Charting the Costs of Land Speculation

by Lindy Davies

The familiar “Law of Rent Chart” first appeared in print in the 1915 book by Louis F. Post, The Taxation of Land Values. The chart shows the simple fact that different locations offer different productive potentials — and that the wealth the average producer can create, and keep, on the free land represents the alternative return for producers everywhere. Continue reading

Land: A New Paradigm for a Thriving World

by Martin Adams, 2015, North Atlantic Books. Review by Edward J. Dodson

Twenty years ago I made a decision that has been nearly all-absorbing of my time and energy. I started to compile the documented history of the people who came to embrace the principles embraced by Henry George. Today, despite a considerable number of books and published academic papers on the history of the movement established by Henry George and his generation of stalwart supporters, few people in any country one might name know the movement lives on. Continue reading

“Pop Quiz” Results and Analysis

popquizby Lindy Davies

The following quiz was handed out to participants at the Detroit conference We received 29 completed quizzes — not a bad turnout for such a heady exercise. The number of respondents who chose each answer is shown at left. Of course, reasonable people can — and do! — disagree, but I announced at the time that in my mind, at least, each question had a correct answer. I attempt to explain my thinking on that, below. Continue reading

The Persistent Importance of Land in the Irish Psyche

by John Engle

Land holds a special place in the national psyche of the Irish people. Henry George recognized this fact through his involvement in the Irish Land League movement in America, and during a period spent as a correspondent writing from Ireland. He recognized in the plight of the Irish the plight of all peoples kept from free access to land. Continue reading

Rent — or Tax? Radical Land Reform by Its only Realistic Route

by Shirley-Anne Hardy

The Editor’s comments in the Spring Issue on whether a movement or an organization best serves Georgists’ efforts brought to my mind a remarkable article written many decades ago. “Prisoners of the Organization or Servants of the Spirit” by W. J. Brown (an M.P., and so, knowing whereof he spoke) published in The Spectator in 1949. Brown unfolded how irremediably, simply on account of its hierarchical structure, an organization formed to promote the noblest of ideas comes eventually to betray it. The preservation of the organization itself, presenting the idea, becomes in time the ultimate priority. Continue reading

Astounding Numbers from New York City

The sources of the figures in this index (except where noted) are the annual assessment and sales figures published by the NYC Department of Finance, which are incorporated into a database application by the Henry George Institute. Copies of this user-friendly app (for PCs) are available, with full instructions, on a DVD. We’ll send you one if you ask (and if you wanted to send us a tax-deductible donation, we’d appreciate that, too).

Property tax revenue from buildings as a percentage of total tax revenue: 24%

Personal income taxes as a percentage of total tax revenue: 19.4%

General sales taxes as a percentage of total tax revenue: 13.3%

Property tax revenue from land as a percentage of total tax revenue: 18.2%

Total assessed value of New York City land: $434.1 billion

Average “full market value” of 2,843 vacant lots that have sold since 2005, according to the assessment rolls: $620,946

Average sale price of those 2,843 lots: $2,139,704

Number of those lots that are still vacant: 1,671

Average sale price of a Class 1 (small residential) parcel in Manhattan: $4,533,375

Average sale price of a Class 1 parcel in the Outer Boroughs: $558,903

Percentage of Class 1 parcels that are in Manhattan: 0.9%

Average “full market value” of a Class 2 (apartments, not condominiums) parcel in Manhattan: $7.89 million

Average sale price: $5.69 million

Percentage of of all NYC housing units that are rentals: 68%

Average sale price of a residential condo unit in Manhattan: $1,556,296

Average “full market value” of a residential condo unit in Manhattan: $278,246

Percentage of residential condo units that are in Manhattan: 49.5%

Ratio of effective property tax rate on Class 2 apartment buildings to that for Class 1 residences: 5/1

Median income of renters in NYC: $38,000*

Median income of homeowners in NYC: $79,250*

Number of non-city-owned parcels in Manhattan with an assessed building value of 20% or less of their assessed land value: 4,750

Number in the Outer Boroughs: 57,843

Total area of non-city-owned vacant lots in NYC, in acres: 9,406

In square miles: 15.2

Current “full market value” of the Gansevoort Park Hotel’s lot (103×142 ft.) $8 million.

ues2Price paid in 2005-06 for the four parcels combined to build the Gansevoort Park Hotel: $31 million

Combined “full market value” (2008) of the buildings that were demolished on those four parcels: $4.7 million

Approximate cost of demolishing a 5-story building in NYC: $80,000

Average “full market” land value per square foot, in 2004, of 5 parcels (pictured above) bundled together to build “The Brompton”: $422

bromptonSale price of these five parcels in 2006, per square foot: $4,944

Average sale price of a unit in this building: $2.4 million

 

The Long and the Short of It

by Lindy Davies

When people talk about the economy, they almost always talk as though there’s no such thing as a “long term.” We hear about daily market reports, monthly employment numbers and quarterly profit reports. If we’re really concerned with the Big Picture we might even look as far ahead as the next election season.

This short-term emphasis has been with us for quite a while, but it has certainly been intensified by the obsessive minute-by-minuteness of 21st-century news reporting. Not only do news outlets compete to report, say, the new housing-starts numbers seconds ahead of the competition — they also need their pundit to interpret the trend first. Time is money!

On the other hand, readers of Henry George’s majestic Progress and Poverty will no doubt recognize that Mr. George writes as though there’s no such thing as a “short term.” There are valid reasons for this; George is concerned with the large sweep of history: “The association of poverty with progress is the great enigma of our times.” He shows how every great movement — material progress, universal education, democratic participation, civil rights, temperance, free trade — has served, and indeed must serve only to lower the wages of workers. These forces operate over the longest of terms. Indeed, the United States came out of the Second World War with great optimism. There might be slumps from time to time, but a long-term picture of full employment, boundless growth, two cars in every garage seemed perfectly possible. It took Americans a long time to figure out — and in many ways it’s still, even now, just dawning on us — that all that 20th-century progress led to wages falling, just as Henry George said it would.

Henry George tends to describe economic processes from a sort of prophetic altitude. Commodity speculation zaps inventories right back to optimality; labor and capital markets equilibrate from one sentence to the next. George’s description of the effects of increase in population and of technological improvements on wealth distribution is undoubtedly correct; many historical observations have borne it out. Nevertheless, he writes as though these processes take no time to happen. For one telling example, he writes (Bk. IV, Chp. 3) “Let me ask the reader to bear in mind… that the possession or production of any form of wealth is virtually the possession or production of any other form of wealth for which it will exchange.” Certainly that is (ultimately) true — yet the possession or production of the Flatiron Building would have to be seen as having some functional difference from the possession or production of a Flatiron-building’s-worth of sandwiches, or that value of cash.

For those of us who are concerned with communicating the vital insights of Georgist economics, I think this has implications that are worth considering.

The traditional strategy of “Georgist education” has been for students to first be exposed to Henry George’s works, regardless of whether they’d had any previous training in economics. The rationale for this, of course, has been that the “big picture understanding” that George offers is vitally important, far more so than the minutiae they’ll get in conventional courses. Once students are fortified with such fundamentals as the Laws of Distribution, they’ll be equipped to evaluate and understand more conventional perspectives; indeed, without this basic knowledge, it might be hard to make any “big picture” sense of it all. This is, I think, a perfectly reasonable and viable strategy. It’s widely recognized that mainstream economics has lost touch with reality. Many radical fixes have been proposed — but as each fad has risen and fizzled, Georgism has stood its ground as the original “post-autistic economics.”

However, our eagerness to stick to first principles leaves us vulnerable to the occasional blind spot. You probably recall that the Henry George Institute has recently moved away from Henry George’s insistence that services are not part of production (see “Political Economy and Services” in GJ #109). This long & short business is, I suspect, another off-key note in our symphony. The HGI proclaims in its curriculum that whenever the economy is growing, rent tends to take a proportionally greater share of the product. That pie chart has enjoyed full ecclesiastical approval for decades.

But! Let’s say an influx of strong and able workers have started employing new technological improvements to create a strong economy. Demand for goods and services is up. What is needed, then? Well, the factors of production, of course. You need land, but new land isn’t that easy to just up & put into production. You have to arrange terms for buying or leasing it, and communities have to provide the infrastructure and services that make it worth buying. You also need capital. It’s true that some capital, such as store inventories, is delivered quite quickly — but other capital, such as buildings, vehicles and manufacturing equipment, takes longer to come by, and must be gotten on terms like those for getting land. When people are really eager to buy more widgets, what you need most urgently is labor. Demand for labor goes up, relative to its current supply. That means we need to inform our iconic pie chart that labor gets a larger share of the product in the short term.

In time, of course, land’s fixed supply and indispensability will assert itself, and rent will swallow up the gains of population and material progress. However, we have to recognize that the short-term picture of distribution differs from the long-term one. Conventionally-taught readers will look at our picture of the dynamics of distribution (the proportional shares of the wealth pie shifting in favor of rent) and think we’re daft. After all, they have been taught — and not totally wrongly — that when wages, always the greatest expenditure in production, rise in a growing economy, the likely result is wage-price inflation. Reasonable people can argue about how important that is, and how long it lasts — but it is a real macroeconomic phenomenon that we miss, if we insist on ignoring the short term.

wage-chart

Source: US Social Security Administration website

There are other short-term realities that Henry George glosses over. He says that when workers lack a viable option for self-employment, wages tend to bare subsistence. That has been shown, many times, to be only too true. Nevertheless, it tends to happen so dashed slowly, amid so much noise and countervailing hoopla, that most people have trouble seeing it. After all, if wages in the United States had truly fallen to bare subsistence, why would there be such a huge demand for illegal-alien workers? What really happens is that wages tend to fall to bare subsistence globally, and workers cling to every opportunity to consolidate and keep what gains they’ve managed to make. Wages in the United States have certainly fallen; labor’s gains from the US’s unchallenged 20th-century prosperity have been inexorably grabbed by the one per cent — but it’s taken the better part of a century to come about.

Another key Georgist point that is obscured by short-run thinking is the idea that all taxes come out of rent. The basic idea is that the vast majority of labor and capital are competitively-priced, that competition will tend to remove any surplus from wages and interest, and therefore all taxation has to ultimately come out of rent, the only surplus that remains (or at least, all taxes have to come out of the rent that would have been there had production not been hindered by taxation). Without a doubt, this does happen — and Mason Gaffney has pointed out many subtle and fairly quick-acting ways in which the principle manifests itself (see “The Unplumbed Revenue Potential of Land Part 3: ATCOR — All Taxes Come Out of Rents” in GJ #103). But it is by no means instantaneous.

There are lots of people out there who have pretty decent jobs, who have outcompeted other workers to get where they are. (There are even a few still in unions.) Others at least have the protection of minimum wage laws. People have home mortgages to stay current on; they have kids in schools; in short, they have roots in situations that include their current jobs. If something happens to increase their cost of living for the current year (such as an increased health insurance premium, or inflation eating into their buying power, or their liability-only insured car getting wrecked — or a tax increase), well, there will be hardship, but they will soldier on. This means that for a pretty beefy, influential short term, all taxes don’t come out of rent. Not in advanced economies, anyway — they pretty much do in places such as Haiti or Somalia, where opportunities for above-margin workers are quite limited (which helps to explain why such places have very limited public sectors).

Despite J. M. Keynes’s oft-quoted quip that “in the long run we’re all dead,” mainstream macroeconomics does recognize differences between short- and long-term effects. The study guide to a leading Macro text summed it up as follows. Short-term macroeconomic effects have to do with how current output diverges from potential output — the extent to which present production is greater or less than its present potential. Long-term effects, on the other hand, have to do with changes that affect potential output itself.

I’ll offer one positive and one negative example each, for short-term, and then long-term, macroeconomic effects. In the short run, stagnant credit due to the recent financial crisis slows demand for widgets, so employment and GDP are below what they could be, given the existing labor force at its current level of productivity. Or, conversely, you could have a situation where easy credit is available, stimulus spending has done its job, unemployment is diminishing and demand is strong; output has moved past its current potential — and inflation is increasing more quickly than investors and creditors would like.

Examples of long term effects might include increased international movement of goods and capital, increasing productivity across the board, releasing forces that widen the gap between the very rich and everyone else. Or — the combined forces of global climate change and international conflicts could drastically lower potential output by forcing far more resources to be devoted to basic survival needs; that would be, y’know, a long term effect.

Is there any policy that can be implemented in the short term that would influence (one hopes for the better!) long term effects? If we’re restricted to conventional Keyensian or Monetarist remedies, it’s hard to see what that could be. Things like deficit spending to stimulate demand, or raising interest rates to curb inflation, can only be adjustments to the current divergence from potential; they serve only to shove incentives toward the other end of the seesaw. Supply side tax cuts might stimulate demand for a while, but eventually either deteriorating infrastructure or public debt (or both!) would drag growth back down.

The conventional notion of “potential output” is, I think, a powerful rhetorical weapon against general acceptance of our (entirely plausible) utopian claims. After all, in this best of all possible worlds, “potential output” is nothing more or less than the general equilibrium that results from freedom and private property, coupled with prudent regulation and democratic participation, unharassed by inflationary worries. Yeah, sure, we could do better if electricity and teleportation were both free and everyone in the Middle East got along, but we live in the real world. Credentialed experts have determined that potential output — what they call “full employment” — is pretty much the best we can do, so let’s not get greedy!

I know that Georgists out there are chomping at the bit to make this next point, so: All together now: The Georgist remedy would yield both short-term and long-term benefits — it would, at least, if it weren’t allowed to be subverted or repealed as soon as it started to take effect. To the extent that it removed the deadweight loss of taxes on production, it would have the demand-enhancing effects of stimulus spending. And it would provide infrastructure funding that not only doesn’t penalize production, not only doesn’t have to be borrowed, but actually stimulates production! For a full and heartening description of the potential long-term benefits of the Georgist remedy, I refer the reader to Book IX of Progress and Poverty.

Friends, I am with that, without reservation — I have since about 1985 when Mike Curtis first taught me about this stuff. Maybe there’s a psychological explanation: maybe our painful lack of short-term success just makes it more comfortable for us to emphasize the long run. Ah, well. I’m just saying that since most of the econ-savvy people out there think short-run effects are so all-fired important, it would behoove Georgists to acknowledge that they do, at least, exist.