Category: economic development

Rentiers are welcome in the U S

Some Americans may not be aware that U S Citizenship– or at least, lawful permanent residency– has long been for sale, legally and aboveboard. It’s called the EB5 program, and essentially provides that any foreigner “investing” $500,000 to $1 million in a U. S. business can become a legal permanent resident.  And, of course, entrepreneurs have found the niche market, setting up businesses in which foreigners may invest, without taking an active role in management of the enterprise.

A Chinese and American joint venture is “converting the dormant Northridge mall in Milwaukee into a regional shopping center featuring merchandise from Chinese retailers” according to Milwaukee Business Journal.  Presumably, each of the 200 Chinese retailers expected could support one or more EB5 visas.  300-500 local residents are expected to be hired, tho I think it’s a bit imaginative to suggest that these jobs would be “created” by the project.  Rather, like most economic development incentives, they are simply shifted from elsewhere.

A China Daily report on the project indicates that the Chinese investors might not be familiar with primitive North American travel conditions.  Milwaukee “is only an hour away from Chicago,” says the developer. Maybe someday.

Of course, the poor would-be immigrant has no similar opportunity.  She cannot say “I will work to build a business that will employ Americans,” nor even “I will borrow a half-million dollars to invest,” as the program doesn’t permit this.

So, as existing Americans, are we better off inviting a bunch of rentiers, or a bunch of hardworking laborers?  Too many people believe that the latter will drive down American wages– which may appear to be true, only because we fail to consider what the immigrants can produce.

If we insist on inviting rentiers, we have chosen an inefficient way to do it.  Instead of requiring $500,000 invested in a business, when plenty of American entrepreneurs are already able to supply capital, we could simply require $500,000 paid toward reduction of the Federal debt.

Crash recovery manual

After the Crash: Designing a Depression-Free Economy.  By Mason Gaffney, edited and with an intro by Cliff Cobb. Published by Robert Schalkenbach Foundation, 2009.

From time to time, a Georgist will suggest to me that one or another politician or academic, who seems sympathetic but ignorant about economics, should be given a copy of Progress & Poverty.  I usually reply that such persons are too famous and wise to be influenced by new ideas or logical analysis.  But now I might propose that, if one is serious about promoting wise economic policy, one might make the investment to give such a distinguished person After the Crash.

Georgists know that the crash could have been avoided by a simple policy of taxing privilege, not production.  But here we are, in a real economy which is doing poorly.  Mason Gaffney explains how we got here, and what needs to be done to get us out. Everyone who wants to understand the situation should read this book.  It is as long as it needs to be– a bit over 200 pages– and doesn’t seem to be available on the free Internet, so unfortunately some of the most vocal advocates won’t read it. Wealthy institutions– Lincoln, Cato, New America, EPI, etc.– could do no better service than to buy whatever rights are necessary to make it widely available.

Although it is listed on Amazon, Schalkenbach seems to offer a much better price.

Here are what appear to be the main points.

1. Speculation in land titles, and other types of privilege, was the main cause of the crash.  It was made more severe because banks and similar institutions financed it liberally.

2. For a job-rich recovery, we need to recognize that some types of capital investment create a lot more jobs than others. The best type of investment for this purpose turns over rapidly. Compare the number of jobs generated by a major infrastructure project— high speed rail, for instance— with the same amount of money invested by small scale businesses in working capital for inventory and payroll. Done properly, this analysis needs to cover the entire time period while the infrastructure project is amortized.

3. Current government policy at all levels focuses mainly on big projects that generate few jobs per million dollars invested.  This involves not only direct government investment, but tax laws and other practices that favor these kinds of investments.  One reason for this is that the beneficiaries– banks and monopolies– have the resources to lobby effectively.

4. Wise policy is to eliminate such programs, but not to create new ones subsidizing job-creating investments.  Rather, if we just let the market function, without taxing labor to subsidize the privileged, the recovery will be faster, broader, and more stable.

5. The “property” (real estate) tax has much better economic effects than income taxes or consumption taxes.  Even though it penalizes building construction, the effect is to channel more investment away from job-poor and into job-rich forms.

6. Banks have repeatedly got into trouble by lending on real estate, with the current crash only the most recent example.  Wise policy would insist that banks make mainly “self-liquidating” loans, such as for inventory or accounts receivable, and require that real estate purchasers provide hefty equity.

There is much much more in this book, and I started to write a much longer review, but will not complete it because no one (including me) would have the stamina to read it.  I will post some pieces of it later. Meanwhile, if you are concerned about our economic future, you should read this book.

Carbon tax vs. cap & trade

If global warming is in fact a problem, and if it can be controlled by reducing carbon emissions, then Georgists point out that “cap & trade” is a lousy way to accomplish this.  Yoram Bauman says  that a cap becomes effectively a floor, and that British Columbia actually has a revenue-neutral carbon tax.

Even if there’s no need to reduce carbon emissions, I don’t see how a carbon tax could be worse than taxes on retail sales and earned income.

Mongolia plans Citizens’ Dividend

Mongolia Fund to Manage $30 Billion Mining Jackpot

Sept. 11 (Bloomberg) — The Mongolian government will set up a sovereign wealth fund using mining royalties and tax revenue, and distribute part of the income to citizens to alleviate poverty, said Finance Minister Sangajav Bayartsogt.

The fund, to be run by professional managers from 2013, will disburse part of its annual income to every Mongolian…

Currently,  per capita income is estimated at $1680/year for the 2.7 million Mongolians.  A single large mining project is expected to generate $30 billion in tax revenue over 50 years. Apparently this estimate includes royalties.  Distribution of “mining wealth” to the people had been an issue in May’s elections.

Less encouraging:

Mongolia’s government on Aug. 25 passed laws allowing companies to carry forward their losses for eight years, build private roads and let Oyu Tolgoi developers use water they find on their land. The parliament will also repeal from Jan. 1, 2011, a 68 percent windfall profit tax on copper and gold.

Solution for governments’ budget woes

With governments at all levels in fiscal distress, I just want to describe a solution which would be effective, would save money for most taxpayers, and would encourage productive enterprise.  Georgists will already be familiar with everything below. Continue reading Solution for governments’ budget woes

Unnatural Causes

This broadcast documentary looks at the relationship between income (and other status considerations) and health, including life expectancy. Statistically, your income is strongly associated with how long you’ll live.   And recent statistics indicate that Americans’ life expectancy is lower than that of 29 other countries.

One of my favorite points regarding health care is made:

NICHOLAS CHRISTAKIS: But the vast majority of improvements in health in our society over the last century have had very little to do with medical innovation. What really counts is other kinds of things we can do, and those other kinds of things tend to be non-medical things. Like, thinking about the distribution of wealth in our society, or providing public health infrastructure, or better education for people, better housing – all of those things which aren’t medical phenomena. It’s all those that are really material for public health.

Social Security reportedly provides a higher monthly payment, relative to the amount put in, for lower income workers.  But because low income people have shorter lifespans, this doesn’t mean that it redistributes income downward.

And any post about income inequality, including this one, should include a disclaimer such as the following:

Any system of taxes and subsidies intended to equalize incomes will do so inefficiently if at all, and is likely to be perverted. An effective solution to the problems of poverty requires the elimination of privilege and the preservation of opportunity for people to earn a good living.

Originally broadcast last year, this seems to be a four hour program, and I’ve only read part of the transcript for the first hour. Thanks to Bob Matter for pointing it out.

The Parasite Protection Act

That’s one of the names Josh Vincent suggests for New Mexico’s SB333, which would reduce real estate taxes on vacant land and make up the shortfall by raising taxes on homeowners and everyone else who actually owns (or rents) land with a structure on it. I imagine some land speculators find themselves in financial difficulty, but they still have enough to influence a few legislators, and I guess this is intended to bail them out. Perhaps they just want to get legally what owners of Cook County vacant land get in practice.

Maybe I don’t know how to search, but I can’t find anything about this bill anywhere on the Internet.

I guess we could name it the “Housing Prevention Act.”

Henry George pops up in all sorts of contexts…

Here’s a proposal to fund education in “developing” countries using the increased land value which results as the general level of education improves.  Nothing wrong with that, but why limit it to countries where governments are likely to be dishonest and the quality of assessment may be poor?  Why isn’t it equally applicable in, well, Canada, where these people seem to be, or Chicago, or anywhere else where funds for education are needed?