economic development – Page 7 – The Menace of Privilege

Regional currencies– displacing dollar?

Learned a few interesting things at the Monetary Reform Conference where I spent Friday and Saturday. One speaker made a sort of offhand remark about the Sucre, new Latin American regional currency, which was not familiar to me. Turns out this is a real and significant thing, whereby a currency is created for use in international trade, where the dollar would heretofore have been used. Cuba, Bolivia, Venezuela, and Ecuador are currently involved; the best description seems to be here. Claimed advantages include cheaper transaction costs and reduced exchange rate risks.

I recall that the Sucre used to be the name of Ecuador’s currency, but apparently that was replaced by U S dollars in 2000. Why Ecuador would find it advantageous to use the new Sucre for international exchanges isn’t clear, but perhaps they are looking to get away from dollars.

Ideas come from the community

In his 2003 book Copyrights and Copywrongs: The Rise of Intellectual Property and How it Threatens Creativity, Siva Vaidhyanathan notes that creative works always build on previous (often traditional and/or public domain) creative works, and that creativity will become nearly impossible if writers (or those who “own” their output) are permitted to exercise absolute monopolies over use of their products. Potential remedies include shorter and looser copyright terms, placing works into the public domain, licensing them as open source, or using another of the Creative Commons licenses.

Michele Baldrin and David K. Levine, in Against Intellectual Monopoly, provide numerous historical examples of patents retarding, rather than promoting innovation, and note the finding (p. 92, regarding the software industry) that patents were not an encouragement to research and development, but rather a substitute for them.

Now, in Where Ideas Come From (in Wired Oct ’10) Kevin Kelly and Steven Johnson sort of combine these two ideas by asserting that innovations are not the products of individuals, but of communities.

It’s amazing that the myth of the lone genius has persisted for so long, since simultaneous invention has always been the norm, not the exception … [T]here’s a related myth, that innovation comes primarily from the profit motive… If you look at history, it comes from creating environments where [people’s] ideas can connect.”

And they tie this into another kind of property rights:

One reason we have this great explosion of innovation in wireless right now is that the U S deregulated [allowed unlicensed use of parts of the] spectrum. Before that, spectrum was something too precious to be wasted…But when you deregulate– and say, OK, now waste it– you get Wi-Fi.

All in all, a very Georgist article, the authors of which have also written what I hope are very Georgist books (both coming out next month):

Steven Johnson, Where Good Ideas Come From

Kevin Kelly What Technology Wants

Let’s you and him pay to maintain my land value

Chicago Metropolis 2020 has issued a new report about Illinois transportation. (Right now, the report is on their front page; I don’t see a permanent link.) Their stated objectives are things I support, including better and more attractive public transportation as well as a more efficient freight system. They acknowledge that coordination and planning need to be improved, and that good transportation is an important component of a strong economy.

They also point out that much of the current system is in bad shape, and that billions of dollars would be required to bring it up to a reasonable standard. They quote estimates of $45 billion over ten years to refurbish and expand Chicagoland public transportation, and $171 billion over 30 years for transit and highways statewide. They propose to pay for this using an increased motor fuel tax, increased and more market-sensitive tolling, and innovative financing techniques (about which more is below). They do not claim that these sources would be fully adequate to the “need.” (My own opinion of fuel taxes is that, yes, they ought to be increased, but whatever amount is raised should be devoted to the budget of the military, who spend a lot of money attempting to maintain petroleum supplies. ) Continue reading Let’s you and him pay to maintain my land value

China collecting some rent

Bloomberg reports that China has imposed what appears to be a 5% severance fee for coal, oil, and gas in one western province, and will extend it to others. Revenue will be used to fund development projects in the area.

In principle, this is collecting the rent for the benefit of the community. How it will actually work out cannot be known.

How misgovernment discourages economic growth

Small business sidelined in slow recovery from recession reports the L A Times (via Chicago Tribune). The article clearly states some of the reasons that independent businesses are reluctant to expand. Of course, one is the uncertainty of the economic outlook, which is largely a result of mismanagement of the economy. Another concern is the increasing regulatory thicket, particularly difficult for those too small to make significant lobbying or campaign funding efforts. Impending increases in tax rates are also a problem.

One thing that isn’t a problem is the availability of loans, altho “”In olden days, many of the start-ups got financing by refinancing their homes. That’s gone.”

Beyond that, here’s a classic land speculator as “businessman”

…a small auto dealer in Los Angeles who made most of his money not by selling cars but by frequently refinancing the mortgage on his lot, which until recently kept rising in value.

The article doesn’t say whether this guy’s business was ever viable, or merely helped support the speculation.

Of course, had the land bubble been minimized by public collection of land rent, financing would have had to come from some other source, but less financing would be needed.

None of the businessfolks interviewed in this article are accountants nor attorneys. Probably their revenue is doing pretty well.

Are tariffs even more regressive than I thought?

Tariffs– fees charged by the U S Government for the import of goods– are designed to protect politically-powerful interests who would otherwise be unable to compete as profitably with foreign producers. So they are regressive in the sense that politically-powerful interests are likely to be relatively wealthy.

But according to this article, tariffs are also regressive in the sense that their direct impact on the poor exceeds that on the wealthy. “Luxury goods have very low tariffs, while cheap clothes, underwear, shoes and household products have much higher rates.” Several examples are cited; I have no idea whether they’re typical. Both the Cato Institute and the Democratic Leadership Council are quoted in support, an official of the former calling tariffs “our most regressive tax that the federal government imposes.”

ICMA on LVT

ICMA (International City/County Managers Association) has published Walt Rybeck’s article about some of the advantages of taxing land value. A good introduction for those generally familiar with local government issues but not with land value tax. Includes link to a video which summarizes the case. Inconveniently, Harrisburg, PA is highlighted as a success for LVT. It is, but other problems have overwhelmed it in recent months.

(And in the process of locating the video link, I found a couple about Walt’s late brother and fellow geoist, “Dental Farmer” Art Rybeck.)

100% mortgages still available…

… at Prairie Park in Beecher, courtesy Uncle Sam. And, with the $8,000 credit Uncle also provides, you’ll take out some cash right away!

I guess the target market is folks who can’t save a few thousand dollars for a down payment. Or maybe the purpose is to keep some construction workers employed, builders solvent, and housing finance gangsters profitable. It’s a Department of Agriculture program, thus the houses are remote enough that any big increase in gasoline prices will be a problem. (This DOA site indicates that 50,000 homes will be 100% financed, funded by the American Recovery and Reinvestment Act.)

I thought that, at least for a little while, the authorities would pretend to have learned the lesson, that poor people have better uses for their energy and money than becoming highly-leveraged “homeowners.” Silly me.

Illinois Fiscal Rehab

Our friends over at the Civic Federation on Monday issued a “Fiscal Rehabilitation Plan for the State of Illinois.” It has a pretty decent summary of where we stand financially, and by what route we got here. The short version of this is, we are in deep doo doo. And in recent years, the doo doo has been spread around in confusing ways, making it harder to trace the problem. But now, no question about it, we have retiree benefit liabilities far beyond the funds available to pay them, debt has been increasing, and programs for the poor are facing increasing burdens with decreasing resources, while tax revenues have been slipping. (The report doesn’t discuss infrastructure needs.)

The report, funded by some of Chicago’s wealthiest foundations, recommends freezing or cutting funds for State programs, reducing pension obligations to the extent possible, raising the personal income tax 67% and corporate tax 33%, and removing a few relatively minor tax breaks. It also suggests that pension income be taxed and that the State move toward taxing consumer services. Despite these tax increases and ongoing national economic difficulty, it pretends that the income and sales tax bases will not decrease.

Of course this is a dumb plan. Frozen or reduced expenditures will be inadequate to meet the State’s needs. Increased rates of tax on productive activity will cause some of that activity to leave Illinois, or simply not to occur. When they see their income become subject to tax, some pensioners will choose to move out of state– and the ones best able to leave are the affluent ones, who pay sales and property tax and don’t so much burden public services.

But the State is in a fiscal hole, so if I don’t like the Civic Federation’s plan shouldn’t I suggest one of my own? Despite the lack of foundation funding, that is what I shall do.

I won’t comment much on the expenditure side. Probably some pension cutbacks are appropriate, and there is surely plenty of fraud and waste in many programs (tho catching it is difficult). Some programs certainly could be eliminated, but the big ones– education, transportation, aid to those unable to work– are necessary in some form. Also, there is an existing debt of about $25 billion, plus $66 billion in unfunded retiree liabilities (for past years). So we need a lot of revenue. How to get it?

What about a land value tax? Now, nobody knows what the land of our State is worth, but we know for sure that it isn’t moving away. It might be $2 trillion. Suppose we were to tax that at, say 1% of value. That’s $20 billion/year, more than the total raised by the State sales, corporate and personal income taxes. That bails us out of the debt in a few years, allowing eventual elimination of these other taxes.

Is it fair? It’s more fair than asking hardworking people to share their salaries with the State, then pay again when they purchase things. (The Illinois sales tax originated, in 1933, as a way to eliminate the real estate tax.) It’s not just fairer, but also smarter, than telling employers and retirees that if they stay in Illinois, the State will take a share, an increasing share, of their income..

I have a special affinity for taxing farmland, because I look at listings like this 210-acre farm where real estate tax is only 1/10th of 1% of value. Others pay even less. It’s quite legal, tax preferences for “farmland” even tho the owners in most cases are investors, not farmers. There are plenty of urban examples, too, some illustrated here.

Although Civic Federation’s recommendations are foolish, I think descriptive portions of the report are pretty good. Two things I learned are, first, that the number of State employees has dropped about 20% in the past decade, and second, that expenditures on “Corrections” are only about $1.1 billion/year. It still would be a good idea to let all the innocent people out of prison, but that’s not going to solve our budget problem. However, if we raise taxes as the Civic Federation suggests, those released, as well as the rest of us, are unlikely to be able to find jobs.

Stumbling onto another land value tax endorsement

Just happened to find it while searching for something else in a Florida library

The killer argument in favour of a national tax on land values for any modern government relates to the effect of globalisation on the tax base. The ability of companies to shift their operations from one tax jurisdiction to another in a world of increasingly mobile capital means that the corporate tax base is likely to erode. This is taking longer to happen than intuition might suggest, but the logic of capital mobility and of transfer pricing by large corporations makes it inevitable. Rich private individuals are similarly prone to shift residence and domicile to minimise their tax liabilities. But it is much harder to shift factories, offices, shops and houses, and impossible to move the ground on which they are built.

The article also includes a prescient observation regarding the housing bubble

Better still, the effect on the housing market would be inherently countercyclical. When house prices and land values are rising, the tax would admittedly with a delay act as a dampener on the boom.

source: One tax to untangle this unholy mess.(real property taxes).
Estates Gazette (Feb 28, 2004): p.50.