Author: taxpayer

Illusion of profit drives wages down?

Very good presentation last night at APA by Margaret Garb, historian at Washington U who has researched post-Fire working class housing arrangements and their financing in Chicago. Evidently she did a lot of detailed research, focusing on a single block of the old Harrison/Halsted district (obliterated in the 1960s by the UIC campus), examining who bought and sold property, how they financed, who rented, who boarded, their occupations and incomes, etc.

One striking similarity to more recent times is that workers used the equity Continue reading Illusion of profit drives wages down?

Capital Market Dysfunctionality

It’s not the way a Georgist would describe our main economic problems, but it doesn’t fit badly. Paul Woolley, a former (reformed?) investment manager and IMF official, has established his Centre for the Study of Capital Market Dysfunctionality.   One way he states the problem:

By most measures finance has become the dominant industry sector accounting, for example, for between 30% and 40% of the aggregate profits of the quoted corporate sector in the US, UK and globally, compared with only around 10% forty years ago

Not only does this mean a lot of money is being paid for a service which isn’t really central to our economy’s purpose, but also that much of the best talent in many fields is diverted to playing financial games rather than useful work.

Of course, in his talk he did not mention land.  Since his background is in finance, I guess he looks at the problem as a capital market problem rather than a land speculation problem.  As a Georgist, I tend to think that the problem can only be solved by making speculation in natural resources unprofitable.  Woolley however will probably show many ways in which the problem can be reduced, or at least postponed.   His site shows many papers related to the subject, many worth a look I think. (Of course quite a few of the papers are not available free.)

One reason I am inclined to think this is a serious effort to address the issue is that Woolley is apparently funding the work personally.

Legitimate academic to study transit funding

Lincoln Institute reports that they have granted a fellowship for work on Sustaining Mass Transit through Land Value Taxation: A Case Study of Chicago. Lincoln requires registration (free) to read the article that says the project will focus on the South Chicago USX site but will also “estimate the impact of transit accessibility on land values in the Chicago metropolitan area.” MIT Graduate student Shan Jiang will work with Prof. P. Christopher Zegras on the project.

From what I can find, Zegras has done quite a bit of work on transport funding, mainly in Latin America, and doesn’t seem to have any particular interest in land value. Although I have already estimated that RTA-funded rail transit alone generates something over $1.3 billion land rent annually, Zegras will have greater financial and technical resources and should be able to develop a better estimate. We shall see.

Bundi prospers pleasantly with site value charge

All I know, of course, is what I read in the papers, in this case the excellent Aussie journal Progress (which has no on-line presence afaik).

Bundi seems to be a pleasant and well-touristed town in contrast to the general squalor of India, and yes, it has a land tax. Or more precisely, a site rent, based on the area of land and distance from town center. Progress’s Mr. Ed says that this amounts to 1000 Rs/year, 2% of the typical salary, and is sufficient to provide good local services. I for one would be very happy to earn 50 times my real estate tax, an amount which the local governments to which I am subject find entirely inadequate to meet their needs, or at least their desires.

I’d like to verify the Bundi information with some other source, but I can’t find an accessible link in English with any information about Bundi’s tax system. There seems to be some information in Hindi.

Two things about development

that I learned this morning, from Jon DeVries and
Jennifer McNeil Dhadwal who spoke at an APA session:

(1) The commercial real estate market in recent times is dominated by the demands of national companies, who have their own very specific requirements for space. DeVries mentioned this in the context of market research, which thus can be simpler because one need only ask the prospective tenants what their requirements are. But I think it also implies that the big tenants can put some of their risk onto the developers; if their requirements change, the developers are stuck with projects that might be difficult to market.

(2) “Modern [office] buildings require less space per worker due to structural efficiencies and workflow changes.” For years I have been saying that office buildings require more space per worker than fifty or a hundred years ago. The old office involved row upon row of desks occupied by typists or clerks, with no space for computers, xerox machines, etc. And today more work is done by telephone, requring some space for sound insulation. One implication is that, if the amount of office space in an area does not increase, then the number of office workers will decrease.

Dhadwal’s source seems to be ULI, so I shall have to look into what studies they’ve done (which unfortunately are likely to cost real money). Maybe the trend cited is a reversal just within the past five or ten years. I suppose that just the replacement of CRT with LCD computer monitors could save some space, but there must be other factors too.

These speakers also mentioned that typical densities for manufacturing employment are 300-400 square feet per worker, and for distribution/warehouse at least 1600 square feet/worker.

The other highlight of the session was David Stamm’s description of the redevelopment of the former Kennedy/King College site.   He noted that the site, in Englewood, didn’t have much potential for a lot of uses.  For instance, you couldn’t build a drug store, because of too much competition nearby.

Probably a lesson for Georgists in here somewhere

[S]tudies…[show that] people are more likely to show empathy and altruistic behavior when they see an image of one suffering person rather than many, or when they know a single relatable fact about a victim rather than the entire story.  And… the more pain/sadness/despair one must endure to help…the more one gives.

–Jamie Friddle, in December ’07 Conscious Choice

Transit funding will cost >80,000 jobs

That’s the estimate I came up with in the revised and quite enhanced version of HGS Research Note 5a. I’m using parameters estimated several years ago in a study of the Washington, DC, metropolitan area. Maybe the actual number here would be a lot more; I wish someone would do the analysis. This loss is expected to occur by 2014; further losses would follow.

If RTA really needs the funding, I estimate we could do it with a land tax that would cost the typical homeowner maybe $40/year, with renters essentially paying nothing. For $290/year, the homeowner could do away with all transit taxes, and fares too. No jobs would be lost; some would be gained.

By comparison, Chicago Metropolis 2020, in their surprisingly thoughtful study Time is Money, estimate that fully funding all the transit spending that RTA wants, plus some “smart growth” changes in land use arrangements, would add 22,307 jobs by 2020. They do not discuss how the funds would be obtained, although the study does note that a doubling of gasoline prices– which might be achieved thru taxation– would have great benefits for transit use.

We'll pay $141,000/job you "create"

Or, to look at it differently, we’ll give you $353,000 per acre of land you use.  That’s what the City of Chicago is giving ” ML Realty Partners LLC” to build a “distribution center” at 401 N. Cicero.  Now, all I know about this is what I read in the papers, but according to the Jan 20 Tribune article, $10.6 million in TIF money is going to “create” 75 jobs on 30 acres.  This site is practically adjacent to the Green Line Cicero station.  Why did nobody want to develop it before? (My guess is that it’s because the landowner was holding out for TIF money.)  And how can we justify less than 3 jobs/acre on a transit-served site?  This sort of thing might be suitable for Will County, not the west side of Chicago.  Is there nothing more productive that can be done with this land?

Cost of living index vs. consumer price index

I should have known about this, but I just discovered that BLS has been publishing a C-CPI-U index. I had seen the term “chained index” around but didn’t realize what it means. This index has a direct month-to-month link to what consumers report that they’re actually buying, rather than using a fixed marketbasket as the conventional CPI’s do. Thus the chained index measures the cost of living– what people actually spend to live– rather than consumer prices. BLS says the chained index is expected to generally be lower than the conventional index, and that has been the experience since it was introduced. However, it seems to me that when the chained index is lower than the conventional index, that means people are finding ways to live cheaper (presumably because their real incomes are declining). If people’s incomes were increasing, relative to the cost of living, wouldn’t the chained index rise faster than the conventional one, as they choose more luxuries?

If I am correct, and the indexes are correct, then real incomes are declining.

BLS explains their chained index here. Actual data seem to appear only in the detailed reports, which are here.