Re-solving the Economic Puzzle E-Book

Walter Rybeck

• Herausgeber: Shepherd Walwyn Publishers
• Kategorie: Fachliteratur
• Sprache: Englisch

Seitenzahl: 366

Veröffentlichungsjahr: 2012

Beschreibung

Pinpointing a flaw in prevailing economic practices that explains why so many families in the richest nation on earth are mired in poverty, homelessness, joblessness, and hunger, this study suggests that a reform is available to correct this flaw that is corroding the enterprise system. This flaw is widely accepted and enshrined in law; certain taxation and land policies enable a powerful few to skim off a large share of the wealth created by the mass of citizens. How this injustice plays a major role in generating destructive boom and bust cycles is important, but the overprivileged who benefit from “legalized theft” are not vilified. Rather, the book calls for correcting the public policies that make slum ownership, land speculation, and other forms of parasitic and exploitive behavior more profitable than honest labor and productive enterprise. Accounts of places in the United States and elsewhere that are applying the proposed reform are presented, proving that it is politically feasible, and offers an ethical cleansing of the economy so that all people can enjoy all the fruits of their efforts.

Leseprobe

© Walter Rybeck 2011

All rights reserved. No part of this book may be reproduced in any form without the written permission of the publisher, Shepheard-Walwyn (Publishers) Ltd

First published in 2011 byShepheard-Walwyn (Publishers) Ltd107 Parkway House, Sheen Lane,London SW14 8LSwww.shepheard-walwyn.co.uk andwww.ethicaleconomics.org.uk

British Library Cataloguing in Publication DataA catalogue record of this bookis available from the British Library

ISBN: 978-0-85683-281-9

To contact the author: [email protected]

Typeset by Alacrity,Winscombe, SomersetPrinted and bound in the United Kingdomby the Blissett Group of London

To Buddy, Ry, Art, Erika,Rick and Alexwho in their various waysmade – and make –our world more civil,more culturally rich,more equitable

Endorsements of the book

William J. Byron, Professor of Business & Society, St. Joseph’s University, former president, Catholic University of America: Commitment and competence characterize Rybeck’s life-long effort to promote the common good through creative application of land taxation policies. This book revives the insights of Henry George and reveals the difference one man can make in the struggle to promote economic justice and prosperity, if only policy makers will listen.

Former Pittsburgh Congressman William J. Coyne: Our city pioneered in gradually shifting property taxes off buildings onto land values. This modest use of a land tax helped make Pittsburgh’s renewal a model for the nation. The full-blown use of this tool that Rybeck urges could go far to restore our nation’s economic health.

Ken Hechler, formerly White House assistant, Congressman, and West Virginia Secretary of State: This book re-tells the story of how coal, oil and timber became a curse to Appalachia because these resources attracted exploiters who left the bulk of mountain people in poverty. Rybeck, a native West Virginian, offers a workable formula that will make our natural riches a blessing for the population as a whole.

Stephen R. Reed, Harrisburg Mayor, 1982-2010: Rybeck shows how an innovative real estate tax policy stimulates economic growth and job creation. We know it works. It turned Pennsylvania’s Capital City from the nation’s second most distressed city into a nationally recognized economic development success story.

Contents

Acknowledgements

Introduction

PART I: ANOTHER CRACK IN THE LIBERTY BELL

1 Problems Hidden in Full Sunlight

2 “Secret” Remedy that Works

3 What Is This Thing Called Land?

PART II: EMBARRASSMENT OPENS A DOOR

4 Newsroom, Columbus Citizen, 1951

PART III: A JOURNEY OF ECONOMIC DISCOVERY

5 The Earth, Our Home

6 Land of Opportunity

7 The Call To Make a Better World

8 That’s Business

9 War or Peace?

10 A Glimpse of Utopia

11 Dreams of a Castle

12 A Far Cry from Home

13 Eden, Darwin and Free Land

PART IV: THROUGH A LAND LENS

14 Columbus – Ode to a Bug

15 Dayton – Ode to a Book

16 Washington Assignment

17 The Douglas Commission

18 A Capital Idea

19 In a Think Tank

20 In the House

21 Dialogue

PART V: FORGOTTEN CHAPTERS IN U.S. HISTORY

22 America’s Big Attraction

23 Old World Baggage

24 Land Grabbing, Land Abuse

25 Three Saving Graces

26 Fundamentals Forgotten

27 Competing Philosophies

PART VI: LIVING LABORATORIES

28 U.S. Success Stories

29 Overseas Success Stories

30 Taxing Natural Resources

PART VII: RECLAIMING AMERICA

31 Ten Vital Paths

32 Recovery, Jobs and Social Harmony

APPENDIXES

A Education Alone Could Fail

B Many Voices on Land Policy Reform Issues

C Douglas Commission Testimony

D Starcke’s Unique Sermon

E A Property Tax Primer

Index

Acknowledgements

READERS WILL RECOGNIZE that the central theme of this book borrows heavily from common knowledge and from the wisdom of the ages as passed down by writers, philosophers, theologians and statesmen, living and dead. Most are unnamed but I am in their debt.

Far from anonymous were those who critiqued early drafts. My wife Erika was my sounding board, constant timekeeper and stand-in for readers without economics training. My sons Rick and Alex offered thoughtful corrections and additions. Nephew Ted Rybeck and cousins Norman Suslock and Robert Treuer provided invaluable help. Others with incisive comments were John Rybicki, Mason Gaffney, Vivianne and Elliot Pierce, Robert Rochlin, Tom Carcaterra, Robert Calvert, Won Yin and Anne Southard.

Among those who sparked important insights in recent years have been Alanna Hartzok, co-director of the Earth Rights Institute, Father William Byron, former president of Catholic University of America (now Professor of Business and Society at St. Joseph’s University), Steven Cord, instigator of land taxes in many Pennsylvania cities, Nadine Stoner, head of the Wisconsin Property Owners League and editor of GroundSwell, Joshua Vincent, director of the Center for the Study of Economics, Edward Dodson, head of the School of Cooperative Individualism, Mike Curtis of the Arden land tax enclave, city planner Chuck Metalitz, Lindy Davies, director of the Henry George Institute, Peoria stockbroker and biblical scholar John Kelly, John Fisher of the Canadian Green Party, Scottish ecologist and land reformer Shirley-Ann Hardy, and journalist-economist Fred Harrison of England. Also stimulators of thoughtful inquiry have been Pat Aller, William Batt, Margaret Bell, Polly Cleveland, George Collins, Father Francis Gargani, Elizabeth Gordon, Ruth Gruenberg, William B. Irvine, Harry Pollard, Heather Ramoff, Carl Shaw, Mark Sullivan, Professor Nicolaus Tideman and Margaret Locke Newhouse.

To brainstorm the first draft, Ted and my sons arranged a family reunion-seminar weekend with serious reviews by adults and youngsters, with creative slogans, bumper stickers, public service announcements and jingles about land justice for comic relief. Attending Rybecks and in-laws not listed above were Chick, Jan, Naomi, Gabe, Shoshana, Abe, Blanche, Ry, Mia, Emma, Ellen Czaplewski, Ellen Brodsky, Vivian and Mark Brodsky, Judy Krivit, John and Vicky Czaplewsky and Liz Welniak. Treuers not listed above were Paul, Mary, Derek, Elissa, Zoe and Adrienne Marks.

Helping to keep me from taking the work too seriously was scientist friend Joseph Sucher, whose cynical response to the book’s basic formula was a classic: “Nobody will adopt it – it makes too much sense!”

I owe special thanks to an admired mentor, Lowell Harriss, chairman emeritus of the Columbia University economics department. We participated in an intensive study of U.S. assessment practices and served together on the Schalkenbach Foundation board. Touchingly, a few months before his death, at age 97, he sent detailed handwritten suggestions about my draft and phoned to say it was urgent “to get the message out”.

Public Management (PM) magazine used an article titled “Retooling Property Taxes” as the lead piece in the magazine’s March 2010 issue, which is published by the International City/County Management Association (ICMA), Washington, D.C. The article was based on successful United States land tax reforms detailed in Chapter 28. The magazine article elicited follow-ups from a number of local government managers. My thanks to PM editor Beth Payne.

It was my good fortune that Shepheard-Walwyn in London, England, took my manuscript under its wings. Publisher Anthony Werner, along with editor Alice Aldous and designer Jean Desebrock, combined great care and remarkable speed to enable this book to become part of the search for new economic directions. They fully shared the author’s eagerness that messages herein would contribute useful guidance to policymakers working to halt the current crisis and to avert future ones.

The usual caveat, as true as it is necessary, is that none of the many who tried to help with the book are to blame for errors of fact or concept, for which the author bears full responsibility.

Introduction

THIS BOOK BRINGS good news to those who want an America with full employment, a sustainable prosperity without roller-coaster ups and downs, and a return to constructive political and social discourse without rancor.

This is not to deny our critical problems. In this richest nation the world has ever known, from New Orleans to Detroit, from Boston to Los Angeles, in grand cities like Chicago and New York and in rural areas from Appalachia to the Ozarks, people are mired in poverty. Families and babies go hungry despite our prodigious ability to produce food and despite the mountains of wasted food. Large numbers of willing workers find no job in the face of unmet social and individual needs. Hordes of homeless city people roam the streets side by side with boarded-up housing. The bad news is that, if we allow current trends to continue, the outlook for our future is dismal.

However, waiting in the wings is a way to change course and revive what has been the genius of our economic and cultural life. This change requires a reform that is fully consistent with American traditions and ideals. In fact it harks back to one of the most significant factors undergirding our nation’s remarkable earlier success – a factor that somehow has been all but obliterated from our collective memory. As will be seen, it involves removing an injustice that is corroding the enterprise system and that is increasingly making us more akin to nations characterized by sharp divisions between the underprivileged and overprivileged.

Many people are angry with the poor, the hungry, the homeless and the unemployed. “I made it on my own, so why can’t they?” they ask, perhaps forgetting those who gave them a lift along the way. If the victims are at fault, there is no need to question whether there may be legitimate reasons that they are not “making it”. A majority, however, tend to sympathize with the misery of their fellow citizens, leading them to support private charities and public assistance programs. Yet neither camp – those with empathy and those without – seem inclined to pursue the root causes of our socio-economic ills.

Only those who are Pollyannaish can say all is well with our nation when jails and prisons are overflowing and when mental illness is rampant. These are wake-up calls reminding us to understand and confront our festering social malignancies.

Another Injustice to Conquer

A serious injustice permeates our country. Laws allow individuals to appropriate values created by other people’s work, depriving those who created these values of a fair return. This “legalized theft” sets off a chain reaction that has been a factor in the nation’s repetitive boom and bust cycles. It blocks job creation. It eats away at our enterprise system. It infects our democratic institutions. It diminishes social unity and harmony.

The distress following the latest economic meltdown – all the lost jobs, lost homes, lost savings, lost businesses – underscores the need for systemic reform. Only by confronting the underlying economic distortion infecting our system can our nation live up to its lofty ideals and its promise to its own people and to the world at large.

Struggles against great injustice are proud chapters of our history. The ethnic cleansing of Native Americans and the enslavement of kidnapped Africans in our nation’s formative years shock 21st century sensibilities. Women’s voices as voters were not recognized until the 1920s. It seems almost incomprehensible now that these evils were once so widely accepted. Having overcome past injustices entitles us to have a high degree of confidence that the flaws cited in these pages can be corrected as well. Each effort to correct and atone for a serious departure from our professed aims bring us closer to a society that practices as well as preaches that all men and all women are endowed with equal rights.

Deviations from our goal of justice do not contradict the fact that America has been and remains a remarkable society and a splendid ideal. History teaches us not to be stunned that decent citizens and brilliant leaders can be blind to monumental injustices. The injustice described in this book is widely practiced and accepted by good people. No irony intended. We honor Washington, Jefferson, and other Founding Fathers for their vision and political genius despite their having been slave owners. By the same token, perpetrators of our current injustice should not be held culpable. We should condemn the injustice itself, not the decent people who are actively or passively caught up in it with little awareness that they are doing so.

Americans are frequently told that our country is the greatest, the best hope of mankind, and the like, persuading some that our nation is close to perfection. To them, asserting that the nation is contaminated with a serious flaw may be so jarring that naming this flaw may invite instant disbelief and a disinclination to listen further. Of course, people who profit from an injustice tend to like and defend it, even to the extent of calling reform efforts unpatriotic. They need to be reminded that correcting the nation’s failings is among the most fundamental expressions of liberty for which patriots have sacrificed their lives and fortunes.

That said, I can identify with those who find it hard to consider that a long-standing feature of our economy, one that is embedded in our legal system, is poisoning our society. The prevalent economic theories offered in college courses make it difficult to visualize the problem or to imagine that, in some essential respects, America is not on the right path. My initial reaction to a contrary view was to deny it.

To Demonstrate an Injustice

Mainstream economists pride themselves on being analytical and non-judgmental. A message of this book is that without ethical inquiry there can be little understanding of our Great Recession or how to alleviate our chronic economic failures.

Imagine that slavery still existed. Consider how today’s social scientists would confront it. They would devise elaborate computer models to project what would happen if the institution were expanded or diminished. They would construct sophisticated regression analyses to test how various policy options would affect slaves, slave owners, and those who were neither slaves nor owners. They would measure the impacts on different industries and types of agriculture. They would indicate whether winners or losers would predominate. Mathematical formulas and input-output models, along with precise indications of margins of error, would give their findings an aura of scientific certainty. Their learned articles on the topic would reveal their discovery that slavery is not a single problem, that it is actually a multiplicity of problems, and (to ensure that their continued studies are adequately funded) that each of these facets of the problem require considerable additional research.

No need to pursue this illustration further. Econometric manipulation of data would throw little light on the central question: Was the institution of slavery right or wrong? Ethical tests are needed. This requires holding social practices up for scrutiny to see whether they conform to the highest moral codes of the people and of the nation. Slavery represented a disconnect from these high codes. A burden of this book is to show that a similar serious disconnect exists with respect to certain land and taxation policies. To make such a case, reference to concepts of fairness, logic, history and bedrock American ideals will be relied upon, however old-fashioned this approach may appear in contrast to elegant algebraic formulations.

This is not to denigrate the potent and highly useful tools of modern economists. These tools can verify the effects of various reforms and programs that are contemplated or already implemented. It is no criticism of these tools to note that they do not answer the initial question of whether something is morally acceptable. Fortunately, as it turns out, experience tells us that doing the right thing usually produces the greatest benefits for the greatest numbers.

Road Map of the Book

Part I at the very outset spells out the nature of the injustice that is undermining our economy. It is followed by a “secret remedy”, so called because it has been kept out of the public eye for a long time. Then a chapter on land and property rights aims to clarify the problem and ways of dealing with it.

Part II tells how I accidentally became alerted to the land issue.

Part III traces people and events that, in the fullness of time, provided a framework for helping me confront critical land issues. Sharing these intellectual journeys may enable others to more readily understand, if not accept, the conclusions I have reached. Of course, life embraces much more than economics and I recount my good fortune in being exposed to a rich cafeteria of opportunities. Asking why too many Americans are denied entry to such opportunities brings us back full circle to economic inequities and explains much of the motivation for writing this book.

Part IV tells of a remarkable cast of mentors and co-workers who inspired me and wove a common thread of insights into land issues throughout my careers in journalism, politics, and economics.

Part V recounts neglected or glossed over aspects of American history that have a surprising bearing on current problems and that point to forgotten conditions and policies that practically cry out for revival.

Part VI describes successful applications of the tax strategies discussed throughout the book. One chapter addresses successes in the United States, another cites some overseas successes, and the final chapter in this part deals with the special case of natural resources, contrasting ruinous approaches in Appalachia with more equitable approaches in Alaska.

Part VII specifies how land policy changes can deal constructively with a broad range of seemingly intransigent problems and help attain the more equitable and prosperous America that we all yearn for.

PART I

ANOTHER CRACKIN THELIBERTY BELL

THIS BOOK IS WRITTEN in the firm belief that Niccolo Machiavelli, astute politician and observer of human nature as he was, mistakenly used the word “never” when he wrote: “People are always provoked by small injustices but never by great injustices.”

1

Problems Hiddenin Full Sunlight

“NOBODY SAW IT COMING.”

High officials, leading economists, pundits, bankers, legislators, and fiscal regulators insistently repeated that phrase after the 21st century’s initial boom turned into an ugly bust. They were not paying attention, nor were they studying history.

Land economists, a rare breed, knew it was coming. Since the early 1800s, Americans have experienced economic breakdowns almost every generation. Most were relatively mild while some were catastrophic. They happened mostly for the same underlying reason. Speculative landholding sprees fueled the start of each cycle. Substantial numbers of individuals and businesses that had engaged in production diverted their efforts to the non-productive pursuit of profits from runaway land costs. When inflated land rents and land prices exceeded a great many people’s and firms’ ability to pay, the bubble burst, wiping out jobs, enterprises, and the savings of the mass of people who were behaving prudently.

Each panic, depression, and recession whittled away a bit more of Americans’ optimism, pride in workmanship, and trust in the nation’s economic and political systems. Each time, another bit of liberty was eroded.

Underneath All, the Land

Whether the economy rises or falters, whether it is erratic or on a steady course, is closely related to how land is treated. Land is so critical because it is the source of all wealth. Land and the natural resources on or in it are the elementary building blocks of every economy. Land provides all the basic essentials for human survival. How we treat land touches nearly every aspect of the economy – from our homes to the health of cities, from family farms to giant manufacturing plants, from availability of jobs to the profitability of firms. Economic troubles arise when land monopoly deprives large segments of society of their access to the gifts of nature.

Land monopoly? In America? Most people are astounded to learn that a mere three percent of Americans own 95 percent of our privately held surface land. Even more concentrated is the ownership of oil, natural gas, coal, iron, and other raw materials. One man, Ted Turner, owns two million acres, nearly twice the size of the state of Rhode Island. In many cities a few families own most of the prime downtown sites. Land monopoly is alive and well in America.

Home ownership provides a kind of cover to this reality. Homeowners with their typical small lots are landowners of a sort, although mortgage lenders hold over half of the equity in their properties. Home ownership is a good thing, contributing to family and community stability. Those who cite the degree of home-ownership as a gauge of economic well-being, however, are mistaken. West Virginia with its high poverty rates boasts a 76 percent rate of homeownership, highest in the nation. This masks the fact that, like a banana republic, the bulk of that state’s rich natural resources are owned by absentee corporations.

Many parts of Latin America, Asia, and Africa suffer from exaggerated forms of land monopoly. The masses are beholden to small ruling classes typified by extensive landholdings and tremendous wealth. The United Nations reports that a mere 500 individuals earn more than 416 million of the world’s poorest people. America is moving away from its egalitarian past and witnessing a rapid move toward great economic disparities. This wealth gap is not simply a measure of disparate annual earnings, nor of the miles-apart assets of rich and poor families. It is a reflection of the increasingly concentrated ownership of the land on which the economy stands, or totters. It is a flashing warning signal.

Clash of Ideals and Practice

America’s land policies violate the noble ideals we profess. We recite our fundamental precepts but unconsciously permit them to mean something else:

All are endowed with inalienable rights to life, liberty, and the pursuit of happiness. But the lands necessary to activate these rights are increasingly concentrated in the hands of the few, diminishing the rights of the rest of society.

Equality for all, special privileges for none. Except that land monopolists drive a wedge between the overprivileged few and the growing ranks of the underprivileged.

People are entitled to the fruits of their labor – what they sow, others may not reap. But landed interests take unfairly large bites out of the earnings of workers and producers.

Thou shalt not steal is a Commandment we endorse. But we permit owners of prime urban sites that are required for commerce and the owners of natural resources that are essential to industry to siphon off land values that belong to the community as a whole. We imprison those who commit minor thefts but we protect by law, and tend to honor, those who take away the earth rights of their fellow citizens.

Custom, in short, has numbed people into accepting the landowners’ privileged status.

Owning and Selling Air and Land

Suppose a man claimed to own the air and refused to let others breathe it until they paid him. His sanity would be questioned for claiming what he had no role in creating and for saying, in effect, “Pay me or die.” Land, like air, is a provision of nature that nobody can live without. Yet our legal system is out of sync with this fundamental fact.

An owner might insist, “I got my land fair and square and I have a clear title to it.” A search may trace that title back to a grant from Congress, a king of England, or the pope who, sight unseen, assigned New World domains to the Spanish and Portuguese. None of these grantors, of course, obtained a prior grant from the Creator of the land.

This is not to question the need – nor the genuine virtue – of giving people exclusive rights to the use of land for their homes, farms, or business sites. Rather, it suggests the need for a mechanism that respects both the private use of land and the equal right of all people to nature’s bounty. As described in the next chapter, such a mechanism exists but is too rarely put into practice.

The Injustice in a Nutshell

To challenge the notion that all people have equal rights to land is to argue against the hallowed concept that all people are born with equal rights. It is to claim that the life-nourishing qualities of land and the ability of land to bestow economic prosperity may properly be concentrated in the hands of a relative few instead of serving all members of society.

Not only individuals and families suffer from the misappropriation of land rights. Governments, on behalf of all citizens, also have legitimate claims to land that are not being recognized. Failing to collect their fair share of the land values created by nature and by their own activities, governments short change themselves. Then, to make up for their lack of funding, they over-tax the privately created earnings that rightfully should be left with workers and producers.

Compounding this injustice are the individuals, businesses, and so-called financial wizards whose mad pursuit of rising land values produces the bubbles and blows them up to the bursting point, utterly disrupting the economy.

European settlers brought their unfair land system to our shores. For several centuries Americans were largely inoculated against the harm of this system because of a most fortunate circumstance. The pioneers and settlers had easy access to great expanses of free or cheap land. Difficult as it often was to eke out a living on this land, its availability opened the way to almost unlimited job opportunities and kept our enterprise system free.

Once this happy circumstance was no longer the case, a greatly increased population had a harder time finding home sites and work sites. Unwholesome land tenure practices multiplied. Quintessential features of the American society – class mobility, a can-do attitude, and competitive free markets – were put into jeopardy.

Far ahead of his time, Philadelphia native Henry George, journalist and self-taught political economist, spotlighted this threat to our social fabric in his 1879 masterwork, Progress and Poverty. George’s contention that there were serious cracks in our socioeconomic foundation was seriously disputed in his day, and long after. Today few would deny that the country is beset with serious troubles. Yet the general public and our leaders reveal great confusion about the nature of those troubles and what to do about them.

Faulty Diagnoses

Not only did the most celebrated public affairs spokespersons fail to foresee the latest economic nosedive; after it arrived, most of them failed to ascribe satisfactory explanations to either the boom or the bust. Few cited land problems. Instead, they blamed soaring housing prices, unsafe mortgage lending, greed, mass psychology, and exotic investment devices. These were all sore points, but to a large extent each represented referred pain, as when a patient feels a severe ache in a thigh that is perfectly healthy but is painful because of an inflamed nerve in the spine.

The so-called housing price bubble was referred pain from a land price bubble. Few realized that home prices remained fairly stable throughout the cycle. It was the cost of the sites under those homes that were figuratively going through the roof.

The unsound economic behavior stemming from mass psychology and the greed of financial “geniuses” was transferred pain from vision defects that prevented people from seeing that there had to be an end to the steep climb in real estate portfolios, which is to say land portfolios.

The pain from the failure of the investment market was blamed by one camp on under-regulation and by another camp on overregulation. Neither camp addressed the referred pain from perverse land policies that distorted markets and sent them into paroxysms. Neither those who defend the free market nor those who want to restrict it seem to recognize the extent to which the market is far from free, for reasons that are discussed later.

In economics no less than in medicine, focusing only on the referred pain is perilous. Operating on a healthy but painful knee, for example, makes the matter worse if the cause is elsewhere. Giving crutches, drugs, feeding tubes and other stimuli to various facets of the economy without treating the land policies at the source of the troubles will not keep the destructive effects at bay.

Such patchwork measures will set the stage for another wild ride on the roller-coaster unless there is a systemic treatment of the land system – the topic of the next chapter.

The Great Spirit Speaks1

I have given you lands to hunt in,I have given you streams to fish in,I have given you bear and bison,I have given you roe and reindeer,I have given you brant and beaver,Filled the marshes full of wild-fowl,Filled the rivers full of fishes;Why then are you not contented?Why then will you hunt each other?I am weary of your quarrels,Weary of your wars and bloodshed,Weary of your prayers for vengeance,Of your wranglings and dissensions;All your strength is in your union,All your danger is in discord;Therefore be at peace henceforward,And as brothers live together.

_________________

NOTE

1. From Henry Wadsworth Longfellow, The Song of Hiawatha, Grosset & Dunlap, 1923.

2

‘Secret’ Remedythat Works

THE LOWER THE TAX ON LAND, the higher its price. The higher the tax, the lower its price.

These counter-intuitive but dynamic facts provide clues for fixing what is wrong with our economy. Armed with this insight, a select number of cities began reducing taxes on the value of housing and other buildings, while shifting more of the tax burden onto the value of the land, thus giving an incentive for making improvements. By retooling the property tax in this way, they started to achieve the revitalization that the rest of urban America has been seeking.

Remarkable Results from a Tax Change

By applying this “secret” remedy, many Pennsylvania jurisdictions achieved the following uniformly consistent results:

Most homeowners won tax breaks.

Businesses sprouted up on idle business district sites.

Boarded-up shops and housing units were fixed and put back into use.

In-city development created new jobs.

Sprawl was retarded or suppressed.

Neighborhoods were stabilized as their housing was kept affordable.

Local treasuries in the red were soon in the black.

As detailed in Chapter 28, the achievements of these cities, all in the state of Pennsylvania, reveal that a corrective to our land tenure system is waiting in the wings, ready to be adopted. To repeat, the remedy calls in essence for shifting property taxes off homes and other structures and onto land values. The reform is known as the two-rate tax. This differentiates it from the conventional property tax that imposes a single tax rate on the total land-plus-building value. (For further explanations, see Appendix E.)

Cities that pioneered this reform of the property tax began modestly. At first, they imposed a tax rate on land that was only two or three times higher than their tax rate on improvements. As residents saw their property taxes stop increasing and even go down and as officials saw the old resistance to property taxes diminish, these cities further reduced tax rates on buildings and raised them higher on the value of land.

By 2009 Harrisburg’s tax rate on land was six times higher than on buildings. In Clairton the land rate was 13 times higher than the improvement rate. All but eliminating the tax on improvements, Washington (Pennsylvania) and DuBois taxed their land values at a rate 29 times higher than buildings. Most homeowners in these cities enjoy lower taxes while holders of idle or underused sites in prime locations see substantial increases. The two-rate reform is reducing tax bills for 58 percent of property owners in Altoona, for 73 percent of those in Titusville, and for 91 percent of those in Allentown.

In short, modernizing the property tax to accord with a sound understanding of land economics has been tested. It works. It is evolutionary, not revolutionary, phased in at whatever pace is deemed appropriate for local circumstances.

Of course, this remedy is not really secret. It only appears so because it has been receiving the silent treatment for so long, with little serious attention in professional public finance circles or in the popular media.

Beyond the Property Tax

The land tax part of the formula looks like the indispensable missing piece of the puzzle for anti-tax politicians and their followers, who offer no alternative to funding the public sector. Their anti-tax stance leads them to take an anti-government stance. This tends to make them at a loss when it comes to satisfying the majority of citizens who still want excellent schools for their children, police protection, national security, highways, and the rest.

Anti-tax ringleaders claim the free market will make everything turn out fine if government will just get out of the private sector’s hair. They forget that the almost totally unregulated economy of the 1800s did not prevent frequent runs on the banks, business failures, major unemployment, and nationwide panics. They forget that the free-wheeling private economy under blatantly pro-business administrations of the 1920s were the preface to the disastrous Great Depression. They forget that the deregulation supported by Federal Reserve Chairman Alan Greenspan was, as he himself belatedly admitted, a big mistake. What they forget makes them part of the problem.

This is not to blame the market. America’s market system has never been fully free. Many corporate monopolies are based on control of vital natural resources, stifling competition. Powerful minority interests disrupt the workings of the market by raiding and manipulating land values, depriving enterprisers, workers and government alike of their rightful earnings. Government compounds the problem by failing to tax back the land values it helps to generate. Thus, to fund its basic function, government instead dips deeply into the wages of individuals and profits of businesses, further impeding the market. Capital is diverted from production to the pursuit of publicly created land values, which starts each cycle of artificial land bubbles. Is it any wonder, in the face of such irrational and chaotic distortions of the productive system, that markets do not seem to work?

A leading guru of the anti-tax camp, the late Milton Friedman, was pressed to say how governments should be financed. He grudgingly admitted: “We need taxes. So the question is, which are the least bad taxes? In my opinion the least bad tax is the property tax on the unimproved value of land, the Henry George argument ofmany, many years ago.”1 However, I find no evidence that Friedman ever promoted this “least bad” tax.

The anti-tax camp often appears heartless because, when public treasuries are short-changed, programs to help the needy tend to be the first to be cut back. People in this camp need to be shown that the value of the land under their homes, businesses, factories and shops is largely a reflection of the public works and services that make these locations desirable. It is difficult to imagine a more equitable or logical source of public funding than these publicly created land values.

Most officials, economists, and citizens in the opposite camp – those calling for more public expenditures – stress compassion for the needy. Too few of them, however, do better than the anti-tax camp in distinguishing between private and common property. They seem unaware that the types of high taxes they support and the public programs they devise often exacerbate the joblessness, poverty, and other problems they are designed to alleviate.

Here is a reality-based but clearly oversimplified scenario of how that works. Corn farmers are in trouble. Aid to them increases feed prices for pig farmers. Then aid to pig farmers disadvantages those who raise cattle. So ranchers get aid that boosts food prices that hurt the poor, who are given food stamps and housing allowances. Welfare subsidies tend to translate into higher rents, which hurt lower-income people like teachers and police. Aid to them requires higher local taxes that put marginal firms and people out of work. To create jobs, subsidies are given to new businesses, which make it harder for older businesses to compete. Soon this evolves into a regimen of aid to almost everybody. Then big corporations, large agribusinesses, and wealthy homeowners – those whose campaign contributions make them super-represented in Congress, state legislatures and city halls – walk away with the most generous public welfare, while the truly needy get mere crumbs.

Both the pro-tax camp and the anti-tax camp thus condemn America to repeat the boom and bust cycles that hurt our society. To avoid the incongruousness of their present stance, both camps would be well advised to consider how the tax shift formula cited at the start of this section could serve their goals.

Transition

The suggested tax shift is a far cry from current policy. How might we get from here to there? One of the first orders of business to achieve this transition should be the launching of an intensive public education campaign on land ethics and land economics.

Property tax revision is essential before land taxation can become feasible. The destructive part of the property tax – that is, the payments based on the value of homes and other improvements – needs to be greatly reduced or eliminated. The constructive part – taxes based on the value of lands and resources – needs to be greatly magnified. Then the increased taxes on socially created land values need to be matched by greatly reduced taxes on labor and production.

Gradually recycling the land values generated by public facilities will increasingly meet the costs of building, repairing, and operating our public works. This will begin a process whereby infrastructure can become largely self-financing.

Land value gains, misnamed as capital gains in the federal tax code, should be taxed as heavily as possible and certainly should not be given favorable tax treatment.

Federal grants should be designed to encourage land value taxation by states and localities. For their part, cities and states can use land taxes to wean themselves off reliance on federal funding and to regain more control of their own destinies.

This brief sketch is fleshed out in Part VII. It provides a suggested blueprint for getting from here to there.

Taking Your Property Away?

In case talk of land rights sounds frightening, threatening, or confusing to those who are unfamiliar with the concept, let’s hasten to clarify the reforms that are being discussed and analyzed.

This is

not

a proposal to confiscate individual or company property.

So long as property holders pay their annual land value taxes, their right to the exclusive use of their sites will continue to be secure, the same as it is now for those who pay their property taxes.

Nationalization of land is

not

advocated.

Converting private lands into public ownership would be counterproductive in most cases.

The profit motive and enterprise system will

not

be weakened.

On the contrary, they will be strengthened by lifting tax burdens off producers. The land tax will provide a more hospitable climate for those in the private sector who are engaged in the creation of goods and services, safeguarding them from killing land costs.

Tax burdens for the majority of taxpayers will

not

be increased.

Most people’s taxes will be reduced. Their higher land taxes will be more than offset by lower taxes on their homes, business structures, and other assets and earnings.

This is

not

“land reform” in the sense in which the term was used in many poor countries.

Those places decreed government-enforced redistribution of lands held by the rich to landless people. The poor who acquired land often went into debt and forfeited their lands back to big landholders. Using police powers to redistribute land runs counter to everything this book favors.

What justice requires is an equitable sharing of the land’s value, not the land itself, and this, as will be shown, makes a world of difference.

_________________

NOTE

1. As reported in the San Jose Mercury News, November 5, 2006.

3

What Is This ThingCalled Land?

DEFINING LAND would seem too obvious to dwell upon were it not for the fact that land as an economic factor has been nearly obliterated by the fashionable theories of the past century. Since exploding land values have played a role in nearly every American boom, and since a collapse of these values touched off nearly every bust, it is timely and imperative to define land carefully.

What is land? How does it differ from private property? What gives it value?

Common Property

In everyday conversation, land conjures up images of farmland. It is that, too. In a modern economy, urban lands and natural resource lands play more prominent roles. A few square feet in a city’s central business district are usually worth many times the value of acres of pasture on the outskirts of that city. Land quantity should not be confused with land value. Small areas of land may be extremely valuable, large areas may be almost worthless.

Land encompasses the entire natural world. It includes rural and urban sites plus the soils, quarries and wild game on the ground; the oil, gas, minerals, and ores under the ground; and the space and electro-magnetic spectrum used to transmit communications above ground. To underscore this critical point, land in an economic sense includes everything provided by nature.

Because nature’s gifts are in no sense made by any one or any combination of individuals or governmental units, they are properly regarded as common property.

Private Property

Private property, in contrast, encompasses things people create. Food, clothing, shelter, and the myriad array of man-made products are private property belonging not to society in general but to those who produce them, buy them, or are given them. Put another way, private property results from applying human labor, skills, and ingenuity to land. Examples clarify the distinction between common property and private property:

Oil in the ground is common property. Oil that is drilled, refined, and transported is converted by people’s labor into private property.

Fruit growing wild is common property. Collecting it makes it the private property of those who pick it to eat or to sell. Fruit in orchards on the other hand is the private property of those who plant, cultivate, and harvest it.

Blurring these distinctions has monumental consequences, as illustrated by two clashing political systems. Communism fell into disarray by erroneously classifying almost everything, including what individuals grew and produced, as common property belonging to the state. Capitalism as currently practiced is in difficulty because of the opposite error, a tendency to classify almost everything, including gifts of nature, as private property. “As currently practiced” is emphasized because the economists who literally defined free market capitalism – Quesnay, Adam Smith, John Stuart Mill, and David Ricardo, among others – recognized private and common property as distinct from each other and therefore requiring different treatment.

An old spiritual warns, “Everybody talkin’ ‘bout heaven ain’t goin’ there.” Similarly, everybody talking about private property as the foundation of our enterprise system ain’t goin’ there either. Americans who claim common property as their own private property mistakenly suppose they are benefiting from free enterprise capitalism when, in fact, they are reaping the rewards of a special privilege.

Owners who held their homes for several decades congratulated themselves on their financial sagacity as their property assets escalated a thousand percent or more. Their gains resulted not from their brilliance but mostly from community growth and a false sense of scarcity caused by intense land speculation. Lucky owners sold before the bubble burst. Unlucky ones bought just before it burst and watched their assets plummet to less than the value of their mortgages.

USUFRUCT

Thomas Jefferson said, “Land is held in usufruct by the living.” “Usufruct” means in trust. Jefferson understood that land differs from private property.