John Oliver recently quipped that infrastructure is “important but not sexy.” Maybe that’s because “Hollywood promotes unrealistic standards of infrastructure beauty. That’s not what a real road looks like! Real roads have curves!” To the contrary, we’re setting our standards too low. There is plenty of money for improving infrastructure when you consider that such infrastructure will pay for itself, and then some.
There’s no reason we have to accept rickety NYC train cars, for instance. We can have the ultra fast and sexy maglev trains being built in other countries, and we can do this without sacrificing economic productivity. How? The answer is right under your nose. This morning on The Brian Lehrer Show, Jessica Gould and Brian discussed how to save the region’s public transportation infrastructure. The question is what is the best way to raise the money? One of the solutions mentioned was “value capture.” I called in today to explain how it works. Though I glossed over the subtleties, and did not explain the difference between land value capture and land value taxation in general, this was necessary given the limited time available for comment. Click the play button below to hear my commentary:
More people than ever are seeking to move to cities, and rent is skyrocketing as a result. The problem has always been land speculation, under-using prime locations. In the late 19th century, it meant that there was artificially limited space available for housing, as many tenement dwellers crammed together.
This lead to unsanitary and dangerous living conditions. When the cost of transportation fell in the 20th century, people could afford to live in the suburbs and commute to work in the city. This created a great deal of environmental problems, and left inner-city communities underserved; the suburbs were able to suck government revenue into their communities, “milking the center to feed the borders” as economist Mason Gaffney has described it.
“In the 20th century, tumbling transport costs weakened the gravitational pull of the city; in the 21st, the digital revolution has restored it. Knowledge-intensive industries such as technology and finance thrive on the clustering of workers who share ideas and expertise. The economies and populations of metropolises like London, New York and San Francisco have rebounded as a result.” -The Economist
These cities have perhaps rebounded, but at what cost to the inner city communities, where gentrification is displacing large groups of people? Today, the political left claims that rent control/stabilization is the solution, largely ignoring the fact that this will limit the supply of housing for those seeking it. The political right claims that lifting all zoning restraints is the solution, allowing buildings to be taller and ignoring the fact that such housing will be catered to rich residents.
There are attempts to offer subsidies to build if a certain number of the units are stabilized. However, these complex sets of rules are really just spider webs for the rich, with their armies of legal consultants to decipher the rules, chains for everyone else. The bottle neck is simply to incentivize the optimal use of space within whatever zoning requirements exist, some reasonable some not. How do we do that? Well, as this article from the economist points out, the value of land needs to be taxed so that more housing will be brought onto the market.
“Whereas a high tax on property can discourage investment, a high tax on land creates an incentive to develop unused sites. Land-value taxes can also help cater for newcomers.” -The Economist
The Economist gets that right, but does so in an insensitive way, emphasizing zoning over simply making use of all the vacant lots and ground level buildings where, say, 10 story buildings might be more appropriate in terms of people’s needs. You can still utilize rent control until people feel more secure in the idea that they will have access to affordable housing. They will likely start to see their rent controlled apartment as unattractive compared to all of the more affordable, spacious and higher quality units on the market. In the absence of fear, they’ll even want to get rid of certain types of zoning that restrict supply. The idea is to remove people’s chains before taking away their crutches.
Despite my criticism, I appreciate that The Economist has been trying to bridge the ideological divide, to demonstrate how, using the land value tax, we can reconcile what’s best about the left and the right.We don’t need more skyscrapers and luxury buildings to solve the housing crisis, and stabilizing the rent of people who already have housing will not help those looking for it. We need to increase the supply of housing for regular people and utilize sensible zoning practices simultaneously. The only practical way to do that is a land value tax. Justice isn’t about splitting the difference. Don’t compromise. Reconcile.
Detroit, in the mid 20th century, was a vibrant center of American industrial manufacturing with a prospering middle class. It is now the poster city of blight and urban decay. As industry has collapsed across the region, job scarcity, white flight, and soaring crime rates have driven hundreds of thousands of people out of the city. Thousands of homes, retail spaces, and civic buildings sit empty and dilapidated. Today, due to the faulty set of incentives implemented to encourage investment, real estate investment–a force that was once thought to have the potential to save Detroit–is worsening blight and costing the city millions of dollars.
After decades of declining investment in Detroit, locals were excited when, beginning in 2013, investors began to purchase large swaths of residential properties. Jimmy Lai, a billionaire based in Hong Kong, purchased 32 homes at a tax foreclosure auction. At the same auction, local real estate agent Wendy Briggs walked away with a staggering 428 properties. Despite the hopes of local residents, it became obvious right away that Jimmy Lai, Wendy Briggs, and the myriad others snatching up Detroit real estate had no plans to invest in their properties. Instead, they anticipated that Detroit would experience a real estate boom in the next several years, allowing them to unload their properties at a large profit.
Thousands of homes owned by speculators have fallen into disrepair as their owners wait for a real estate boom that does not appear on the horizon. In the meantime, a house at 3383 15th Street, owned by Jimmy Lai, partially burned down in 2015. To date, he’s made no effort to clear the wreckage, which poses a safety hazard in the neighborhood. At one point, Detroit paid over $200,000 demolishing a single speculator’s properties after they fell into disrepair and then into foreclosure.
So what factors are driving this mess? A big cause is real estate taxation in Detroit. Facing debilitating revenue shortages during the 2008 financial crisis, Detroit over-valued residential properties with the hope that increased revenue from property taxes could help the city stay afloat. They did this without the understanding that increasing property taxes reduces incentives to build or rebuild. Without this understanding, Detroit’s taxing strategy proved disastrous. In 2016 alone, the city sent 38,000 foreclosure notices due to unpaid taxes. The majority of tax bills totaled less than $2,000. If overdue taxes couldn’t be paid, the homes went up at tax foreclosure auctions, where speculators would subsequently make the majority of their purchases. It simply was too easy for speculators to game the system–with minimal cost to them and minimal gain for the city.
Many speculators fail to consider taxes in the total cost of their investment, now owing Detroit millions of dollars in back taxes. Wendy Briggs alone, who purchased 428 properties for just $379,000, owes $4.7 million in back taxes. 95% of her properties will be auctioned in 2016. In fact, nearly 80% of all properties purchased at the 2013 tax foreclosure auction are back in foreclosure. So not only do speculators let their properties fall into decay, they fail to pay their taxes, which deprives the city of a critical revenue stream and puts homes back into the tax foreclosure auction. This cycle continues to repeat itself.
Detroit and Michigan are taking steps to reduce the number of foreclosures and ability of investors to hoard properties. The state has cut interest rates on tax repayment plans by two-thirds, reducing the number of homes foreclosed due to unpaid taxes. Wayne County has closed a loophole that allowed speculators owing back taxes to purchase additional properties at auction. In addition, property assessments are expected to drop. The next step would be to eliminate taxation on buildings and focus solely on taxing land values. Both measures, if implemented worldwide, are predicted by experts to induce landlords to either immediately develop their properties or to sell to those who will.
These measures have cooled investor interest in Detroit. In 2016, the top ten investors bought nearly half as many homes than they did in 2013. Although housing activists applaud this progress, they believe more can be done. Local residents propose making it easier for people in poverty to file property tax exemptions and further decreasing the number of real estate investors in the market. However, this could have the opposite effect, as low property taxes decrease property owners’ incentive to develop their properties.
Detroit residents, having learned that speculators tend not to care about their communities, are thrilled to see them go. “They think Detroit is just a bunch of criminals who don’t care and the city is meaningless to them. The idea of a neighborhood or community is a foreign concept to these people,” says Bill Cheek, a resident in the North Corktown neighborhood. The challenge, some believe, will be keeping them out. By implementing sufficient land value taxation and exempting buildings from taxation, they should be able to do just that.
I have always been left-leaning. I believe there should be economic justice and equality of opportunity for all. My biggest early influences were FDR, Olaf Palme, and Nelson Mandela. My first serious political involvement started when I attended a 2008 Democratic presidential rally for Hillary Clinton. I attended with my mother and her friends in my hometown of Springfield, Missouri. My family is dedicated to the tenets of modern liberalism: equality, universal prosperity, and a moderate amount of government regulation of the economy. Since 2008, I went even further to the left, identifying myself as a social democrat, and promoting a large expansion of social programs.
Scandinavian Socialism, Only Better
I first became interested in the idea of Earth Sharing, particularly Land Value Taxation, about a year ago. I believed that the only, or at least the best, way of achieving such ends was more regulation, higher income taxes, new wealth taxes, and expansion of government programs in general. I still believe that doing these things would be far better than what we have now, but Land Value Taxation seems to be the most important bottleneck to reducing inequality.
Land Value Taxation fell in my lap when I was browsing Wikipedia (yes, I am one of those people). I looked at it and thought that this was a good tax; it collects quite a bit of revenue and it could fund social programs. But I was skeptical of its benefits. Would it be enough to fund a welfare state?
The Best of Both Worlds
Earth Sharing made me aware of the possibility that equality need not be at odds with economic efficiency. I started appreciating more of the benefits of the market economy. The following ideas aren’t necessarily Earth Sharing stances, but they’re still relevant to understanding my intellectual evolution. I started to grow less wary of some forms of deregulation. I was worried about getting rid of certain occupational-licensing laws, but then eventually accepted that doing so can reduce the cost of hiring.
Soon after, I committed an anathema for a social democrat, questioning the minimum wage. While minimum wage is a beneficial reform, I found something even better, something that lifts people out of poverty, is less expensive to administer, allows a large degree of freedom, and doesn’t hurt the economy—the basic income.
A Basic Income for All
A basic income is just that, a minimum income that all citizens get -regardless of lifestyle choices. A basic income for all provides people with a social safety net, without discouraging them from working, unlike unemployment compensation. If you are currently getting unemployment benefits, and you start working, you stop getting those benefits. This makes getting a job less enticing. This wouldn’t happen under a basic income because everyone would get money, regardless of whether they worked. This would be an immediate safety net for everybody, enough for food, shelter, and medical care.
A basic income is less costly to administer than unemployment benefits. This is because it’s expensive to monitor and hassle the unemployed about whether they are looking for employment, or if they are being paid for unreported work. Why not just give that money, currently being wasted on bureaucracy, directly to all citizens?
Sharing the Earth to Save the Earth
What’s the best way to fund such a basic income? While it’s not the only way, Land Value Taxation would do the most good. Land Value Taxation has many other benefits as well. It increases the housing supply and curbs gentrification. It opens up vacant lots in urban areas for housing, jobs, parks, and other public places. Land Value Taxation also reduces sprawl, and thus the tremendous environmental damage it inflicts.
In general, Earth Sharing offers the highest impact way of reducing inequality, but also does so without harming individual freedom, the will to work, or the market as a whole. I still support social liberal policies, but they do not have to be so bureaucratic and wasteful. There are better ways to achieve a world of freedom, equality, sustainability, and justice.
How a Libertarian Came to Earth Sharing
by Daryl Sawyer
I have been asked to share the story of how I became a supporter of Earth Sharing. This story may be of interest to readers on this site due to the personal transformation it describes: how a right wing libertarian came to be someone who, in the eyes of many of his former compatriots, is a communist. I began as someone who believed that, while poverty was unfortunate, it was necessary to ensure that every person does their part.
In the middle of my transition, from right to left, I was prepared to support a “grand bargain” between libertarians and what are commonly called “liberals” or “socialists” to replace the existing welfare system with some sort of direct income subsidy (whether by the name “Guaranteed Minimum”, “Reverse Income Tax”, “Citizens Dividend” (my preference), or what have you.
Progress and Poverty
It started with Carl Milstead’s holisticpolitics.org. It was kind of a revolutionary approach to someone who had spent most of his life as an embittered and cynical libertarian. There I found “quiz2d” which steered me toward Henry George.
I read Progress and Poverty and was enthralled by it. I was particularly impressed by how land theory creates a space for the State and a certain amount of (p)redistribution in a mind then immersed in anarcho-capitalist theory. It was a revelation: a political philosophy that was pragmatic without abandoning principle by so much as a single jot.
Want Liberty? You’ll Need Equality.
Over the years, I’ve come to realize that a lot of the libertarian sacred cows just aren’t really that important. Economic injustice is the cause of our lack of freedom, not the other way around. So while others talk about a “grand deal” in which the existing welfare system is replaced by a basic income, I’m perfectly comfortable just cutting the checks, and then relying on a financially liberated populace to pare back the State wherever it seems to make sense, and leave it in place where it doesn’t. In the paragraphs below, I will describe precisely how I managed to get to here from there.
Growing up Conservative
You might say I was “born libertarian”. My father was a non-religious conservative, a supporter of men like Ronald Regan and Barry Goldwater. It is from him I absorbed that most basic of libertarian ideals: that it is better to leave people alone, let them handle their own problems their own way, than to meddle in other people’s affairs.
But, like I said, I also spent a lot of time on the Internet taking personality quizzes, political quizzes, and so on, and in the process discovered holisticpolitics.org. This was the first place I encountered serious thinking about ways for traditionally opposed political factions to compromise in ways that advance the interests of both sides. Having spent most of my life as a cynic, it was a revelation. But even more interesting was one particular thinker, and one particular book: Henry George’s Progress and Poverty.
Progress and Poverty
I devoured that book like a starving man. I found the hopefulness of his prose every bit as appealing as the novelty of his theory. Up to this point, I knew nothing about land other than it was one of three “factors of production” in classical economic theory, and I think the last time I’d heard anything about that was high school economics. Henry George explored the nature of land and the role that land ownership plays in the distribution of wealth. The conclusion, that our institutions of land tenure are the cause of the gap between rich and poor, and that addressing this would go far to remedy that gap.
Getting in Touch With My Left Side
Up to that point, I considered the ideal political arrangement to be an unattainable one: one in which every person’s liberty and property are respected. Under such a system, I believed, there was no room for government; government is necessarily the compromising of some liberty and property to achieve certain ends.
Rather than making the “left wing” parts of my philosophy conditional on acceptance of the “right wing” parts, I now do precisely the opposite. This might be due merely to the extraordinarily bad behavior displayed by the American right wing in recent years, but I think it goes deeper than that.
Most Libertarians Have it Backward
Libertarians believe that excessive regulation leads to a stunted economy, which leads to a perversion of the distribution of property, which leads to suffering. I now believe it is the unjust distribution of property that leads to a stunted economy, which leads to suffering, which makes the population vulnerable to every kind of demagoguery (both right wing and left wing). This leads to regulation, which is a mixed bag in terms of what makes things better and what makes things worse.
Same Values, Enlightened Application
But understand this: underlying this entire process, that most basic ideal, the one I acquired as a child, has not changed. I bring this up because I see, in the Geoist community (and more so in the larger egalitarian economics community), a profound distrust of libertarian types. It’s understandable. The libertarian “program”, fully implemented, would indeed result in a plutocratic dystopia. But among sincere supporters, this is not the goal. It is, rather, the result of an incomplete understanding of economics.
My impulses are still “libertarian” in nature. I still prefer less government to more. This is why I favor a larger dividend instead of a larger government, for example. The goal, the vision I would like to see implemented, is the same now as before: one in which every individual is free to live their life as they prefer, provided their choices do not prevent others from doing the same. Only my understanding of how to achieve this has changed.