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.

What's a good economy?

I find it ironic when I hear that the economy is improving, but the unemployment situation is not getting better. I think we need a new measure of "Good Economy". I'm going to propose two measures: How many hours does it take a person of average skills (High School education) to earn money to buy a piece of land of a given size in a given area? The lower the number of hours, the better the economy. The second measure: How many hours of work does it take for that same person to earn money to pay for an hour's work of a person similarly skilled, but in a different area. It seems that the if the government taxes work, via sales tax or wage tax, that the hours of work necessary to do either of these two things will go up; if the government taxes land value, and reduces the tax on work, that the hours of work necessary will decrease. What do you think?

More Jobs per Acre

If we want to solve the problems of unemployment, under-employment, and poverty, we need to look at two different components of material wealth. One component of wealth is God- and/or Nature- given, such as land, clean water, clean air, and radio spectrum. These are things which no human creates. Another component of wealth is work or what humans do with a share of nature to produce the things we need for life, starting with food, clothing, and shelter. Every material thing outside of ourselves is a product of these two components.
How do we create an environment the allows a working person person to earn sufficient income in order to acquire those things we need in order to live in a dignified way? We must look at these two components and and ask what our public policy must be, especially our tax policy.

If we want to maximize the opportunities to work we must not tax work, or the creation of work. This means that sales taxes, goods and services tax, Value Added Tax, and wage taxes are barriers to a person exchanging his or her work for the work of another person. Such taxes mean that a person must labor more hours to meet their needs.

We must also be sure that the God-given natural resources are not hoarded or titled in such a way that land-ownership is a way to wealth without work. We must not allow this vestige of slavery to be the pathway to riches for the few and poverty for the many in this world.

The way to do this is by a tax shift, starting with lowering the part of property tax on buildings and increasing the part on land. This has been done in many jurisdiction on the US, especially in Pennsylvania, in Australia, with the result that the number of empty and underused lots is greatly reduced. It reduces the burden of working and of providing work. It reduces the bait to speculate on land which means that home and farm buyers do not need to bid against land speculation. This tax shift results in More Jobs Per Acre. Who doesn't want more jobs per acre?

For more information, check out: http://wealthandwant.com/ or http://progress.org/

How will I get there?

How will I get there?

How will it be?

Will it be one wheel?

Or will it be three?

One wheel is unstable,

I'll probably fall;

Three wheels is too wide,

I'll never get there at all!

I know how I'll get there!

I know what I'll do!

The right number of wheels, for one person,

is two!

Downstream or Upstream

When we confront the multitude of problems that our country and our world face: Pollution, Unemployment, Homelessness and Lack of Affordable Housing, and Environmental Disasters, for instance, there are two ways of trying to solve them: I call them Downstream and Upstream.

For instance, do we solve the problem of polluted rivers by trying to rid the rivers of pollutants after they get in the river by trying to cleanse the river downstream after it's polluted? or do we control the pollution of the river upstream by limiting the use of pollutants near that river? It would seem much more sensible to limit to control pollution before it gets to the river.

In the same way, we can tackle unemployment, or a least some of its results, by providing unemployment benefits after a person is unemployed. The would be trying to solve the problem downstream. Or we could change the tax system so that a person is not penalized with increased taxes when they work, or provide work. This would be an upstream solution.

With homelessness and lack a affordable housing, we can set up a means test, that is, an income or asset criterion, which would decide if a person would be eligible to receive a subsidy for housing, which would be collected from other people who do not meet this criterion. Those who are just on the other side of this criterion would have to contribute to this subsidy through taxes or other government mandates, either direct or indirect. A downstream solution. Or we could change our tax system so that it increases effective wages and lowers the land portion cost of housing. That would be an upstream solution.

The recent oil spill suggests that this could have been prevented by more controls over those who produce oil (upstream solution). The questions arise:

1. Who would appoint the watchers? Probably, whichever government is in office at the moment.
2. Would those who appoint the watchers be influenced by those who profit from lack of control? You can answer that one.

The alternative would be to reduce the demand for oil by eliminating the subsidies on driving, such as socialized parking (provided by the local governments, and mandated by local governments on those who want to provide jobs or housing. Also eliminating the exemption that motor vehicles and motor fuel have from paying sales tax here in North Carolina, and I presume in other states. Also, zoning which mandates that a certain size lot or house is the only one allowed in certain areas could be struck down. (Upstream solutions)

For all the aforementioned issues the solution of Land Value Taxation needs to be examined, especially in its long-term effects. References are available on this blog.

What happens when you go for a job interview?

What goes on when you interview for a job? I think the first thing the interviewer has in mind is: "What can this person do for our company?" They size you up and guess that you can contribute a value to the company that they convert to dollars per hour. Then, assuming that they calculate a positive value, they have to figure out what it will cost them to hire you. Some of the costs will be the furniture you need, the share of the building you will need, and the share of the land that building occupies that you will need, and the additional taxes they will need to pay if you are hired. All of these things can be calculated in term of dollars per hour. They then have to figure: this person is worth, say, $20 per hour to our company; it will cost about $1 per hour for furniture, $3 per hour for building and tool rent and $3 an hour for land rent (including parking) and $3 an hour in extra taxes our company will pay. So that means that the most I can offer this person is ($20 - $1 -$3 - $3 -$3) or $10 per hour, and not lose money on them. See the graphs here and here. Now, what if, the government collected the land rent as tax, rather than taxing work activities. That would mean that the employer would pay the land rent and the tax concurrently. (kind of like serving a two jail sentences concurrently) This is possible because the person who is now collecting land rent is not producing anything, he is just a title-holder, an idle noble. So if the government takes over this function, it can not only give you back more of the benefit of your work, but will reduce the burden on this person who is thinking about hiring you. In that case the employer can offer you $20 - $1 -$3 - $3 or $13 per hour.

Often the person or organization which owns that land is also the one that owns the building and the tools, but the effect is the same as if it were two people: as building owner he is receiving compensation for something he has provided or has traded his labor with someone for, but as land owner he is getting something for producing nothing, since land is a gift of Nature/God/Higher Power, not the result of any human effort.

If you think that the fact that land value is close to building value seems inaccurate, I took the numbers from the relative value of an office building in Cameron Village in Raleigh: the building is valued at $1.7 million, the land at $1.5.

What you produce belongs to you; what no human produces belongs to everyone.

The graph can be downloaded as Powerpoint or Open Office (Simpress) so you can slide the Tax and Land-rent parts together. Open Office is free, available here.