Educating the Next Generation

Scott Baker

[ GroundSwell, May 2012]

I recently met with long-time Georgist and expert on government finance, taxation and transportation policy, and Common Ground member, Bill Batt (http://centralresearchgroup.org/georgist-economic/bill-batt) and his wife, Karen, at the lovely country home of Common Ground-NYC’s treasurer and past president, Rita Rowan, just outside Albany. Also in attendance were some international friends of mine, who have recently moved back to New York City, including their precocious tri-lingual 12-year old son, Timothy, and his French mother Emmanuelle (not their real names). We enjoyed lunch outside, on a beautiful Spring day on the grounds.

Following a summary of our recent Common Ground-NYC meeting, to which some of our less local members, like Bill, were unable to attend, the conversation turned, as it often does when Georgists gather, to what to do about the rent seekers, economic rent, and the general concepts of Georgist thinking. Perhaps others will find this inter-generational dialogue as interesting and guiding as I did. Herewith is a slightly edited version of that conversation. Followup comments are in parentheses.

Bill: …There was a recent article on one of the alternate news sites that said bring back the concept of economic rent. There was an interview of (Joseph) Stiglitz for a German Press where he talked about looking at rent-seekers as being the parasites in our economy.

Scott: Of course…

Bill: …and it’s nice that he used those words.

Emmanuelle: What do you mean by rent-seekers?

Bill: Well, the word rent has a different meaning in popular language than it does in economics. And Rent…it may be the same as the French word “Rente” (http://www.thefreedictionary.com/rente). I’m not sure. In English, economic rent comes from any gain in wealth from a natural resource not made by human beings. For example, suppose you buy a piece of land for $100 and 5 years later it’s $1,000. Well, the reason it got to be more valuable is due to the rent and the same with any other natural resource…. oil (for example), after you subtract the labor and the capital investment in oil rigs and all that, the value of the oil is rent and so with any other natural resource like the radio frequency and whatever. And Joe Stiglitz argues, along with the way we (Scott, Rita and me) argue that we shouldn’t tax people’s work – the labor – we should tax the rent, and this is what contemporary economics has eviscerated in their formulas and definitions. But, if we go back to classical economics, to people like John Stewart Mill and all those 19th century figures…

Scott: even Adam Smith…

Bill: Yeah! Then you can see the value of the use of the word rent there. And all of those people believe the right tax was a tax on the rent of natural resources and not people’s work. So that now that people are beginning to use that word again, maybe we can use it. (Joe Stiglitz’s newest book, just out, talks about people who capture titles to resources and collect the rent – the “rent-seekers” – on almost every page! See “The Price of Inequality.” Also, an adaptation here: http://www.vanityfair.com/politics/2012/05/joseph-stiglitz-the-price-on-inequality)

Scott: (Michael) Hudson made that point (in his recent appearance at the Left Forum) that with the junk economics as he calls it today, the concept of rent has just gone completely away. And of course, (Mason) Gaffney wrote that book, “The Corruption of Economics” where he describes the systematic expungement of Land and rent from economic terms.

Emmanuelle: Especially when natural resources are by definition limited….

Scott: And the location…

Timothy: So you’re saying what they’re doing is making property cost more because people need to pay for the land they work on?

Scott: It’s the private collection of the value of the location.

Bill: Well, I’ll give you a good example. You know the game of tic-tac-toe. Now suppose we have 9 squares in an open field and the lines of the tic-tac-toe are roads. And then, all of those plots of land are sold, and then people develop every plot except the center plot. So, one guy builds a gas station and someone else might build a pharmacy. Someone else might build a grocery store…or all the way around except the center square…

Timothy: And they’ll be worth the most…

Bill: Exactly. And what happens to all of the land value now that there is economic activity in what was earlier just an open field?

Timothy: It becomes more because…

Bill: Right! And which piece, which square has the highest market value?

Timothy: The middle one.

Bill: Why?

Timothy: Because there’s all things which…uh…

Scott: The demand.

Timothy: Yeah, there’s all the demand.

Bill: Right. All the access to the other squares comes from the center square, so that center square is really the most valuable. And that value did not come from what the owner of that central parcel did. It comes from all the effort of all the other people in the community who have market exchanges…the rent is community-generated. So, that’s true in any city, for example. The value of the land in the city is due to everyone’s activity, not one person’s. So even the guy who owns a parking lot, his value increases because all the other lots around it are doing something. So, that the highest value land is where the people are, and where the people are meeting and making exchanges. We’re out here (in the country) for example where there are very few market exchanges.

Timothy: So the land here…just doesn’t have the value?

Bill: Well, if we collected the economic rent back the community which generated it then the carrying costs to the people who own those parcels would go up, and those people would be induced to build on them so that they could get a return on their investment. But if society just leaves economic rent in the hands of the owners, then they can just go live in Florida or just go to sleep…and they get rich without doing anything. (Philosopher John Stuart Mill said that “the landlord gets money in his sleep.”)

Timothy: Because everyone builds around him!

Bill: Right! Exactly. So you got it!

Timothy: Yes.

Bill: And we’re (Scott, Rita and me) arguing that all that economic rent is the thing that people should tax and we shouldn’t tax people’s labor. Because people own their bodies and they work hard, and then you tax people’s labor away from them? It’s crazy…

Timothy: Yes

Bill: …and other people who do nothing or sleep, they get money without doing anything. They didn’t do anything to earn it.

Rita: They didn’t labor to create that stuff. Emmanuelle: Yeah, but at the same time the owner of the middle square is not developing his land. He is not getting anything out of it…

Scott: He’s getting what economists call imputed income…

Bill: Uh huh.

Emmanuelle: So you would tax on something that he hasn’t benefited from?

Scott: Yes, but nobody else is getting anything either. It’s sitting there in the center unused and because the owner has exclusive title, there’s no opportunity for anyone and they’re excluded. You know, if you have a big property in New York, like I do near my place – a nine-acre property – then that means that nobody else can take the opportunity to use that land.

Rita: That takes that useful land out of production.

Scott: Yeah. So they’re hoarding and speculating…

Emmanuelle: But in a city you don’t necessarily want to have all the land used.

Scott: That’s true, but you see what happens in practice is that is that as you tax the land the market price comes down commensurately, because the total capitalization amount is less. More of the value is collected in taxes instead. The market forces won’t allow the sale price and the tax to go up at the same time. So that as you increase one, the other comes down. So, now you’ve made the land cheaper, so that means it is not so important to develop every square inch and it doesn’t take the much revenue out of the community.

Bill: If we really wanted it to be a park or other open space, we should take it off the tax roles and make it public property.

Scott: You know 30% of the land in New York is untaxed anyway. It’s excluded. It’s a church or a hospital or a school, etc. Universities are big real estate owners now and they don’t pay any property taxes. Or, firms like Goldman Sachs, who has a get special deal that they extorted from (Mayor) Bloomberg in which they said “We’re going to leave the city if we have to pay property taxes.”

Emmanuelle: Yeah, I saw that in one of your papers.

Scott: Right.

Rita: You know, and we mentioned that to one of those developers at on Earth Days (a recent event for vendors/activists near Grand Central in New York that Common Ground-NYC members participated in) and what was his reaction? They’re not supposed to pay taxes!

Scott: I know. This is the problem we get. You know, they think it’s a God-given right that if they sit on Land that they should not pay taxes.

Rita: They said they would move to New Jersey!

Scott: Yeah, well they threatened that. They don’t pay tax in New Jersey either, by the way.

Emmanuelle: It’s just for them?

Scott: Yeah. It’s a special deal just for them. Morgan Stanley doesn’t have this deal.

Rita: Nobody (else) has this deal.

Emmanuelle: They’re (Goldman Sachs) a cause of the whole collapse…

Scott: A big part of it, yeah.

Bill: Let me give another example of economic rent. At all the big airports. The planes come in and out all day. But the most congested time is about 5 o’clock in the afternoon. That’s when everybody is taking off for Paris or wherever they’re going. So lots of planes are landing and leaving about that time of day. But the airport is much less crowded at 2:00 o’clock in the morning. Now, the airlines own the timeslots around the airport so that every 3 minutes there’s a landing slot and they own that time as their property. Now, one of the reasons why the airport is very crowded is because sometimes the airline does not even use its property – they just keep it! Now, if we auctioned off those time slots to the highest bidder so then if they didn’t use it, they’d still be paying for it, then there would be a liquid market in time slots and the airport efficiency would go way up. And many economists have argued that that’s how we should solve the problem of congestion at airports. We should auction those timeslots. But no, if you look at the annual report of American Airlines, you can see they list their property assets, and part of that is their timeslots at the airport.

Scott: Same with driving, if we had congestion pricing…

Bill: Now, see they didn’t create that time. The value of that time was created by all the airlines together in that community who make the market. The value of the time in that particular slot is the result of everybody. That’s economic rent. And that goes for radio waves, cell phone frequencies, satellite orbits…

Scott: Boat docks…

Bill: Yes.

Emmanuelle: Why a satellite orbit?

Bill: Well, there are only so many places in the sky…

Emmanuelle: Yes, I agree with you but who is the recipient of the money that is being given by the satellite company…

Bill: Oh, the government that gives…

Emmanuelle: But which government…because right

now it’s up in Space… Bill: Well, I guess it’s the American government that gave it to them.

Scott: It’s an international body… (See: International Institute of Space Law – http://iislweb.org/index.html)

Bill: But they voted…

Scott: It’s like shipping lanes….there are space lanes. There are certain orbits that are staked out by certain satellites. So you can’t put another satellite in the path of an America satellite. So, they own that geo- synchronous orbit. So those are valuable spaces. And it’s becoming an even bigger problem because what’s happening now is that debris is starting to fill up those lanes. You know the satellites are starting to break apart or malfunction. You know, China blew one up a few years ago, which meant there were actually more “satellites” because they blew it into pieces.

Timothy: Why did they blow it up?

Scott: To test ….well, that’s another controversial thing…they were testing an anti-ballistic missile system, which of course got America all excited because we want to be the only ones to have that.

Timothy: Oh, so they were testing an anti-satellite weapon?

Scott: Well, it was an anti-ballistic missile, but they blew up a satellite they didn’t need anymore. So now these pieces of space junk are flying up there and they’re very hard to keep track of. And at the speed they move up there a little fragment can destroy a satellite…

Bill: or destroy a spaceship…

Scott: Yeah, or even a space station…. The danger is there is so much floating around up there that there’s no space left. So we should be charging for the congestion up there. Somebody should be paying for taking that space to the community…which I guess in this case is all of Earth.

Timothy: Nobody should own Space.

Scott: Nobody should own Space. Exactly.

Bill: Well, we’re also now talking about owning the air.

Timothy: What? You can’t own the air!

Scott: It’s part of “the commons.”

Timothy: Someone…you didn’t create the air!

Bill & Scott: That’s right!

Scott: But people are using it as if they did.

Bill: Well, let me give you an example of how it’s being privatized. Right now, more in Europe than in this country, but it’s about to happen in this country too if the utilities get their way. The power companies, say, they burn coal and then the emissions from the coal-burning goes up in the smokestack and up in the sky. Now if the utilities burn coal, the carbon dioxide and other emissions carbon monoxide….I can’t remember the names of all of them… but all of these go up in the air. Now, if we really want to limit the amount of pollution in the air what we should do is stop certain utilities from sending their emissions up.

Emmanuelle: Can you replace them by nuclear power plants, or…?

Bill: Well right now, the idea that most of the public is talking about is something called “cap and trade.” That is, the scientists will decide how much air, how much pollution the air is capable of absorbing. Then when they know what the limit is, they’ll say, “OK, every utility shall be given a certain number of pollution permits and then, the air… where it’s more polluted in one place they will trade with somewhere there’s less pollution, and they will trade back and forth until there’s a balance. But that still gives the utilities the ownership of the air.”

Rita: And of polluting! It gives them a permit to pollute.

Bill: Now, we Georgists say: OK, it’s probably true that the air is capable of absorbing a certain amount of pollution. So what we should do is auction off those permits for a price. And the utilities that are willing to pay the most let them rent permits for that air to use as the dump. And then the public would get the money for those permits. It would be the revenue to support the government instead of taxes on our labor.

Scott: Because it’s all of our air.

Timothy: Yeah, but who would be the public?

Bill: Good question. Since the air circulates throughout the whole world, maybe the payment should be to a world government?

Timothy: But there is no world government.

Emmanuelle: The U.N. (laughs).

Scott: That would be a radical move…

Bill: Well, look we already are having the Congress in the United States look again at a treaty, the Law of the Seas Treaty. The Law of the Seas treaty was originally drafted and signed by most of the world’s nations 30 years ago, but the United States never signed it.

Rita: Typical…

Scott: Yeah, because we’re “exceptional.”

Bill: So, finally, the Congress has decided maybe now is the time for us to sign the Law of the Seas treaty. But, what’s interesting about the Law of the Seas treaty is that the rights to mine the minerals at the bottom of the sea and the rights to fish in certain oceans will have a payment and the payment will be made to a central authority and the money will be used for developing nations. (It will be a payment for the privilege of using the Commons!)

Emmanuelle: Well, the money may not make it to those nations…Don’t give any money to the U.N. because, well, you know…

Scott: Because of the bureaucracy…

Emmanuelle: Bureaucracy is a (polite) way of putting it…

Bill: Well, there are so many agencies in the U.N. that it would be hard to generalize.

Emmanuelle: Some are better than the others…it’s true. It’s true.

Bill: So I guess the real question is if this new agency were to collect rent from this new Law of the Seas treaty, how well administered would the agency be that distributed all that money?

Timothy: I’m pretty sure someone would have a bit of influence over that thing and would take out some of the money for themselves.

Bill: You’re right. It’s very possible…

Timothy: Because I don’t think they could equally share everything, or for somebody who is really in need…

Bill: I don’t know enough how it would work and I suspect that most of the designers don’t know how it would work.

Karen: Who in Congress wants us to sign it now?

Bill: Well, they’ve decided that the United States will…the big mining companies will now be able to have an advantage if the treaty is signed.

Scott: This (treaty) would extend our continental shelf 200 miles.

Timothy: I don’t think America would give out money to developing countries.

Bill: Well, it wouldn’t be American money.

Timothy: I don’t think America would ever do that….

Bill: That’s the real question.

Timothy: You just…They (America) don’t do that. They have to find some way to get something out of this treaty. They won’t just sign it (in order to) give out money to poor countries. They’ll sign it because maybe they know how they could take advantage of the situation in some way.

Bill: Well, you know, many people have argued that …and there’s been some new books on this…that the United States is becoming weaker politically…

Timothy: Then China…

Bill: Well, not just China. Then many other countries. And relatively speaking the distribution of economic power and political power on the world stage is changing. The BRIC countries … ever hear that acronym? It stands for Brazil, Russia, India….

Timothy: Oh, I see.

Bill: …and China. Yes, these are countries that are growing in power. And in political power as well as economic power.

Emmanuelle: In fact, until very recently, they were considered like developing countries, but then they are developing so fast….

Scott: China is a major power now.

Timothy: China owns half of America, you could almost say.

Bill: Well, in some ways, Yes. But people are also arguing that sometimes the United Nations should take into account population size and not just the political power. And remember China and India have huge populations.

Emmanuelle: But I think they are going to change their position on their composition of the Security Council.

Bill: People have been talking about that for a long time.

Scott: There are only 5 countries in that now.

Timothy: Yeah, but the Security Council cannot work because there are like five people who have veto power and if one of these 5 countries find that they will not profit from (an agreement) they could say “no.” So….

Bill: Deadlock.

Emmanuelle: Look what happened with Syria.

Timothy: Yeah, that’s what happened with Syria. That’s what happened with Tibet.

Scott: They’re in danger of slipping into irrelevancy because they’re not the five major powers anymore.

Emmanuelle: Yeah.

Bill: So then other world bodies will assume some of the responsibilities. For example, NATO, which was originally a military organization, is now carrying other functions. For example, it’s still a military power in Afghanistan even though it’s still largely an American force, but they’re other countries who are also sending forces. And the interesting thing is that because the leadership is still largely American some of the other countries who are uncomfortable with the way decisions are made have decided to withdraw their forces. Which means that America is contemplating or compromising some of its decisions.

Emmanuelle: The French, now with their new president, Hollande, has announced that by the end of the year they will be out.

Timothy: Well, the only reason they are in Afghanistan is for oil. And the oil will largely go to America.

Scott: They have other minerals too.

Timothy: But, it’s not a major threat. They’re not fighting for survival of America. They are fighting for oil. They’re not fighting for survival. They’re fighting so some of the other countries could get a little more powerful.

Bill: Or, some of the commercial corporations will be able to move in.

Scott: It’s at the crossroads of so many other countries.

Bill: Well, my understanding is that it they are talking about building a pipeline from Iran across to China and since it would cross Afghanistan, it is strategically located even if it does not have much oil itself.

Rita: Because of the access to that corridor.

Scott: Well, historically, going back to Alexander the Great…

Rita: Absolutely. They all wanted it. The mountains always kept them out.

Bill: There’s a good book by a scholar that lives very close to here. His name is Michael Klare, “The Race for what’s left.”

(http://www.amazon.com/The-Race-Whats-Left-Resources/dp/0805091262/ref=sr_1_1?s=books&ie=UTF8&qid=1339438110&sr=1&keywords=the+fight+for+what%27s+left).

And it’s about the struggle for what’s left. For example, now that the ice cap is melting north of Alaska.

Scott: That’s 20% of the world’s undiscovered oil according to the U.S. Geological survey.

Bill: Yes. And Russia also wants that. So, it’s a big struggle over who’s going to get that oil.

Scott: Canada, Denmark – because of Greenland.

Timothy: Soon there’s not going to be anything left and everyone’s going to die.

Bill: Well, some people have argued that…

Scott: It’s possible.

Bill: …that this big struggle over the world’s resources (will result in) global warming because of the methane coming into the air. And that the air will warm so much that many places will not be livable, and that many people will die and that the human species itself might be endangered.

Timothy: It’s also because capitalism…the basic system of capitalism is to produce and to consume.

Bill: Well, we argue that there are many kinds of capitalism. And the kind of capitalism that we – Scott and I — believe in, which is the Georgist variety, is very different from the kind of capitalism which is in practice today which is based on consumption – you’re right.

Timothy: So if we don’t change the system soon, we might run into lots of trouble when all the resources start failing and that there will be a new war.

Bill: But if we taxed some of those resources, what would happen?

Timothy: Less people would be able to mass up (consumption).

Bill: Yes. We would discourage the consumption, because normally, the more you tax something…

Timothy: the less it’s used.

Bill: Yes. Then people would be trying to find other resources, or use less.

Timothy: That is a good idea. That is a way where we could (live better). It’s fairly obvious that in the end when there’s no more left which might be very soon, like the next hundred years, or even less, that there will be another war, because there might be a little oil somewhere.

Scott: It’s already happening.

Timothy: At the end where there’s no more anywhere else, America might attack Canada for…trees.

Scott: Well, Canada is attacking itself. They’re drilling everywhere. They’ve got the shale oil. They’re cutting down whole forests because of that, so even though it’s a low population country, they’re denuding huge amounts of the country.

Bill: Yes, parts of Canada are opposed to other parts. The parts of Canada that are in the West, particularly like the province of Alberta, Manitoba, Saskatchewan, all those parts have resources that are being exploited and other parts of this country of Canada are opposed to that, like Ontario, Quebec and the provinces in the east. So Canada is having a difficult time. So right now, the conservatives…they’re the ones that are in power now; they are prevailing.

Timothy: I thought the conservatives wanted stuff to be always the same.

Bill: Well, different countries have different notions of what the word “conservative” means. For example, in North America, the word “conservative” has a different meaning. Conservative in the U.S. and Canada usually means very little government control and lot of free market liberty for corporations. It’s not the same as in France (where Timothy spent most of his young life).

Timothy: I’m not so sure. In France conservatives are radicals who want to go away from the EU, get all the foreigners out.

Bill: That’s part of it.

Timothy: I’m not sure, but I don’t really like them.

Scott: It’s a misnomer, because they don’t “conserve” the environment.

We veered into discussions of race and nationalism, thorium energy, State Banking and other things, at this point, proving that even Georgism is not the end of the story.

Did we make a convert? Well, I asked Timothy later on when he was apart from Bill and the others this question, and he said “Yeah, sure.”

So, Georgism is so simple even a child can understand it. It’s the adults that have the problems with it. (Scott Baker may be emailed at ssbaker305@yahoo.com.)