Is The American Dream Dead in Northern California?

In 1931, historian James Truslow Adams said the American dream mandates that “life should be better and richer and fuller for everyone, with opportunity for each according to ability or achievement”, regardless of social class or circumstances of birth. But what does that actually mean?

For some, the vagueness of the American dream concept makes it difficult to quantify. Identifying a more specific metric of focus would offer a clearer picture of American opportunity for prosperity and success, and an upward social mobility for all people.

TechCrunch.com journalist Kim-Mai Cutler delivered a presentation at Earthsharing.org’s BIL Oakland 2016: Recession Generation event on July 9, in which she focused on the intersection between opportunity, technology, and land. To address this intersection, she referenced the research of Stanford University economist Raj Chetty.

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Figure 1

Chetty analyzed the family income records of 40 million children over the past 20 years and calculated the likelihood of a child born into the poorest 20 percent (lowest quintile) of society reaching a higher quintile in income. Isolating geography as a determining factor, Chetty found that, for example, the city of San Jose provides the best opportunities for a poor child to reach the 80th percentile in income distribution, compared to all other cities across the country. This is shown in Figure 1.

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Figure 2

Despite this, Figure 2 shows a trend reflected statewide and across the United States wherein median wages are increasing, but poverty is also on the rise, and homeownership is falling.

This trend in Santa Clara County flies in the face of conventional thinking, whereby poverty should decrease as incomes and opportunities multiply. If people are making more money, yet are less able purchase a home, the home price must be rising faster than the wage.

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Figure 3

Similarly, apartment rent is skyrocketing. There is a lot of job growth, which would tend to indicate that labor is more in demand and that incomes will be higher, but most of the new jobs do not pay well – most make less than 50 percent of the average median income (AMI), as seen in Figure 3.

To add insult to injury, Figure 4 shows that many lower-wage workers fall well short of average asking rents, and are therefore unable to work and live in the same area. These people must either cohabitate or commute long distances in order to secure housing that they can afford.

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Figure 4

These are direct consequences of Proposition 13, which greatly limits property taxation in the state of California. Proposition 13 defines what a parcel of real estate can be taxed, how much that tax can grow annually, and when the parcel’s value can be reassessed. Over time, this has created severe market distortions, as developers have no incentive to build additional housing that is affordable. This ultimately limits housing supply, forces workers to commute further from the urban centers, and leads to additional sprawl.

How does this all affect upward mobility? For starters, family commute times correlate with a child’s future success and earnings. Figure 5, from Chetty’s study, shows that a transit time of 15 minutes or less significantly correlates with a child’s upward mobility.

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Figure 5

If the American dream is precipitated by upward mobility from one income quintile to the next, it is becoming an unattainable dream for an increasing percentage of the population. Without significant policy change, it will become impossible for many families to escape wage slavery.

Remedies do exist – some to resolve the problem altogether, and others to mitigate it. Metro San Francisco has seen a significant growth of working professionals choosing cohabitation, as well as the tiny house movement of 100-400 square-foot spaces. Unfortunately, these behaviors do not address the structural inequities and land misuse created by the current policy environment and Proposition 13.

With this in mind, it would be sensible for new housing construction in the Bay area to occur where economic activity is most concentrated, namely downtown San Francisco. Downtown areas tend to have the greatest land values, but traditional strategies for construction in the city center tend to be very expensive, politically treacherous, or otherwise ineffective. While cohabitation and tiny houses might make the area more affordable for a few, government must incentivize urban development in high-demand areas to effectively turn the tide of this crisis. To this end, the city and state must consider a Land Value Tax.

The economist Henry George documented this phenomenon of market exclusion 137 years ago in his seminal work Progress and Poverty. George demonstrated how rent increases faster than wages, and to expedite new construction, he recommended eliminating taxes on work and consumption and shifting the source of revenue to Land Value Taxation. His idea was to encourage landowners and developers to increase residential and commercial space in order to pay the Land Value Tax, while generating a respectable return and providing value to others. Land Value Taxation naturally becomes even more effective wherever land values are higher, like the urban core of cities. Implemented in cities, Land Value Taxation leads to a substantial increase in both living and working space.

California faces a unique challenge due to the limits imposed by Proposition 13, and overcoming this would require a difficult voter-approved constitutional amendment to completely overhaul the property tax system. State legislators and regional and city planners would be remiss not to consider a Land Value Tax, which has had demonstrated success in increasing residential space in the United States and abroad.

 

Watch Kim-Mai Cutler’s presentation below:

 

Images: Keynote presentation by Kim-Mai Cutler at BIL Oakland: Recession Generation 2016

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Origins of the Silicon Valley Housing Crisis and How to Fix it

Most of the wealth being generated in Silicon Valley is the result of advanced engineering, risky venture capital and cut-throat business acumen in the face of rapidly-evolving competition. Visa, HP, Intel, Adobe, Ebay, Apple, Google, Facebook – the concentration of multi-billion-dollar enterprises in this tiny pocket of Santa Clara Valley is staggering.

But not everyone making big money in Silicon Valley had to major in a STEM field or produce any real wealth to do so. For those who have speculated on rising land values, the last 40 years has been a gamble that keeps paying off. In the 1960s, when the land in Santa Clara Valley was producing prunes instead of circuits, John Arrillaga Sr. and Richard Peery could see the wheels of a new boom beginning to turn. These young entrepreneurs spent the next decade building the corridor through which much of Silicon Valley’s world-changing innovation would pass.

By constructing custom and cost-effective office units quickly for emerging tech companies, Arrillaga and Peery dominated the region and became its go-to developers. Their signature, low-slung concrete buildings called tilt-ups made for cheap and quick construction early on. The pair was also among the first to build before tenants were confirmed, in the hopes that immediate availability would be attractive to businesses. The land they had bought up as young men began to generate formidable returns, and the speed of technological progress coupled with an apparently insatiable demand for more space created today’s Silicon Valley, synonymous with skyrocketing land values. While this new value injected into Santa Clara Valley draws people to the area and creates prosperity for those in innovative industries, it also attracts speculation where it is possible to capture significant wealth simply by owning land.

Arrillaga is worth more than $2.5 billion, a fortune earned in part from unparalleled skills as a developer, but also because he was able to extract a great deal of unearned wealth. The contribution of pioneering land developers to economic growth is undeniable, but unfortunately, taxation structures have not kept pace with the rapid transformation of unproductive land into a cybercity of millionaires and billionaires. The wealth that has been obtained from constructing buildings is hard earned, but the enormous increase in rental income resulting from rapidly-increasing land values has not been earned. It’s not as if aging structures have grown more valuable, it’s the land underneath them that has skyrocketed in this hub of innovation, land values created by an aggregation of economic activity not attributable to any one person, developer, or tech company. The value of this land is indeed a socially-created value.

Today, the success of entrepreneurs starting tech companies has made Silicon Valley the most expensive place to live in the United States. As these tech giants grow, the reach of their impact on the housing market spreads, and migrant employees move with their money to suburbs farther and farther out from where they work. In so doing, they shape land values and make other lasting changes to the urban environment. The gains generated by developers like Arrillaga and captured by speculators can ripple out into the wider community and inflate the cost of living.

By Unsplash via Pixabay.

The incredible wealth now being generated by high-tech industries in Silicon Valley has put a premium on all surrounding land, both commercial and residential. Working-class residents can only hold on to rent-controlled accommodation for so long before the profit motives of private developers see them evicted, and their housing demolished. According to the Guardian:

Between 2000 and 2013, the number of low-income households in the Bay Area increased by 10 percent, but the region lost 50 percent of units defined affordable for this population, according to researchers at the University of Berkeley, California, who have closely studied gentrification and displacement.

The proliferation of wealth in our communities is a wonderful thing; the only reason it causes such polarization is because systemic inequalities go unaddressed.

We can have the best of both worlds. For men like Arrillaga and Peery to have the opportunity to create these cash cow business parks and bring thousands of talented professionals to Silicon Valley is incredible, it should be celebrated.

As people have come together to produce a great deal of wealth in the tech industry, land values have boomed. Those who were able to get on the property ladder before an oncoming swell in land values simply sell or rent for huge windfall gains, unearned wealth, while prior tenants are displaced. Incoming renters are squeezed or turned away entirely by the high rent.

The problem is not the tech companies or their workers, and it is not the vulnerable tenants; it’s not even the landlords who benefit from, perhaps unconsciously, playing the working class renters and the angry anarchists off the techies. It’s our system of property taxation. The best and simplest way to correct the imbalance, to give justice to everyone, is to implement a system of Land Value Taxation while reducing taxes that harm the poor and the production of new wealth.

From the developer’s’ perspective, a Land Value Tax would in no way detract from the incentive to build in the first place, as the taxes on buildings would be eliminated, after sales and wage taxes. Furthermore, the incentive to build on unused, centrally-located land would increase. They would have an even greater incentive to build immediately because owning the land without having tenants would leave them in the red after paying their Land Value Tax bill each month. The site would not be a speculative asset, but one that only yields a positive return if a developer uses it well to meet people’s needs.

For Arrillaga and Peery, the taxes due on their development portfolio would have grown with the unprecedented business success of their tenants, from dirt cheap taxes on empty lots to large tax bills on lucrative land accommodating high-end office buildings. This would have generated a massive amount of public revenue without harming incentives toward innovation. The seeds of gentrification are nurtured by insufficient housing supply, but Land Value Tax would mean that centrally-located land would be developed to accommodate increasingly more people at comfortable densities.

By lauramba via Pixabay.

This policy encourages landowners to maximize the revenue they can generate by constructing and maintaining buildings of the highest caliber to attract tenants. As opportunity brings more people to an area for work, demand for housing pushes land values even higher, which increases revenue from the Land Value Tax even more. A landowner can then create more housing, often vertically, to cover the larger tax, or if they are unable or unwilling, sell to a developer who will. This applies not just to Silicon Valley, but to any in-demand area where the concentration of jobs forces living costs higher than many can afford.

Land Value Tax can be used as a source of revenue to fund great social programs, even while reducing wage and sales taxes -from health vouchers to housing for mentally ill homeless people, or even a universal basic income. Without a Land Value Tax, however, the benefits these social programs create will simply be captured by landlords through higher rent charges. Thus, the positive effects of these social policies would nearly be wiped out, funneled into the pockets of landlords as rent hikes. For example, if everyone was given a $10,000 basic income each year, all else being equal, what would happen to the cost of rent? It would go up by a comparable amount, and largely cancel out the benefits of basic income to the most vulnerable people. However, with Land Value Tax, incentives to increase housing supply would result in people being able to protect their basic income from rent hikes.

Governments will not be able to subsidize their way out of this housing crisis with palliative measures. Creating a system of incentives in which the market is enabled to correct itself is the most sustainable way forward, and offers the best hope of ensuring affordability for all while simultaneously giving a boost to incredible growth in future industries.

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Fixing The Bay Area Housing Crisis

The San Francisco Bay Area is in the midst of a severe housing affordability and displacement crisis, the result of years of inadequate public policy, a clash of generational attitudes, and ubiquitous obstruction of new housing projects. At the BIL Oakland: Recession Generation conference, hosted by EarthSharing.org on July 9, a panel of four housing advocates shared their thoughts on where to go from here.

Zac Shore, Stephen Barton, Alex Lofton and Tim Colon described a multi-faceted crisis requiring concurrent and complementary solutions.

Zac Shore is the director of development for Panoramic Interests, a construction company focussed on affordable student housing, workforce housing and homeless housing in San Francisco.

The company has a modular construction ethos that crystallized when they traveled to the U.K. and witnessed the construction of 190 apartments in eight days using shipping containers.

“When we saw that, we were convinced, and now we’re starting to build with it on a large scale in San Francisco.”

Panoramic Interests has built hundreds of apartments for students and workers, and is now beginning to build for the homeless. Shore cited demonstrable cost savings associated with housing homeless, cutting down on chronic use of emergency services and offering an economic incentive alongside the humanitarian one.

Stephen Barton represented the Bay Area Community Land Trust and the Committee for Safe and Affordable Homes. Barton has a PhD in city and regional planning from the University of California, Berkeley, and was director of the Housing Department and deputy director of the Rent Stabilization Program in Berkeley, California before retiring recently. He has written widely on housing policy and co-authored Common Interest Communities: Private Governments and the Public Interest.

Barton argues that new construction does not have the ability to solve the Bay Area’s housing crisis.

“It’s not to say that increasing the housing supply is not important, because it’s desperately important,” he said. “But of course we have Prop. 13 here in California and its progeny designed to protect real estate investors’ windfall profits, and of course encouraging land speculation because people who own vacant and under-utilized land hardly pay anything in taxes.”

Using taxes to treat rental property like a business rather than personal real estate would be a step in the right direction, “to recapture through taxation the value that we and those who came before us have created,” Barton said.

“If you applied a two percent tax to rental property in the whole Bay Area, you would raise $500 million a year and it could lead to construction of as many as 50,000 affordable apartments.”

“About half of the rent that tenants pay in the Bay area is not, in fact, necessary to profitably operate and maintain the housing once it’s been built and the construction costs are amortized. Instead, it’s basically an admission charge – ‘welcome to the magic kingdom, here’s how much you have to pay to be here in the Bay area’.”

Alex Lofton is a co-founder of Landed San Francisco, a community-based brokerage organization that raises capital from investors interested in local real estate, and uses that money to support first home-buyers with down payments.

“Our whole system is set up on the intergenerational transfer of wealth: you’ve got to ask your mom or you dad, or brother or sister, or grandparents to help you buy your first house, especially in expensive places. So we just say ‘Why can’t there be other options than mom and dad…to borrow that money?’”

“You live in a place like this and you question if you’ll ever become an owner…the leap from renter to owner is just impossible.”

While affordability was the main problem with Bay Area housing, requiring greater supply and higher incomes, another way forward was thinking about the concept of ownership differently, and coming up with creative ways for whole communities to help people get started in the property market.

“There isn’t a silver bullet, it does take a lot of solutions.”

Tim Colen, at the time of conference, was executive director of the San Francisco Housing Action Coalition, an organization promoting well-designed and well-located housing. Prior to this, he was president of the Greater West Portal Neighborhood Association, and spent 25 years working as geologist.

San Francisco is cursed by having a red-hot economy, and highly-skilled workers flooding into a city that has a history of under-producing the amount of housing it needs.

“We have chosen policies for the last two or three decades that have led us to this position where our population is growing by about 10,000 residents per year… a city that has a historic production rate [of houses] somewhere around 1700-1800 units a year.”

“It’s already a city that’s become hostile to the young, young families, seniors, immigrants, the artists, the weirdos, the hippies, everybody. It’s going in the direction of becoming a luxury resort with a certain amount of housing we can afford to subsidize.”

In Sacramento, liberal democrat Governor Brown has taken a bold step by introducing “by-right housing”, whereby if certain conditions are met by developers then new builds cannot be obstructed.

“It’s the first tool we’ve seen in ages that says ‘you can’t appeal projects to death anymore’,” Colen said.

The dominant conversation around housing has been one of intergenerational change, and the desire of previous generations to keep things the way they are, Colen said, and this has tipped the balance of power toward those who say no to development and increase construction costs.

“We’re strangling ourselves,” he said. “There is not enough money in the world to subsidize our way out of this problem.”

 

This panel discussion highlights a struggle between established residents and newcomers, who should be joining forces against an entirely different threat. Renters are being squeezed out of the Bay as prices surge, while would-be newcomers, many of whom are tech workers, are kept out by the same phenomenon. Both blame each other, yet it is landowners who are making a killing off the skyrocketing costs for space in the Bay Area.

Yes, tech workers drive up the cost of land, but freezing new construction also makes apartment rents artificially high. Both groups are right, but it is unfettered and untaxed landlordism that is the real problem.

There is a way to help protect those in danger of being forced out of the Bay, while also giving access to newcomers in innovative industries: tax the rising value of land and reduce taxes on working and exchanging. A citizen’s dividend paid out of the revenue from a land value tax, what some call a basic income, should be given to everyone to be spent as they wish. They would use this money to subsidize their apartment, while construction could boom in downtown San Francisco and elsewhere in the Bay. With more people able to fill the new units in the central locations, this would take pressure off areas even slightly outside the central business district. This in turn would retard the rise in rent from what it otherwise would be, while putting more money in vulnerable people’s pockets to secure housing.

 

 

Feature photo: Guner Gulyesil City Romance via photopin (license)

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Julia Bossmann: Challenges Of A Post-Work Society

BIL: Oakland 2016 Recession Generation was an Earthsharing.org conference in Oakland, California on July 9th. Foresight Institute president Julia Bossmann presented an argument for moving toward a post-work society, and the changes both economic and social that would be required to achieve this.

Bossmann recounts the incredible advances in artificial intelligence we are witnessing, whereby computers are writing original imitations of Shakespeare, dispensing effective legal advice and piloting cars through traffic. Bossmann believes that innovative scientific research will be next on the list of A.I. accomplishments.

Photo: FritzchensFritz AMD@14nm@GCN_4th_gen@Polaris_10@Radeon_RX_470@1622_M60J5.0A_215-0876204___Stack-DSC07208-DSC07236_-_ZS-PMax via photopin (license)
Photo: FritzchensFritz AMD@14nm Radeon_RX_470 via photopin (license)

“They have theoretically unlimited memory, they have a way faster speed of reading, they can find insights and facts from all across and then draw connections and find patterns. So now that we may have reached the limit in medical research – that one human mind may not be enough to figure it all out – having a machine mind may open the floodgates to finding out much more.”

Bossmann’s scenario of a post-work society presents significant economic challenges, with a disruption of millions of jobs across the professional spectrum. Truck drivers could be an early casualty, but many others earning an income by selling their time and labor stand to lose their current employment due to automation.

“How would a human even compete with someone who can drive for thousands of hours at no end and not ask for a salary?”, Bossmann says.

Photo: jurvetson Your Uber Otto has arrived via photopin (license)
Photo: jurvetson Your Uber Otto has arrived via photopin (license)

In general, a person’s income is derived either from time, or from ownership of assets like land and other property. Bossmann states that “once the time goes away, the only thing left is ownership. And we all know that ownership is not distributed in a way that all of us could just live on that alone; in fact, most of us need to sell our time to live”. A radical shift in how we think about ownership is required if society is to remain prosperous, Bossmann says.

As artificial intelligence progresses, those who own the valuable sites where A.I. research takes place, especially in Silicon Valley, will continue to become more disproportionately wealthy vis a vis the appreciating value of their land: rents they can charge, prices for which they can sell, etc. They will become wealthier not by doing the research and development themselves, but simply by owning valuable space in areas doing R&D. Regardless of Bossman’s predictions about the rate of A.I. progress and its replacement of human labor, a greater proportion of the wealth created will continue to go to owners of prime land.

Those who own prime locations already have a large advantage over wage earners, simply by their ever-appreciating real estate values. We have seen a huge explosion in labor-saving devices, wealth production, and wealth inequality in the last two centuries. These gains disproportionately go to the owners of property. So, there is already a need to share the returns from owning natural resources like land.

This need to redistribute the benefits of land ownership become even more obvious in Bossmann’s prediction of the future – where she assumes a lack of A.I. winters/ceilings, no comparable human intelligence augmentation, and where the Law of Comparative Advantage (between humans and robots) no longer holds. In such a scenario, obedient robots would simply produce enormous amounts of wealth, and this wealth would all go to those humans who own the natural resource inputs needed for A.I. The people who did not own land, or receive a dividend/basic income of some kind, would simply have no income.

Henry George, a prominent political economist and author from the late 19th century, argued that gains derived merely from the ownership of land and other natural resources should be considered the property of everyone, not just the title-holders. A system of land value taxation would be a pragmatic way of shifting the burden of raising public revenue from workers to landowners. It would be the obvious choice for funding a basic income that would protect people from unemployment now, and facilitate any kind of post-work society.

“Once we have figured out this dilemma, and we have machines that will do most of the work on the planet… we will look back and think that it was barbaric that people had to sell most of their living time on this planet, doing things they didn’t want to do,” Bossmann says. But reaching an economic consensus is not all that is required to reach a prosperous post-work society.

“Many of us define ourselves by our jobs, what we do for a living, how much money we make, all these things are important to so many of us. Are we willing to give up this kind of thinking for something better?”

Julia Bossmann is president of Foresight Institute, a think tank promoting transformative future technologies, and founder of Synthetic, a startup building A.I. of its own. Bossmann is a McKinsey Fellow, Singularity University GSP graduate and master of science in neuroscience and psychology. She lectures on Artificial Intelligence, hard technology, innovation, the future, and technology transforming society.

 

Photo: Tej3478 <a>Artificial Intelligence</a>. Licensed under Creative Commons.

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Creating Strong Towns With Localized Self-Government

BIL: Oakland 2016 Recession Generation was an Earthsharing.org event which took place on July 9th in Oakland, California. Keynote speaker Chuck Marohn presented his experiences as an engineer, city planner, and founder of the non-profit Strong Towns to explore the problems with large, specialized systems of government, and the case for localization.

In a world where city planners and engineers must work within a narrow vision on the same sorts of projects, Marohn says there is a disconnect that only leaves space for endless repairs and fix-ups, and very little room for real creative thinking or new technology. With many cities struggling financially or going broke, Marohn makes a case for innovation that not only can increase the productivity and self-sufficiency of a town, but can improve the lives of all who live there.

Marohn suggests that while big governing organisations tend towards specialists as decision-makers, localized government is most effective when generalists are in charge. People who can make connections with others, seek out the experts on any given subject, and bring together combinations of skills will be the most successful leaders.

“The large systems that we have created – really a byproduct of the things that happened in the Depression and World War II – allowed us to accomplish a lot of things in a very short period of time, but come with their own fragility, their own kind of disconnectedness.”

“You can see in things like the Brexit vote, you can see in things like the conversation we’re having in our election cycle… you can see this disconnect between the large systems we have to govern ourselves, the large systems we have to run our economies, and the way we actually live our everyday lives.”

He has also advocated for shifting from the traditional property tax to a land value tax. He explains:

“The property tax system punishes investments that improve the value of property. The land tax system… punishes property that is left idle.”

Charles “Chuck” Marohn works as a licensed engineer in the State of Minnesota.  He is a member of the American Institute of Certified Planners and founder and president of Strong Towns, a national media organization that supports the development of resilient cities, towns, and neighborhoods. Marohn holds a Master’s degree in Urban and Regional Planning from the University of Minnesota and a Bachelor’s degree in Civil Engineering from the University of Minnesota’s Institute of Technology.  He is the author of Thoughts on Building Strong Towns. Volume I and A World Class Transportation System.

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Robin Hanson On Life With Replicable Robots

BIL: Oakland 2016 Recession Generation was an Earthsharing.org event which took place on July 9th, 2016 in Oakland, California. Keynote speaker, Robin Hanson, shared a fascinating vision of the future in which cheap, replicable robots are able to do most human work, and the implications of such a possibility.

Hanson presents an idea divergent from what he says are the two most prevalent in the world of artificial intelligence, those being either slow, ongoing developments in AI research over the coming decades, or some “grand new theory” that hasn’t been discovered.

“The third scenario is where we port the software that’s already in the human brain,” Hanson says.

“If we have good enough models for how each of the cell types work, we have a good enough scan of a particular brain, we have enough cheap, fast computers, then we can make a model of that particular person’s brain on those computers; and if it’s cheap enough, you could run that simulation cheaper than you could rent the human, that changes everything.”

He thinks this means “humans retire” and become completely replaced in the labor market by these emulated brains. However, he says humans “start out owning everything” and “their investments double as fast as the economy, i.e. every month.” So he thinks this means that humans who have access to wealth, and he mentions real estate in particular, will profit tremendously. He implies that those who don’t have wealth will suffer.

This parallels a lot of the discussions we usually have at EarthSharing about the need to fairly share the fruits of nature, so that we can all benefit from technological progress. Even these far-future forecasts aren’t, ultimately, so different from ages past. In the Guilded Age, we had industrialists profiting enormously off resource wealth and land during a time of rapid technological growth.

What this discussion shows is that no amount of technology can be relied upon for solving the problems of political economy. Poverty, in particular, cannot be solved without economic justice.

 

Robin Hanson is associate professor of economics at George Mason University and a research associate at the Future of Humanity Institute of Oxford University. He is known as an expert on idea futures and markets, and he was involved in the creation of the Foresight Institute Foresight Exchange and DARPA FutureMAP project. He invented market scoring rules like LMSR (Logarithmic Market Scoring Rule) used by prediction markets such as Consensus Point (where Hanson is Chief Scientist), and has conducted research on signalling.

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The Norwegian Model: Managing Resource Wealth for the Common Good

Natural resources play a foundational role in a country’s economic development. As natural commons, they provide economic assets via space, raw materials, and energy that can be used to create other assets and opportunities in the form of industry and wealth. But because these commons are finite, their mismanagement often leads to a boom and bust pattern of economic development. Norway, however, has set a solid example for how to properly manage natural resources, including one of the most sought after – fossil fuels.

In the 1950’s, European countries began to speculate that vast oil and natural gas deposits lay under the North Sea. This theory was confirmed in 1959, when the largest natural gas field in Europe was discovered in the Netherlands. Excitement grew around potential future discoveries, particularly in the area of Norway’s continental shelf. Anticipating the discovery of reserves, the Norwegian government passed legislation in 1963 stating that the State owns all natural resources. The legislation also stated that the government is the only authority that can grant licenses for exploration and production. This legislation put Norway’s natural commons firmly into the hands of its citizens.

This turned out to be smart planning. In 1969, oil was discovered in Norway’s continental shelf. Oftentimes, nations turn to free-market economics, an approach that consistently fails to allocate the wealth derived from natural resources efficiently. Instead, Norway sought a different strategy to ensure that this natural commons provided long-term wealth to the entire country.

Initially, the Norwegian government gave private energy companies limited licenses to explore and tap Norway’s reserves. These companies can be credited with developing the country’s first oil and gas fields. However, in an effort to maximize national revenue, in 1972, the government moved quickly to create a government-owned petroleum company called Statoil. From that point forward, any foreign energy company granted a license was required to split 50% of the work with Statoil.

photo credit: L.C.Nøttaasen Yme platform via photopin (license)
photo credit: L.C.Nøttaasen Yme platform via photopin (license)

Norway’s fast action prevented the privatization of its natural commons and secured its oil wealth for its citizens. The government credits oil wealth with the creation and sustainability of their welfare state and support of macroeconomic development during downturns in the petroleum industry.

In the 1990’s, the government created the Government Pension Fund – Global (GPFG), informally known as the Norwegian Oil Fund, as a place to deposit all excess oil profits. The value of the fund stands at a staggering $850bn, and officials estimate that sum will surpass $1 trillion by the end of 2019.

So what has Norway been doing with all this money? Well, not much. And that is the point. The government capped annual withdrawals at 4% in order to prevent hyperinflation and to secure a surplus of money to survive in a looming post-fossil fuel world. This decision has proven wise recently as a drop in oil prices has moved Norway to declare its petroleum industry in crisis.

Norway’s natural commons management is a shining example of the prosperity that results when revenue from national resources is shared by all citizens. Norway has used this wealth to create social and economic programs that help each citizen. This wealth has also built a massive pension fund that can support the country during periods of economic hardship. It is a powerful equalizing tool not often seen in nations rich in oil and other natural resources.

photo credit: Jean-Paul Navarro The Grand Harbor via photopin (license)
photo credit: Jean-Paul Navarro The Grand Harbor via photopin (license)

Some economic scholars draw comparisons between Norway’s approach to natural commons (referred to as “petro populism”) and the theories of Henry George. Henry George, an American economist and political theorist from the 19th century, postulated that land is social commons, and that the profits drawn from land should be shared by all citizens via the use of land value taxation (LVT). In the case of Norway, they have taxed the revenue drawn from oil rich land at the very high rate of 78% and both redistributed and saved that revenue. In addition, they have carried over such sustainable thinking towards other natural resources, such as lumber and fisheries, and seen the same successes as with petroleum.

Resource-rich nations should take lessons from Norway on how to fully profit from and intelligently invest revenues from the utilization of our natural commons. The discovery of lucrative resources can inevitably lead to a boom and bust economy. Avoiding that requires managing those resources appropriately and wisely, as the Norwegians have, by using wealth derived from them to create an equitable and healthy society for all.

But all nations, whether “resource-rich” or not, have at least one socially-created resource of enormous value which can be tapped: the rental value of land.

Audio podcast on Norway and it’s oil management system. Courtesy of NPR online.

Featured Image: photo credit: arbyreed  via photopin

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Chelsea Roff: A Non-Profit Is A Business Too!

Chelsea Roff Discusses non-profits at BIL Oakland 2016: Recession GenerationChelsea leads Eat Breathe Thrive, a Los Angeles based non-profit focused on treating and preventing eating disorders. Eat Breathe and Thrive began as a free program that Chelsea began at local clinics, as her personal passion, in her free time. After some timely and fortunate media exposure, the opportunity suddenly arose for her to convert this program into a meaningful career as part of a non-profit organization.

Chelsea was one of the featured speakers at BIL Oakland 2016: Recession Generation.  The event served as a skill-sharing event for those interested in social, economic, environmental justice.  In addition, a myriad of revolutionary ideas aimed at promoting greater social, economic and environmental justice like land value taxation were introduced and discussed at length.

In the talk, Chelsea introduces the similarities and differences between non-profit and for-profit businesses. During it, she explains how to effectively manage and fund raise for a non-profit. In particular, Chelsea carefully introduces the potential revenue streams available to non-profits and how the unique status afforded to nonprofits serve to better enable their sustainability, all while satisfying the extensive byzantine legal requirements that the IRS places upon all 501 (c) non-profits. 

About Chelsea Roff (bio)

Chelsea Roff is the Founder and Director of Eat Breathe Thrive, a nonprofit organization that prevents and helps individuals overcome disordered eating and negative body image. An internationally recognized author, speaker, and yoga teacher, Chelsea has spent the past seven years pioneering integrative health programs for people with mental health challenges. Prior to her work in mental health advocacy, Chelsea worked as a researcher in a psychoneuroimmunology laboratory. Her research explored how stress affects mental, emotional, and social health, and how mind-body practices like yoga can improve the outcome of chronic immune diseases like HIV/AIDS and cancer.

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EarthSharing.org on Stanford Radio KZSU 90.1 FM Promoting the Recession Generation Event

WKZSU 90.1 FM Stanford University Radio Interviews EarthSharing.org

 

July 5th, 2016, Edward Miller and Jacob Shwartz-Lucas were invited onto Stanford University Radio to discuss an event they would organize in Oakland a few days later. The event was titled BIL Oakland 2016: The Recession Generation.

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The discussion revolved around the event’s aim of helping young adults to navigate the challenges of living in our harsh economic climate and rapid technological disruption.

Jacob and Edward discussed their motivations for putting on the conference. This included explaining their backgrounds, and what changes they want to see in the world.

photo credit: Jane Says via photopin (license)
photo credit: Jane Says via photopin (license)
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How Cities Breed Poverty

Richard Florida’s The Rise of the Creative Class posited that the clustering of knowledge-based, or “creative” occupations in cities and metropolitan areas drives urban economic growth. Florida now says, though, that such clustering also “generates distinct winners and losers both across and within cities and metros.” This is the central takeaway of the recently published study that Florida conducted in collaboration with Roger Martin, Melissa Pogue, and Charlotta Mellander, his colleagues at the Martin Prosperity Institute.

Florida’s work distinguishes between knowledge-based occupations in science, technology, and design and “routine” occupations in the manufacturing and the service industries. This most-recent study combines that approach with the work of Michael Porter, author of the landmark work The Competitive Advantage of Nations, published 25 years ago. Porter’s work, which looked at the role of industrial clustering in economic development, distinguishes between locally-oriented industries and traded industries—those that export goods beyond their immediate geographical areas. Florida and his colleagues at MPI have synthesized these two approaches to generate four occupational-industrial categories–creative-in-traded, creative-in-local, routine-in-traded, and routine-in-local. By analyzing data across 260 metropolitan areas comprising three quarters of the U.S. population, they have shed light on the role these four types play in innovation, economic growth, and inequality.

Proud, Distorted, Dream Job via photopin (license)
Proud, Distorted, Dream Job via photopin (license)

 

What They Found

There is a clear connection between traded and creative industries. 45 percent of those working in the traded industries are in creative occupations, compared with 36 percent in local industries. “Not surprising,” says Florida, “as traded industries compete on innovation and creativity.” These creative-in-traded jobs are distributed very unevenly around the country, with high concentrations, or geographical spikes, in a few cities, with the highest concentrations on the East and West Coasts. Creative-in-traded employment is a key driver of both innovation and economic growth and has the most positive association with higher wages. Of the four categories, creative-in-traded occupations have the highest wages by far, with average wages 31% higher than than the next highest category, creative-in-local, and 182% higher than the bottom category, routine-in-local—which makes up 45% of all workers. Both routine-in-local and routine-in-traded occupations fall below average wages, and the wage gap between creative and routine workers has grown over time.

What troubles Florida and his colleagues is the strong link between a concentration of creative-in-traded employment and economic disparity. The higher a metro region’s share of overall creative-in-traded jobs, the greater the income inequality. While all four categories see higher wages on average in metros with a higher proportion of creative-in-traded occupations, routine occupations do not see wage increases high enough to make up for the higher housing costs driven by a city’s desirability among those in higher-paying creative occupations. As a result, those in routine occupations, especially routine-in-local, are pushed to less advantaged metros with fewer high-paying jobs, creating a vicious cycle in which the disadvantaged sink lower and lower into poverty.

Tightly Packed Moving Truck
All my worldly possessions… via photopin (license)

 

What can be done?

The most difficult challenge, according to Florida, is that there are simply not enough creative jobs to go around. The proportion of creative jobs is increasing, but only very slowly—at about 1.4 percent per year. The solution, says Florida, is the conversion of routine occupations to creative occupations. He calls on business and industry to lead this transformation “by increasing the creative content of what is currently routine work,” and says that there is much to be gained in doing so in terms of productivity, customer service, and quality. Those cities that are able to convert more of their workforce from routine to creative occupations, he says, will be more competitive.

The economist Henry George noted this puzzling phenomenon over a hundred years ago. He asked why it was that as production and density increases so, too, does poverty. You would think that as society is able to produce more wealth in cities there would be more wealth to go around. However, it is precisely because certain people earn more that landlords are able to charge more rent.

 

A traditionally working-class neighborhood
The calm before the storm via photopin (license)

 

Unlike creative ventures, which require innovation and risk-taking, owning a vacant lot in the middle of a city requires relatively no effort or risk, as land values in these areas are continuously going up in value. If an urban property owner waits long enough, they can realize an enormous return without lifting a finger. The creative industries popping up around their rental properties will enable the slumlord to charge much higher rents. This slumlord needs neither assume the financial risk of building a new structure to house more of the new creative industry workers nor continue to house the routine workers. Rather, the slumlord will often just charge increasingly exorbitant rents to the routine workers, effectively forcing them out, and then house the creative workers in the same conditions for higher rents. The creatives are willing to pay these rents due to the desireable location and the short supply of rental units. Supply is suppressed because other landlords are also complacent and prefer to avoid the risk of developing their land to its highest and best use. Some will just knock down the buildings altogether to lower their property tax bills.

If, however, landlords were taxed on the basis of the value of their land, they would be incentivized to provide more housing units in order to pay the tax and make a profit. People would still move around based on the demand for particular locations, but there would be more housing for everyone. Thus, all things being equal, rent would be lower overall. What we think of as the peripheral areas of the cities, where the routine workers can afford the rent, would likely be twice as close to the city center as the areas they can currently afford to live in. We would not need other taxes if all or most revenue was coming from land. If we scrapped all of the taxes on routine workers’ wages, food, transportation, etc., these things would become more affordable, too, dramatically increasing creative employment and reducing poverty in cities. To see what that would look like, you can read our article Visualizing Earth Sharing.

 

Cover Image: gentrification, void places via photopin (license)

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