Everything Like This Has Happened Before

Kim-Mai Cutler’s recent article “Nothing Like This Has Ever Happened Before” puts forth a sophisticated argument critiquing the naïve sentiments suggested by her title. As a whole, Cutler emphasizes the longue durée of economic history over the immediate, citing the work of economist Carlota Perez to demonstrate a rich historical pattern of bubbles and recessions followed by “golden ages” of prosperity.

The topic resonates with many Americans who are still recovering from the 2007-08 financial crisis and experiencing the effects of increasing income inequality. For many, the promise of a “golden age” to come seems a far-off reality. This sentiment abounds in the San Francisco Bay Area, where in recent years poverty has spiked as profoundly as housing prices. The immense wealth and venture capital being poured into Silicon Valley both exemplifies a new frontier of financial opportunity while presenting new challenges for ensuring that large swaths of Americans are not left behind. But if history can teach us anything, Cutler suggests, it may be time to revisit the nineteenth-century ideas of political economist Henry George.

Many Americans today would identify with Cutler’s portrait of George: a man who was hard-working, but at times could not find enough work to make a living. At his lowest point, he was forced to beg for money to feed his wife and newborn child. Whereas it can be argued that Silicon Valley is responsible for San Francisco’s current housing crisis, in George’s era it was the monopoly that the booming railroad industry had over the land and its inflated prices.

 

Hotel Development
Hotel canyon via photopin (license)

 

When he published Progress and Poverty in 1879, then, George was understandably committed to advocating for a system that would provide better financial stability in the economy at large. His proposed solution “was a single land value tax that would replace all other government revenue sources”. Because the land value tax would be based on the actual value of the property itself, the urban landlords, often the wealthiest citizens, would face the largest tax burdens. It is easy to imagine how such a concept would slow the displacement of poorer residents through gentrification and disrupt sharing economies like AirBnB, both of which have steadily out-priced local residents in places like San Francisco to the benefit of those with the capital to invest in property.

The reasons for circling back to George’s idea of a land value tax are in alignment with Perez’s documentation of the cyclical nature of bubbles, or what she refers to as periods of “gestation,” in which new technologies are developing, and the so-called “golden ages,” when these same technologies reach maturity, usually after a period of recession or depressed activity. The model has been selectively adapted by the private investment community, however, which often undermines one of Perez’s central arguments: that the turning-point in technological revolutions is contingent upon governmental institutions adapting by passing appropriate regulation in response to these new economies. As Cutler explains in her interpretation of Perez’s work, government plays an essential role “in creating an equitable framework that allows everyone to participate in benefits of technological change.”

Which brings us back to George. While Cutler floats the idea of George’s single land value tax as a potential avenue for regulation by keeping land bubbles from inflating in the first place,  she does not actively pursue the idea in a modern context.* The question of how it might affect employment, rent, and the use of space in cities is fascinating. Speculation on urban land creates a lot of wasted space; think of central urban locations with vacant lots, derelict buildings, uninhabited units, short buildings in an area with lots of tall ones, etc. With the “buy low, sell high” mentality that pervades our current real estate system, there are incentives to waste space and speculate on the rising value of urban land. That is to say, if the number of housing units are kept artificially low through speculation, and if there are more people seeking housing than units available, the result is artificially high rent as people compete with each other for scarce space. The same is true for businesses. If there is an artificial scarcity of physical space for businesses to operate in central locations, then this negatively affects employment opportunities among those looking for work.

 

Weeds in a Vacant Lot
Weeds in Vacant Lot via photopin (license)

 

A land value tax would kill two birds with one stone by increasing access to space in the choicest locations for both housing and jobs. Much of this comes down to better urban planning. Landowners in dense cities who prefer sprawling residences more typical to the suburban landscape would be financially liable for this excess. In short, they would be paying for the housing that doesn’t exist due to poor urban planning. In a piece for The Economist, Edward Lucas details some of the more compelling arguments for a land value tax, which many economists agree would have a socializing effect on the economy. It is worth mentioning here that the land value tax idea is not unprecedented, though it may sound foreign to many Americans. According to Lucas, “more than 30 countries have some form of land-value taxation.” Moreover, many Americans are unaware of versions of the land value tax that currently have a shaping influence on policies at home. In the comments section on Cutler’s article, Joshua Vincent, the director of the Center for the Study of Economics, reminds readers that “over 20 cities and counties in the USA use a form of Henry George’s land value tax.”

But there are obvious perceived barriers that are worth consideration, as well. Industries that require enormous physical space would lose in a dramatic transition to full LVT from the current tax system. While many environmentalists may not have much of a problem seeing golf courses and huge parking lot car dealerships pushed to the edge of financial viability, more would perceive problems with the way that the same policy might make public services, like parks, less feasible. Some may argue that public services like this would not be affected, since the land value tax would only be levied on private land; however, in an era where government institutions are being increasingly defunded, it is easy to see obstacles that would arise from land set aside as exempt from taxation.

In other instances, one might speculate that a land value tax could inadvertently encourage practices that do more harm to the environment. Lucas gives the example of “urban homeowners with gardens,” who may feel pressure to develop their land to offset new expenses that the land value tax would impose. There is a give and take here, for while it is true that some urban retreats like this may disappear under a land value tax system, it would also encourage a smarter management of urban resources. Perhaps this urban garden is merely transplanted to the rooftop, thereby creating innovative green spaces, opening urban housing to a former city commuter, and reducing car exhaust to boot.

 

Rooftop Gardening in Manhattan
Tribeca via photopin (license)

 

Another key distinction is one of moving from public ownership to community collaboration.  As Visualizing Earth Sharing explains, there are many potential economic and social benefits to the land value tax. The public could still protect ground-level gardens and urban farms as part of greater community infrastructure, and because there would be a strong financial incentive to use space well, rooftops and other parts of buildings could be used to grow food. Without taxes on regular people’s wages, hiring people to work in/on urban farms would be less expensive, too. More people would be able to live near the urban farms that employed them, for a rent that was compatible with this type of employment. Building owners might even use such activities to attract urban tenants longing for more green in what is now a concrete jungle.

Cutler concludes that modern developments such as automobiles, suburban sprawl, and greater home ownership have made George’s ideas less relevant in terms of igniting an overhaul of the tax system.. While these things may have helped ease absolute poverty to some degree, they have resulted in an environmental nightmare that has slowed material progress and left us isolated in suburbia. Furthermore, land prices and rent in suburban areas are still rising faster than wages. The land problem is just as damaging as before; we’re just less aware of it.

The increasing polarization of American politics–especially evident in the rise of more radical  political agendas such as those of   Donald Trump, Ted Cruz, and Bernie Sanders–suggests that citizens are pushing with more energy to move the pendulum away from the status quo. And, as new initiatives like Obama Care have demonstrated, any new, paradigm-shifting regulation will inevitably be a work-in-progress. Things are changing in unpredictable ways, though. It is more important than ever that we start to think about fundamental issues such as restructuring our tax system, not just in terms of how high or low taxes are, but what types of activities are taxed. On Earth Sharing, we back the spirit that George promoted in his advocacy for a land value tax: to create a world in which everyone can participate equally in prosperity rather than one in which  the influence of speculative practices works to enrich the wealthy at the detriment of progress and environmental justice.

-Elizabeth Smith

On July 9, 2016, EarthSharing.org is hosting a conference in San Francisco around this topic. The conference is titled The Recession Generation, and will focus on what young people in particular  can do to find gainful employment while making a difference for a number of good causes. If you are interested in participating, please let us know: [email protected]/files1. There is currently an early bird discount for registration. If you have any questions or concerns, please let us know how we can help.


In fact, modern economists who have studied George’s theory of boom bust cycles actually believe that rising land values create the incentives necessary for sprawl, and at some point peripheral land is actually over-supplied with basic infrastructure. This counterintuitive oversupply actually causes land prices to drop, but prices can’t just smoothly level off because loans were extended on the assumption that land prices would go up forever. Once this illusion is exposed as nothing more than irrational exuberance, the market panics; the collateral for all loans (land) is suddenly not worth what everyone thought it was. The land value tax would reduce the price of land because the return to speculating on its rising value would be taxed away. As a seller you would not hold out decades for a higher price if the rising land value was continuously taxed away.

Cover Image: “Everybody works but the vacant lot,” Henry George. [A postcard.]  The New York Public Library, Astor, Lennox, and Tilden Foundation

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