far beyond the statutory period.
  • Little attention is given to the history of medical care in America, including lodge practice and the role of wealthy foundations in choosing how medicine developed.

Finally, I hope the next edition will avoid doubling the populations of Missouri and Wisconsin (page 79).

 

Some effects of high and misconfigured real estate taxes

Delinquent taxes soaring in Cook County

Reportedly, taxes of 163,036 parcels in Cook County were not paid on time. This comprises 2018 taxes which should have been paid in 2019. and amounts to 8.7% of all parcels in the County. For a dozen south Cook County municipalities, this amounts to 20% or more of total parcels.  Counts by municipality are posted separately for south, west, and north Cook.  All sources show the percentage of parcels with unpaid taxes within the City of Chicago as 9.9%.

Separately, the reports show that only 7.8% of the delinquent taxes offered for auction in 2018 were bought by investors, which might imply that the remaining parcels are considered worth less than the taxes owed.

Unfortunately the source doesn’t tell us  how many of the parcels are vacant, residential, commercial, or other uses, and gives no historical context, so we don’t really know how any of these figures compare to prior years. But regardless, the current numbers are alarming.

Suppose that the real estate tax system was changed, so that improvements would be tax-free while the value of land as vacant would be heavily taxed to make up the difference.  For vacant parcels, construction of houses or other structures would not increase the tax.  For parcels which contain improvements, taxes likely would be lower than now, and improvements would again be tax free.  Just a thought.

Maybe expanding tax-exempt institutions raise land prices?

Crains tells us that a strikingly-designed two flat, less than 30 years old, is worthless.  Well, they didn’t say it quite that way, but it was sold for $1.9 million to a buyer who will demolish it. So the $1.9 million was for the land.  I don’t know whether any developer of housing or anything else taxable would have paid nearly that much for the site, but the buyer was tax-exempt Illinois Masonic Medical Center.  Their exempt status of course made the land more valuable to them. Which raises the interesting question of whether buying land in the path of such an institution’s expansion might be a profitable strategy.  Of course, a fair-minded community might decide to tax land used for hospitals at the same rate as land used for housing and other useful things.  But we’re not there yet.

“Taxes – De Standaard” by Stijn Felix is licensed under CC BY-NC-ND 4.0

 

Putting government pension costs into perspective

Wirepoints recently issued a helpful report showing state and local government pension debt per Chicago household.  They estimate the burden at $144,000 per household.  This is a big number, but one could suppose that a prosperous household, over decades, could bear such a burden.  Some could, but probably not those below poverty level.  Take them out of the picture and the per household amount rises to $172,000.  Excluding households with incomes below $75,000, or below $200,000, and the per-household amount rises further, to $393,000 and $2,022,000 respectively.

Here’s their chart: pension debt chart

Of course this doesn’t consider land values, nor businesses.  If prime Chicago land is worth $1,000/sq ft, that’s 5.38 sq miles.  But more typical land value is much less, probably no more than $25/sq ft. (it seems that nobody has tried to estimate citywide values). That would be 112 square miles.  Once we subtract land owned by governments, churches and other exempt nonprofits, we might be approaching the total value of all land in Chicago. And that’s just for pensions, not bonded debt, nor needed capital improvements.  Real estate buyers know, or certainly should know, about these encumbrances.

Of course money can be raised from business taxes, but that’s hardly a way to grow economic opportunity for Chicagoans. I would consider any tax revenue from “gaming” as a kind of business tax.

The lesson Wirepoints draws from this is that pensions have to be downsized somehow, which required amending the state constitution.  And they go further, comparing government salaries to those of the private sector:

some local gov't salaries compared to average workers

So it looks like we’re going to have to confront a large number of people with guns and firehoses and control over our children, who have been getting a lot of money from us for years and may prefer not to moderate their demands.

Tho I don’t know how, this problem will be solved. Maybe MMT will yield a continuing stream of funds to bail us out.  Maybe inflation will accelerate such that the fixed 3% compounded pension increase isn’t a burden.  Maybe Chicagoans will decide that they just don’t want so many government “services.”  Maybe politicians will decide to remove all taxes from productive economic activity, taxing only the value of land and other privileges (such as the private monopoly over street parking fees), which will grow the economy (while reducing the need for emergency services) sufficient to make pensions a non-issue.

And when it is solved, those who own land and other privileges will benefit most.

Why trust corrupt governments to honestly administer a land value tax?

bar chart of what folks say they're afraid of

source: Chapman University Survey of American Fears

I don’t know that governments are always and inevitably corrupt, but there sure seems to be a lot of corruption going on.  It isn’t a new development; maybe it’s worse nowadays or maybe just more visible.

So how can we single taxers say that we want the government to collect all, or nearly all, of the economic rent? Don’t we know that it will be stolen or, at best, wasted?

Not necessarily.  Consider the following:

In the U S at least, real estate tax is administered and collected at the local — that is, substate– level. This is where the records and expertise needed to operate a land value tax exist.

Unlike income tax or sales tax, nearly all the data involved in real estate taxation is public information.   Most of this data is accessible to everyone with internet access, generally without fee. I can see how much real estate tax my neighbor paid.  I cannot see how much income tax they paid. The same goes for sales taxes and most other kinds of taxes. So cheating in real estate tax can be seen.  That doesn’t mean it will always be impossible for people to cheat, but it provides a much greater possibility that cheating will be observed and rectified.

Government corruption seems to be a function of government size.  A survey earlier this year found that “87% of voters nationwide believe corruption is widespread in the federal government. Solid majorities believe there is also corruption in state (70%) and local (57%) government.”  Looked at the other way round, only 13% of us believe the federal government is possibly honest, compared to 30% for states and 43% for localities.  I actually believe that one of the local governments to whom I pay taxes is pretty honest and efficient.

State and federal governments might logically collect some of the economic rent.  Examples currently include severance taxes and could reasonably include rents for electromagnetic spectrum should our rulers become persuaded to levy and collect them. Existing federal agencies are able to review and evaluate collection efforts.