Misdirection of Development Incentives

This is not really news, but it does seem to be an additional example. Washington-based “Good Jobs First” has released a Ford-funded study showing that subsidies for “job creation” tend to go to communities that have low unemployment. Of course, dummy! It’s easier to create jobs there.

Now the only reason I found this was that I was looking for the study released yesterday by “Broadway in Chicago,” asserting that their operations have an “annual economic impact” of $635 million in Illinois. I haven’t seen the details of how this is measured, but most likely it assumes that, if there were no BIC operation, then the theatres would remain dark, nothing else would be built in their place, and nobody who came to Chicago and saw one of their productions would have found any other reason to come. Furthermore, none of the people who serve these visitors, or the theaters, would have found any other work. Crains says that “Mayor Daley’s administration has invested about $60 million into the downtown theater district,” but doesn’t indicate how much went to BIC and what other subsidies they may have received. The Tribune assigned a theater critic, not a business or economic reporter, to the story.

Even Off the Books, you still need a space

Finally got a copy of Sudhir Venkatesh’s Off the Books, courtesy of a suburban library. It’s a study of a poor ghetto area within Chicago. Few are “employed,” but many are working, hustling to make a living.

“I soon discovered that the seemingly random collection of men and women in the community…were nearly all linked together in a vast, often invisible web that girded their neighborhood. This web was the underground economy.”

So how are these folks making a living? Pretty much any way you could imagine. Of course some of the work is illegal– prostitution, drugs– but much would be legal if it was performed in accordance with applicable laws and ordinances. People are selling clothing, food (some of it home made), used equipment (some of which may have been stolen), maybe providing security services for local stores and even apartment building owners. Sure, off-the-books activity can avoid some taxes, but among the underground services is the preparation of income tax returns. (Thus the preparation of the books is off the books). Life is difficult, because almost everyone’s poor and public services are, well, not uniformly superb.

There are several reasons why it’s difficult to escape to a better life, one of which is that underground work doesn’t produce a credit rating nor, really, a resume. And many people are simply afraid to leave their familiar community.

A few community leaders help keep things functioning, but receive little benefit.

“It is by working off the books, in back rooms and behind the scenes, that local residents come up against the limits of their [work]…Because they have done this surreptitiously…they are implicated in the very dangerous and destablilizing activities they are trying to address…[and] they can never really show themselves to those in the social mainstream– phiilanthropists, advocates, employers, and so on– who would otherwise find their work courageous and worthy of acknowledgement and reward. It is nearly impossible for the press and political leaders to recognize their work…Thus, in the long run their success as mediators does little to help them advance personally.”

And

“Even in a depleted ghetto, there will be collective actors in place who attend to neighborhood affairs, and it is important to … note that their time and energy are taken up by matters that do not always make it onto the radar of the wider world. They may be working in the immediate present to make sure that children can walk safely on the widewalk or through the park…To do so, they may have to find the pimp, car mechanic, or other hustler and iron out the problem themselves. Doing this repeatedly can mean reduced time to prepare funding proposals… Unlike their suburban counterparts who are more likely to have decent city services and far fewer shady types roaming about, they do not have the time to luxuriate and plan for the future.”

What does a Georgist see in this book? Of course it is that land is key; one needs a place to produce, and even just to live.

Underground entrepreneurs possess skill, business acumen, and tremendous potential for innovative skills and strategies. What most lack is a physical space to ply their trade….Some have equipment that must be housed, others need a place to sell…others need sites to advertise…Private, sheltered, decent space is at a premium.”

“To hustle, one does not simply set up shop in an alleyway or on a street corner. Chances are that others have already claimed that spot. Moreover, it is likely that any claim to use turn and earn revenue will be contested by other entrepreneurs” such as block club presidents or precinct captains. “In the ghetto, one must negotiate public space before one can hustle.”

“Very few middle-class Americans see an alley as a venue for monetary gain; but in the ghetto these spaces are full of possibility. “

“Street hustlers can offer various services to merchants including security, cleaning up, advertising. “[H]ustlers who offer merchants these services are not necessarily looking for additional income…Many have other entrepreneurial schemes…and so need a private sheltered space. James Arleander[a pseudonym] articulates a typical hustler viewpoint:

“You can always make money…But getting a place is priceless. That’s the hardest thing, to just have some place to keep your [tools and belongings] and … hide from…people who may be upset at you.”

 

It’s a book worth reading if you’re interested in how some poor people manage to survive, or even just another perspective on how the city works. Unfortunately, Harvard University Press has done a terrible job of copyediting, from page 1 (where a woman is introduced as a “widower,” or is this a new kind of political correctness?) , though the discussion of “subway” stations on Chicago’s south side (there actually are none south of Roosevelt Rd), and the “Department of Parks and Recreation” (no such agency in Chicago, folks, you mean the Chicago Park District), to the hustle that pays $50/night, or is it $50/week, depending on which part of page 312 you believe. Maybe that can be fixed in the next edition.

Real estate tax worse than any except the others

is the way the Manchester Union Leader puts it.

[P]roperty taxes.. are for the most part locally raised and locally spent. They are painful to raise, which is why politicians loathe them. They cannot raise them easily, because they are raising them from their neighbors. And those neighbors also see what is being doing with the money.

How much easier it would be for the politicians to have a broadbased sales or income tax! The tax would be raised from afar (Concord) and the monies it would bring in would be stupendously large. Think of what a savvy politician could do with such a huge new income source.

Remember, too, that the property tax, that “worst funding mechanism,” wouldn’t go away. As has happened in every state where income and/or sales taxes have been enacted, the property taxes continue to increase.

Of course, New Hampshire doesn’t tax retail sales or income,yet.  But the warning applies to us also.

Thanks to Mark Monson for the link.

More proof of the benefits of taxing land

Why do Danes report “unrivalled satisfaction with life?”  Well, of course there was a research project to find out.  But it seems the scientists didn’t examine the tax system, so of course they didn’t realize that Denmark has something of a land tax (though not nearly so much as formerly), which most other countries lack.  Too bad, since it is so obvious. (Thanks to boingboing, who got it from the NY Times.)

Billionaire says "don't pay corporate boards"

Today’s Tribune carries an article that appeared a week earlier in the LA Times, wherein billionaire Charlie Munger discusses the problem of overpaid CEO’s.  He traces it to corporate directors, who want to keep their CEO’s happy and retain their well-compensated seats.  The solution: “‘If I were running the world, I would not allow directors to be paid at all.'” New laws and regulations won’t solve the problem. “‘I think you can assume that any law will be promptly evaded.'”

Why would a director serve without pay?  Well, the directors are supposed to represent the shareholders.  Wouldn’t a large shareholder want to supervise the management of his investment?  In fact, many of today’s board members own no shares whatsoever, or only as much as they’re required to own to hold their lucrative positions.

Landowners paying for transit

Since public transport makes certain locations more valuable, some transit activists have long insisted that the owners of sites benefitted by transit service ought to pay the cost of it. Now we have a surprisingly obscure report that gum manufacturer Wrigley Co. is doing approximately that. The Chicago Transit Authority’s new route 132 Goose Island is apparently is paid for under a “five-year subsidized agreement with Wm. Wrigley Jr. Company.”

No word about the amount of the subsidy, or even the schedule of the service, (update January 10, here‘s the schedule), but as a downtown worker for the past 35 years I can testify that the route does appear justified. Wrigley has their big “Global Innovation Center” on Goose Island, and there are other employers in the vicinity. Direct service from the loop and Metra stations should find a market.  As far as I can tell from their corporate reports, Wrigley owns the site of their facility.

I’m surprised that CTA’s press release doesn’t mention the Wrigley funding, which appears only in a brief powerpointlike presentation (pdf) inflicted on cta’s Board, and I find nothing about it on Wrigley’s site.

GAO on "IP" and drug innovation

Speaking here of drugs Congress likes– patented pharmaceuticals– the GAO says:

Intellectual property protections are designed to help encourage innovation by providing financial incentives to engage in research and development efforts.

but, according to some experts interviewed by GAO

intellectual property protections enable companies to earn significant profits while reducing the incentive to develop more innovative drugs.

Nothing really new here. GAO wasn’t asked to provide any recommendations.  Full report is here.

What poor people need…

…is access to land.  Henry George noted that in the 19th century, and here’s Harold Henderson reviewing Sudhir Venkatesh’s new book:

what “James Arleander” needs is a piece of alley to do his off-the-books car repair, something he’s not going to find in a squeaky-clean mixed-income community.

Exactly.  Every kind of economic activity requires land, and if you can’t get the use of any you can’t produce anything.

From this review and others I’ve seen, the book seems to go way beyond the land issue, telling us, first, something about the “underground” economy by which many folks support themselves, and second, some of the reasons why it really isn’t a good thing that they must do so.

Yeah, I’d like to read the actual book, but it seems that the entire Chicago Public Library system has only one copy, and Amazon says it’ll be 4-6 weeks before they can deliver it.

"Intellectual Property" abuse…

…can have fatal results. Another example occurred in Chicago Friday, when a man who apparently expected great wealth to result from his idea decided he’d been ripped off by his patent lawyer. The AP article implies that the “idea” wasn’t worth much, but wouldn’t disasters like this be avoided if nobody expected to become wealthy just by monopolizing an idea?