The Menace of Privilege – Page 17 – While privilege exists, justice can't be achieved.

Another successful politician endorses land value tax

MP for Grantham and Stamford. New-intake MP and a key moderniser. Former Policy Exchange director and one of the Notting Hill set. Deemed close to the leadership. Tipped for bigger things

I assume this means he’s successful, British political terminology being rather unfamiliar to me. What’s really important is that

Nick Boles, The MP for Grantham and Stamford says a Land Value Tax should be introduced and use the proceeds to cut National Insurance – permanently.

He doesn’t want to do it exactly how I would want to do it, because he seems to want to exclude owner-occupied residential land and farmland, without limitation. But the important thing is, he’s a successful politician, he gets elected, and he appears to want to move toward a sound economy. I’m just some guy with a blog.

I also don’t know how all this relates to the British custom of building homes on rented land far more commonly than Americans do. But it seems to be his top priority.

Source: FT via GN

2014 Business Report

Blue Screen of Bankruptcy — image credit: Ged Carroll via Flickr (cc)

I used to be in the forecasting business; still am in a way. So here’s a forecast: Look for financial difficulties in the next few years at Sandisk, Yankees Entertainment and Sports (YES) Network, Louisville Arena Authority, and Harmony Oaks housing development in New Orleans. What kind of difficulties and when?

I don’t exactly know. Sandisk has apparently survived sixteen years of Goldman Sachs help, and the smart parasite does not kill its host too quickly. Maybe not all four; in fact maybe these four have been selected for survival.

Outrageous assessments

Gary Lucido writes of a small parcel at 3710 N. Kenmore, offered at $9.9 million ($4950/sq ft) after failing to sell when offered at lower prices. While the price seems outrageous, the property is very close to Wrigley Field and could be used for a billboard or rooftop viewing platform. We know that the former use has commanded $350,000/year on a nearby building, which seems to justify a multi-million-dollar asking price.

So we have a parcel worth, let us say, five million dollars. What are the taxes? Continue reading Outrageous assessments

Modern Monetary Theory

credit: Jennifer Baron via Pittsburgh Signs

Seeing so many references to Modern Monetary Theory on apparently-respectable blogs, I have finally slogged thru an explanation of it. Seems pretty sensible, really. Government produces money by spending (or giving it away), eliminates money by taxing, and a steady supply of money is needed to keep its value reasonably stable. The troubles of Ireland, Greece, etc are exacerbated because they don’t control their own currencies, somewhat similar to difficulties occurring under the old gold standard.

It is not a bad thing for government expenditures to exceed revenues, in fact this must have occurred for any money to be in circulation. But declining value of money is likely if this difference isn’t reflected in actual increased wealth.

And, most importantly, money is not wealth.

Seems to make sense as far as it goes. It doesn’t tell us how to achieve prosperity when the government is out of control. It doesn’t have anything to say about nongovernmental money. I am uncertain how MMT might differ from what I see at the American Monetary Institute. Perhaps these topics are addressed in another part of the site.

North America’s only full service railroad collects land rent

It’s not just in Japan (and Vancouver, sort of) that land rent is used to fund railroads.

Photo Credit: Gator Chris via Flickr (cc)

Originally built by the Federal government and now owned by the State, the Alaska Railroad is “North America’s last full service railroad” because it operates, on its own tracks, with its own rolling stock, freight and passenger service. Revenue is just a bit more than enough to cover operating costs, but how to pay for the capital expenditures– equipment, track, facilities– which must be constantly renewed and improved to run the railroad smoothly? Part of the answer is collecting the land rent. The Railroad owns some 18,000 acres of real estate (see source below), for which it last year received just under $13 million in land rent (see page 34 of this pdf). This compares to total capital expenditures last year of $73.1 million, with the balance covered from various kinds of grants, as well as operating profit.

ARR provides more information about their leased and leasable land here.

Of course, this is collecting only a tiny part of the economic rent the railroad generates, but at least it’s a source that will grow as the railroad improves.

Thanks to Trains magazine for the original tip.

Karl Marx at the Tea Party

photo credit: jtriefn via flickr (cc)

As the national debt finds its support in the public revenue, which must cover the yearly payments for interest, etc., the modern system of taxation was the necessary complement of the system of national loans. The loans enable the government to meet extraordinary expenses, without the tax-payers feeling it immediately, but they necessitate, as a consequence, increased taxes. On the other hand, the raising of taxation caused by the accumulation of debts contracted one after another, compels the government always to have recourse to new loans for new extraordinary expenses. Modern fiscality, whose pivot is formed by taxes on the most necessary means of subsistence (thereby increasing their price), thus contains within itself the germ of automatic progression. Over-taxation is not an incident, but rather a principle. In Holland, therefore, where this system was first inaugurated, the great patriot, De Witt, has in his “Maxims” extolled it as the best system for making the wage-labourer submissive, frugal, industrious, and overburdened with labour. The destructive influence that it exercises on the condition of the wage-labourer concerns us less however, here, than the forcible expropriation, resulting from it, of peasants, artisans, and in a word, all elements of the lower middle-class.

— K Marx, Capital, Part VIII Chapter XXXI (source)

So Karl objects to public debts, sees them requiring high taxes as a way to keep the workers docile and the lower middle-class poor. What part of this do the Tea-Partiers disagree with?

Cuba gets it half-wrong

What kind of financial crisis could America have had without private collection of land rent? If homebuyers were able to purchase a house, but the land came practically free with an obligation to pay a land value tax, how bad could the mortgage mess have been? Not very bad, evidently, since mortgages would have been much smaller and quite unlikely to go under water (because the price of houses can’t decline nearly as much as that of the land under them).

Veranda in Cuba Which is why I’m not pleased to learn that Cuba will allow the private purchase and sale of homes (including, apparently, both structure and land). There will be limits (only Cuban citizens and permanent residents, and only two homes per person) “to prevent speculative buying and the accumulation of large real estate holdings,” tho one wonders how long-lived and how effective they’ll be.

There’s no question that Cuba’s struggling economy needs freer trade, and moves to allow buying and selling of cars, and an increase in the permitted size of private businesses, tend in that direction. It’s unfortunate that the Cuban powers that be don’t seem to recognize that land is different, since by definition it will never be produced no matter how free or prosperous the economy.

“The new law requires that all real estate transactions be made through Cuban bank accounts so that they can be better regulated, and it sets a tax rate of 8 per cent of the assessed value.” The need for more government revenue is one possible explanation for this change. Another is that Cuban elites anticipate, after further easing of land ownership restrictions, the ability to accumulate at low prices sites which will become valuable in the future. The least likely is that Cuban authorities just haven’t thought about what land is and its role in political economy.

Did you hear the one about the two economists….

…who spoke for over an hour about cities, development, migration, and density, and asserted that America would be more productive if our cities were denser, and did not mention economic rent nor land value?

They did it here, on econ-talk, and you can download the podcast or just read a pretty good text summary (I do not recall them using the word “land” either, but it appears several times in the text summary so I must have missed it). The book itself seems to be available only on Amazon Kindle, which as I understand it means I cannot buy it, but only license a copy to read. But from the interview I gather that author Ryan Avent has determined that American cities (and some suburbs too) are not as densely developed as they “should” be, and that this is due to local governments’ reluctance to allow development at optimal densities.

Now certainly there’s no question that local governments, usually reacting to neighborhood concerns, often refuse to allow development at densities which are physically workable. I recall one suburb where a proposal would have had single-family houses on lots of 9000 square feet. Community reaction was that the kind of people who would live on such small lots would not be desirable neighbors, even tho in many other cities such a lot would be considered oversize. These concerns are often stated as “property value” arguments, and perhaps they really are. That’s an expected consequence of an economic system where ordinary people cannot expect to accumulate much money by working and saving, and must hope to profit from rising prices of the real estate they occupy.

And it’s not unknown for the politicians whose approval is needed for major developments to take advantage of the opportunity for personal gain, legal or otherwise but surely wrong.

So how is it to be decided what the optimal density is? In Science of Political Economy, Henry George observes that, for each kind of production, there is an optimal density at which to work. That density depends on what is being produced, the technology applied, the number of workers available, their skills, the quantity to be produced, etc., so it will change over time. Avent may be correct that we would be better off if higher densities were permitted in some already-dense desirable places, but he certainly didn’t offer much evidence in this podcast.

But let us assume that higher density would be a good thing (and I am certain that in some places it would be), how is it to be achieved? Avent seems to assume that a reduction in land use regulation would be the proper method, because the market is efficient and so density would rise to the appropriate level.

But communities are more complicated than that, and you can’t, or at least shouldn’t, ignore externalities. The first builder to put a high-rise in a desirable townhouse neighborhood may profit nicely. However, not only does the character of the community start to change, but different infrastructure is needed. Can the streets handle the traffic, or can acceptable public transport be provided? Will the sewer and water system handle the load? What are the other effects on the larger community, and how can they be dealt with? There are loads of reasons why it makes sense for the community, acting thru its local government, to have a major say in its development.

But to really irritate those who understand political economy, Avent says:

[I]f you had a sort of density charge–I hate to tax density in that way but in terms of being realistic about the distribution of cost–you could channel some of that into investing in local amenities: could be parks, could be transit, something to try to convince local stake-holders that density is going to be in their interest. So normally we think of taxes as discouraging an activity–which it would. It would make it more expensive for developers to make urban areas more dense.

Yes, some way for the community to share in the benefits of increased density. Can you say “land value tax?” It doesn’t tax development, it taxes development potential. It pressures landowners to build at appropriate densities, but doesn’t punish them for doing so. Supported by competent and realistic zoning, it guides density to the places where is works.

Somebody told me once that the Economist, for which Avent is a correspondent, is a pretty good source of economic news except that it refuses to acknowledge the possibility, let alone the benefits, of a land value tax. I still haven’t seen anything that contradicts this assertion.

53% thank the Occupants

Apparently the time has come for CNN to decide that Occupy Wall Street really doesn’t have broad support. So, based on the claim that 47% of Americans don’t pay federal income tax (tho most do pay payroll tax, state and local taxes), CNN found four people who (claim to) pay federal income tax and do not support the Occupants.

I’m sure there are more than four, probably more than four hundred thousand, who oppose the Occupants, but speaking as a guy who does pay federal income tax, lots of it, plus more to the folks who help me prepare the forms, I thank the Occupants for representing me. I would be with them if I didn’t have other obligations.

I suspect that most of the Occupants would be happy to take decent jobs if any were on offer. In fact, what will probably happen– you read it here first– is that the Overlords will find a way to use our tax money to offer a few thousand jobs, Occupants will take them, and the movement will fade.

The Wealth Defense Industry

Wonderful phrase; wish I had thought of it. It’s Jeffrey Winters’ term for the pile of lawyers and others who contrive technically-legal ways for wealthy people to avoid paying most of the tax for which they would otherwise be liable. His recent book, Oligarchy, seems to have a lot of other details we haven’t seen elsewhere.

All I actually know about Winters and his work comes from this interview, broadcast this afternoon on WBEZ. I did note one error: The U S federal income tax imposed in 1894 was the second, not the first, which was in 1861. He seems to have compiled a lot of data that we don’t usually see (some of it presented in this pdf article). Naturally, altho his work is descriptive, he is asked about the potential for the Occupants or other movements to alleviate the oligarchs’ control. One wishes that he had mentioned the importance of taxing privilege, instead of production. Perhaps he is unfamiliar with the concept.