The Menace of Privilege – Page 12 – While privilege exists, justice can't be achieved.

Economists theorizing about Detroit

Hazen Pingree statue in Detroit. Photo by Dave Hogg via Flickr (cc)

Econ Talk is at it again, applying economic theory to real problems, not getting hung up on matters historical or spatial. In the most recent episode, Edward Glaeser of Harvard talks with regular host Russ Roberts about the problems of Detroit. They do make some valid points about economic development, such as the need for adequate basic services rather than flashy new projects, and that a city which has lost a lot of population probably doesn’t need additional infrastructure (but reluctantly agreeing that perhaps some repair or modernization might be good.)

But the main theme seems to be privatize, privatize, and privatize, which includes giving public money and public assets to private operators (such as charter schools), and funding infrastructure and services from direct user fees, exemplified by toll roads. Curiously they don’t say much about taxes, not even asserting that lower taxes are needed, and certainly they betray no knowledge of the value of taxing land.

It’s interesting, if disconcerting, to compare this to “quite possibly Detroit’s finest mayor,” Hazen Pingree. This January 6 2013 Detroit News article tells the story. Having built a successful shoe-manufacturing business, Pingree found himself drafted by Republicans in 1889 to run for mayor against the dominant Democrats. He won, and started working to improve the city. Republicans, having a fair share of the monopolies and sweetheart deals that Pingree wanted to eliminate, were not pleased. But he turned out to be a skilled politician, was elected three more times as Mayor, then twice as Governor of Michigan.

Detroit at the time of Pingree’s election had few paved streets, mainly because paving had to be paid by the owners of adjacent property (and was done by politically-connected contractors). Pingree’s solution was to use the City’s general tax revenues, not only for streets but also for sewers and other infrastructure needs. His remedy for a failing public school system was to arrest the school board. His preferred tax policy: A single tax on land value, no special deals (one of his important reforms as Governor was to bring about proper taxation of railroad property.) More about Pingree at Wikipedia, with additional links there.

None of this means that the interview isn’t worth listening to, but let’s remember, everything takes place at a location, every useful urban location has value, and the value rightly belongs to the community who creates it.

I’m from the government and I’m here to deceive you

They call it “Factors Influencing Voluntary Compliance by Small Businesses[pdf],” and the report comes from IRS (actually “an independent organization within IRS,” whatever that means), and so you know that it’s referring to compliance with Federal income tax laws and regulations.

The focus on small business makes sense, since folks on payrolls or pensions generally can’t hide much of their income, and large corporations can obtain legislative action or legal advice providing their own loopholes. Two surveys were done, one of small businesspeople nationwide for whom, statistically, an audit would be expected to result in additional tax payments, and the other of small businesspeople in communities from which a high proportion of such returns was filed. (NOTE: When wooing their votes we call them “entrepreneurs” or “job creators,” but that would not be dainty when we are considering them “tax cheats.”) These “low compliance” folks were supplemented by a survey of those expected to be “high compliance.”

I see two surprising results in this report. First, on most attitude measures there’s little difference between the “low compliance” and “high compliance” respondents. For example, only 15% of the “low” group thought that federal tax laws were fair, and the same proportion of the “high” group agreed. Differences that did appear were fairly small. “Wealthy taxpayers minimize their taxes in ways the average taxpayer cannot” was agreed with by 74% of the “low compliance”‘ group, and 69% of the “high compliance” people.

An even bigger surprise, to the IRS analysts as well as this blogger, is that “low compliance” seems to be associated with greater participation in their local communities, including churches, schools, volunteer organizations, and even were more likely to vote than “high compliance” people. I hesitate to speculate on what this means, but it is probably a positive for those of us who believe (along with most respondents) that federal government is not an appropriate way to deal with many of the areas it has become involved in.

The report acknowledges that the survey suffers from an indirect method: “Low compliance” merely indicates a statistical likelihood of same, not an actual lack of compliance by the respondent. Because a random selection of taxpayers are audited simply to calibrate the compliance-prediction model, it would have been possible to target these particular taxpayers for the survey. Of course they couldn’t be surveyed after their audits because they might be especially unhappy with IRS at that point. But they could have been surveyed just before being notified on the audit. IRS decided not to do that because they “deemed it overly deceptive.” However, the actual survey (done over the phone by a contracted private company), did not reveal that this was an IRS project until the conclusion, after the data had been gathered. That apparently was deemed just deceptive enough.

Not part of the published report is a list of “clusters of potential tax cheats” posted by AP but presumably originating with IRS. Apparently tabulated by zip code, here’s the Illinois portion of the list:

Bellwood, Calumet City, Dolton, Grand Crossing, Hazel Crest, Matteson, Maywood, Ogden Park, Phoenix, Riverdale, Roseland, South Chicago Heights, South Holland, University Park. I assume that folks in Oakbrook and Barrington Hills had already purchased their own loopholes.

The other downside of export subsidies

Boeing and Airbus products photo by contri via flickr (cc)

Entrenched U S carrier Delta Airlines complains that their foreign competitors can buy Boeing jets cheaper than Delta can. Why? Because the federal Export-Import Bank offers loan guarantees, intended to make Boeing’s products more cost-competitive in the international marketplace, particularly against Airbus.

Of course this is a case where we might be better off allowing the “free market,” whatever that is, to set the cost of financing. Abolish the ex-im bank, let manufacturers offer subsidized financing from their own resources if they wish, and don’t worry about the “balance” of trade. But Boeing has sufficient political power that is unlikely. Perhaps some favors will be offered to Delta, who doubtless also has political friends, in order to get them to drop the suit or minimize its practical impact.

As some indicator of the likely outcome, Influence Explorer says that Delta spent $4,154,382 on lobbying during the most recent reporting period, whereas Boeing spent $24,120,000.

“We need an anti-Rentier Campaign” says Michael Lind

A nice series of three short articles (h/t Gloria Picchetti) in Salon by Michael Lind, explaining the difference between an entrepreneur — who may become wealthy by providing goods and services people want — and a rentier — who seeks to become rich by exacting a toll or tax on productive work.

Lind mentions, in a positive way, the land value tax, and also notes that this isn’t a left/right issue, as labor unions and professional associations can be just as monopolistic as bankers. The negative effects of “intellectual” “property” are noted, altho Lind seems to think that those who profit from patents are “inventors.” Of course there’s no mention of Henry George, but maybe changing our name to “Institute for the Study and Extirpation of the Useless Rich” would be a helpful step.

Salon describes Michael Lind as author of Land of Promise, for which Amazon carries 15 reader reviews. Not all the reviews are positive, but the criticisms seem to focus on his style and attitude, nobody complaining that his analysis is flawed. Lind is also a “co-founder of the New America Foundation,” whose sources of funding are unclear to me but seem to include rentier George Soros.

The remedies Lind suggests are quite centralized, such as changing federal tax laws, and maintaining financial repression with the object of moving people from private savings to social programs. Not what I would propose, but what does a geoist in flyover country have to contribute to this discussion?

How the CPI values our privacy– or doesn’t

wallet contents — image credit: ItalianPsycho via flickr (cc)

Measuring inflation isn’t an easy matter; I don’t think many of us can even agree on exactly what inflation is. But it’s somehow related to prices consumers pay, and the biggest operation measuring that, at least in the U S, is the Bureau of Labor Statistics’ Consumer Price Index. There are lots of issues with how they measure, and how they report, but one which I haven’t seen discussed regards “loyalty” cards and the value of privacy.

Many retailers in recent years have set up “clubs” of one sort of another to better track their customers. One of the noteworthy exceptions until last year was Walgreens, and there remain a few other respectable merchants, but nowdays one who chooses not to participate ends up giving up a fair amount of money (or convenience). So does the Consumer Price Index recognize that privacy has a price?

The answer, at least conceptually, turns out to be straightforward. It’s right here in Chapter 17 of the Handbook of Methods. As described on pages 31-32 of this pdf, if a discount is offered only to card users, is temporary (lasts no longer than a month or two), and at least 50% of the sales are at the discounted price, then the CPI recognizes the discounted price. (If the discount is for a longer period, then pro-rata weighting is used.) In essence, if most people give up privacy for a discount, then the CPI doesn’t recognize this as a cost.

At least in the stores I visit, it seems that most folks are quite willing (or economically constrained) to take the discount; anyone who wants to make a purchase under the policies that were in place twenty years ago needs to pay a higher price, which is not recognized in the Consumer Price Index.

Housing bubbles, a Misesian view

Photo credit: Christian Berl via flickr (cc)

Finally I’ve stumbled over a simple explanation by an Austrian of what causes housing bubbles. According to data cited in Mark Thornton’s article, Oslo’s housing prices continue to rise even as other places have slowed or tumbled.

What explains the large increase in prices is an increase in the demand for housing. Part of this increased demand takes the form of people simply being unwilling to put homes on the market in the face of persistently rising home prices….[Also] Oslo, the capital city with almost 1/5^th of the nation’s population, has land-use restrictions that keep much land unavailable for construction. This is the same fundamental case that was given for the severe housing bubble in Las Vegas: the government prevented land from being developed. Housing prices in Oslo, however, have not risen much more than the average increase. The largest increases have occurred in areas associated with the oil and oil exploration business…. Norway’s rosy economy is not the result of good policy, but of oil revenues that subsidize their socialist government.

Another factor is Norway’s central bank holding interest rates at an “artificial” low, because they don’t want their krone to appreciate too much (it is viewed as a “safe” currency in a world of depreciating euros, dollars, yen, etc). Low interest rates of course drive housing prices higher.

If the central bank did act and raised interest rates and simply allowed their currency to float, the krone would appreciate and Norwegian savers would get a windfall as the value of their savings increased. This would encourage them to work more, save more, and become wealthy. Every krone would buy more goods from around the world and would buy even more goods tomorrow than today. This appreciation would indeed hurt exporters, such as oil and cheese exporters, but most importantly it would stop and reverse the housing bubble before things get even worse and more distorted.

So, if you were to “get a windfall as the value of [your] savings increased,” would you “work more and save more?” Or would you be inclined to work less, at least for money, and maybe spend some of the windfall?

Thornton doesn’t tell us much about the incomes of ordinary Norwegian working folks. If exports drop, might unemployment increase? How, if at all, does Norway’s sovereign wealth fund contribute to incomes? What proportion of personal income in Norway comprises economic rent, and how is it distributed?

A couple of other issues: Thornton says that Norway looks good not because its citizens govern themselves intelligently, but because they have oil revenues. If that’s true, how to explain Venezuela? They have oil too, but don’t seem to govern themselves so well. Some other explanation?

Then there’s the assertion that land use restrictions exacerbate housing bubbles. A smart growth policy coordinates land development with provision of needed facilities such as roads and sewers, and allows some leeway to avoid worsening the land monopoly that exists everywhere, and in case forecasts don’t exactly come to pass. Over time it makes development less expensive and the cost (monetary and nonmonetary) of living lower (which would increase land prices unless land rent is publicly-collected). The example of Las Vegas is cited, but I always thought Portland had much stricter controls, yet much less of a bubble. Is there somewhere data about this?

Feeding a growing population on an earth that isn’t

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.

I am back, recovered from an attack not by privilege

based on image by: William Wilkinson via flickr (cc)

This blog disappeared on February 3, and returns today February 17 2013.

The reason is a strangeness at my former host, whose ordinary practice is to evict customers from time to time, without warning or appeal, when servers become overloaded. I had heard about this from other victims before I signed up, frankly didn’t credit those reports, but it is true. I have no reason to think I generated a lot of load, but have no access to the account to see. What’s strange is, if I was running a budget host, and one of my customers, who was only paying less than $1/week, generated a lot of traffic, I would suspend the account and send the customer a message: “If you want to retain your account with us you must upgrade to a more expensive plan.” No such message was received or referenced.

I can’t blame privilege for this, as the hosting market seems to be quite competitive, and I see no evidence that the deceptive practices of some hosting companies are protected by government.

As it happens, I am at a new host, and I am paying more than previously but not outrageously so. Another difference between the old host and the new one is that here we have a fairly active user discussion board, where even prospective customers are able to participate. Otoh, transition to the old host was much smoother, whereas moving here involved several discontinuities, which caused delays despite prompt attention from tech support.

I am not naming my old host right now, for two reasons. First, I remain responsible for another site over there, which hasn’t (yet?) been evicted. Second, other than evicting me without notice, the old host was quite cooperative about sending me a backup file and redirecting nameservers. (A refund has been promised; we shall see about that.)

Another way to liberate books

empty card catalog — image credit: andresmh via flickr (cc)

While the logical way to make most books conveniently available to more people is to greatly reduce the scope and duration of the copy-prevention privilege known as “copyright,” another approach is to buy books their freedom, one-by-one. This seems to be the approach of Unglue.it. They use a crowd-funding approach to pay privilege-holders for a creative-commons license, which essentially makes the book available to all if enough people are willing to donate enough money. Certainly better than nothing and perhaps it will prove fruitful.

To date they seem to have ransomed three books in this way, tho their web site doesn’t tell us how much they paid, with four ongoing campaigns seeking to raise between $1,000 and $25,000.

Fighting nature with sheep

6092155641_3035723648_m — photo by AuntOwee via flickr (cc)

The problem, according to Science Daily, is that marginal pastureland in the Swiss Alps, after 8 centuries, is being abandoned and given back to nature. So what does nature do? She grows green alder, which by increasing evaporated water causes a decrease in runoff feeding streams. These streams feed hydroelectric generators, and thus the reduced flow, in one valley alone, will cost something like 500,000 to 1,000,000 Swiss francs annually. The alder also “contaminates the water with nitrates,” tho the article doesn’t explain how this is a problem.

The remedy? Researchers demonstrated that Engadine sheep will peel the bark off the alder, killing them and [presumably] restoring grassland. But “the added financial value of sustainable land use is not sufficient to keep the arable land open.”

Which raises the interesting question: Which poor country has a sheep-raising tradition and potential emigrants who might like to move to Switzerland?