Bait, does it work?

The movie "Inside Job" won the Oscar for best documentary feature in 2011. The winner of the Oscar made the comment that no bank executives have been arrested for their role in the recent economic collapse. A question we need to ask is "How do we prevent such a tragedy in the future?" One response is that we have more surveillance over the banking industry. But then we have to ask "Who is going to appoint a commission to do this surveillance?" The effectiveness of such a commission would depend, among other things, on who was appointed. Presumably, at a national level, the commission would be appointed by the current or future US president. Obviously this would be influenced by the appointing president's emphases and politics. Also such a commission would be looking for anomalies in books, for illegal actions, and could only act after the crime had been committed.

It seems to me that a better approach would be to see what bait we leave for those seeking to profit at some else's expense. The biggest bait is the expectation of profit on land, either by extracting from the renters a fee for the use of the land, or in the expected increase in value of the land. Most of the shenanigans in the recent economic implosion has to do with mortgages on land. By shifting our tax basis from work to land, we shorten the time that a person has to work to gain access to a given piece of land, since the person who really needs it is already paying a previous landowner, and that previous landowner really hasn't done anything to increase the value of the land (the building, yes, but not the land. The community increases the value of the land with infrastructure improvements, and by improving the neighborhood.

Leaving bait for land profiteers makes about as much sense as leaving a bike unlocked where thieves are known to operate.

Who Benefits? Who Pays? Who Decides?

Whenever we need to think about a program, especially a public program, these three questions (Who Benefits? Who Pays? Who Decides?) can be very helpful. It will help us discover if there are any social costs, or any unintended consequences to our actions or proposals. An example would be a city mandating that house lots be of a certain minimum size, as is often the case with zoning. The people who would benefit form such legislation would be the ones who think that they need to preserve a certain lifestyle that existed when there were fewer people on this planet. The people that would pay would be young people who have limited incomes and could not afford to buy or to pay rent on the larger houses that would be built on the larger lots that are mandated by such zoning. And, the decision would be taken out of the hands of the younger or poorer people and placed in the hands of the more influential and wealthier people.

Another example would be activities that pollute. If I perform an activity that pollutes, even though I may not want it, I will cause expense or difficulty to another person. My driving a vehicle which consumes petroleum releases noxious fumes into the atmosphere. This has a detrimental effect especially on people whose bodies are sensitive to pollutants. Also my driving a larger vehicle at higher speeds means that people who walk, who bike, who are or even others who drive need to pay a cost for my driving. Certainly driving a car is convenient, and fast, but it is not efficient with respect to energy, land use or pollution. This needs be remembered when there is talk of limiting the gas tax. If we limit or reduce the gas tax, we will need to do at least one of three things: we will need to cut government programs, we will need to increase other taxes, and/or we will need to increase the debt.

One activity that does not have negative effects on anyone is the exchange of labor. If I can wire a house for someone and that person can fix the plumbing for me, an exchange of labor is beneficial for both parties. That is one reason that the so-called fair tax has so many negative consequences. It is a tax on new goods and services, including food, clothing, medical services, and building materials which are needed for shelter. On the other hand, Land Value Tax, the land portion of property tax excluding improvements, encourages frugal use of land, which leave more land available for others.

An example of what a shift to Land Value Tax could do would be to compare two properties, one of which is has only a destroyed building on it and another next to it that has an active shopping center on it. Since the destroyed building has zero value on the tax roles, the unused lot pays less tax than the active, job-producing shopping center. This discourages job creation, which is should be a priority of any public policy. If the unused property were to pay the same tax per acre as the well-used property, you can be sure that the holder of the unused property would either build a job-producing facility on that property or sell it to someone who would. This would certainly reduce unemployment.