The Only Economic Reform
Worth Talking About
Edward Miller
[An essay written 8 August, 2011. Edward Miller, a
former intern of the IEET, is the Chief Information Officer of the
Network for Open Scientific Innovation. He is a passionate advocate of
Open Source development models. His blog,
EmbraceUnity,
deals with democracy, humanism, and sustainable development]
The real solution has nothing to do with techno-utopianism, monetary
reform, austerity, or any of the other ideological cul-de-sacs
currently being promoted.
The world is a complex place, or so we are told here in the USA.
The pundits and journalists will tell you that there are no simple
remedies to our problems, with an air of authority reserved only for
those serious few with the courage to offer up this sober dose of
reality. Besides, even if there were a simple solution, we can't agree
on the most basic of things anyways, since we are so polarized, or so
the narrative goes.
So instead of actually solving problems, the best we can hope for is
a series of convoluted band-aid solutions to fix whatever crisis is at
hand.
Is unemployment soaring? Let's produce a pathetic stimulus package
that mixes the worst of both Keynesian and supply-side ideology.
Plagued by deficits? Let's spend all our political energies on
bickering about whether the top tax bracket should be 35% or 39.6%.
Of course we mustn't forget to provide generous amounts of
corporatism to the already-privileged.
So if the climate is in crisis, let's give tradable pollution
licenses based on how much one has been polluting historically, and
give it a cute name like Cap and Trade.
And if prices in our cartelized healthcare sector are skyrocketing,
just force everyone to buy private health insurance and label that "progressive."
Everyone seems to agree there is something seriously wrong with the
modern American political discourse. Some blame the Left, some blame
the Right, and a fair number are now blaming the Center. There is
plenty of blame to go around, and I would contend that we have a
failure of critical thinking on the part of our intellectuals of all
stripes.
It is undoubtedly the case that our establishment intellectuals are
not chosen on the basis of their merit, but mostly on their
compatibility with the interests of the privileged classes. Yet, I'm
not just blaming the establishment figures; I'm blaming all
politically-minded citizens who buy into their oh-so serious arguments
and false political divisions.
What if I told you there was a solution which transcends political
divisions? Which is consistent with the ideals of our Founding
Fathers? Which can be implemented anywhere on the local, state, or
federal level? Which can increase our overall prosperity, reduce
inequality, promote peace, and improve the environment all at the same
time? Which can do all this without any major restructuring of our
institutions?
Assuming such a remedy even exists, surely it would be controversial,
right? Something which all the various political ideologies could
never agree on? Well the remedy does exist, and it has been supported
by principled people of nearly every political persuasion, including
some of the greatest minds in history.
The answer has nothing to do with techno-utopianism, monetary reform,
austerity, or any of the other ideological cul-de-sacs commonly
promoted.
Remedy, you say? That's preposterous!
It goes by the unassuming moniker of the Land Value Tax (LVT), which
was most famously promoted by the American political economist Henry
George. It is based on the notion that people ought to own what they
produce, but since land is not a fruit of labor, private land
ownership has no basis in natural rights and is thus the ideal source
of government revenue. The Land Value Tax preserves the land title
system, but simply makes it expensive to hoard land in unproductive
ways.
Unlike common property taxes, the LVT does not count improvements to
the land, such as buildings. Buildings are man-made, but land isn't.
When you tax buildings, you discourage people from building. Yet, when
you tax land, the amount of land doesn't decrease. The supply is
fixed.
The Land Value Tax is an idea that has united in support people who
would generally be considered political rivals: William F Buckley and
Ralph Nader, Joseph Stiglitz and Milton Friedman, Aldous Huxley and
Henry Ford, Clarence Darrow and William Jennings Bryan, Winston
Churchill and David Lloyd George, the list goes on.
By untaxing labor and shifting as much taxation as possible onto land
values, we enhance the incentives for production as desired by fiscal
conservatives. Yet, it provides a huge source of natural and
community-generated wealth to tap into, which is the ideal funding
mechanism for virtually any infrastructure project or social program
desired by those on the Left.
Those of a more "geo-libertarian" bent would prefer that
revenue be distributed as a Citizen's Dividend, rather than used to
fund bureaucracy. Yet, if the funding of bureaucracy is to come from
somewhere, they would strongly prefer it come from land values. Milton
Friedman called it the "least bad tax" for this reason, but
really it is far more profound than that.
The LVT strikes at the heart of the land monopoly. In a powerful
speech, Winston Churchill said, "Land monopoly is not the only
monopoly, but it is by far the greatest of monopolies; it is a
perpetual monopoly, and it is the mother of all other forms of
monopoly. It is the essence of feudalism and for all of our supposed
social progress we've yet to be free from it. Unless and until the
land monopoly is destroyed, the positive effects of virtually all
economic reforms and even philanthropy is largely nullified."
Profits that are above those necessary for the production process are
called economic rents. One of the primary sources of rents is
monopolization, and one of the greatest tools for achieving
monopolization is actually government intervention on behalf of the
monopolists. Historically, every major monopoly has been the
beneficiary of enormous state-granted privilege. Whether it's AT&T,
Microsoft, or Standard Oil, the root of their power can invariably be
traced to particular political privileges.
Taxing such privilege causes no disincentive for production because
rents have nothing to do with production, they are a result of
imbalances in power and imperfections in the market. Land, and the
fruits of nature generally, is necessary for all production and even
life itself. Therefore, when access to it is concentrated into the
hands of a few, the rest have essentially no bargaining power.
Who owns the Earth?
If all land on Earth is owned by a subset of the population, then the
landless attain a status akin to that of trespassers on the Earth. If
-- as our moral instincts inform us -- we all have a birthright to
access the Earth, then this realization must be reflected in our
political institutions. A Land Value Tax system recognizes that land
titles are a practical way of allocating land use rights, but that the
proceeds from such monopolization over locations on the Earth must be
returned to their rightful owners, the community as a whole.
Really it isn't a tax at all, in the usual sense of confiscating that
which one produces. On the contrary, by allowing eternal sovereignties
over our common inheritance without any repayment to society, one has
essentially granted a subsidy to the landlords. Whenever anyone in the
community does anything to improve the region, the land values rise.
This occurs no matter what the intentions were. If a do-gooder builds
a community center in an impoverished area, the land values and rents
increase. Instead of helping the poor tenants in the region, the
do-gooder may have just helped them right out of a home. Whilst the
landlord could have been sleeping through the whole thing, and in the
end see his land values rise.
Invent something to improve harvests? Excellent, more rent for the
landlords and the exact same wages for labor. The same story could be
said of welfare programs, basic income guarantees, and the like. If
activists fight hard and turn the region into a bastion of civil
liberty which attracts people from all around, it doesn't matter if
the landlords were sleeping or actively opposing the activists, they
will see their land values rise, and the tenants will see their rents
go up. The same is true again of government infrastructure projects,
and anything else which makes a region attractive.
Back when I was a run-of-the-mill progressive, I would often echo
progressive sentiments about how awful it is that people are forced
into dangerous and low-wage jobs. This would provoke respectful but
spirited debates with those who call themselves "libertarians."
They would say that nobody is forcing them to work. They were
voluntarily agreeing to work.
Such debates were common around the Enlightenment. Thomas Malthus
reacted to the Enlightenment notions about freedom leading to a golden
age of prosperity. He claimed that natural resource scarcities and
breeding patterns inevitably cause markets to reduce wages down to
subsistence. He called this the Iron Law of Wages. He was certainly
correct that something about the market system of his day (and our
day), tends to drive wages down to a bare minimum. Yet, his emphasis
on natural scarcities and overpopulation was unfounded.
David Ricardo responded forcefully to Malthus, and argued that
actually the trends being witnessed were the result of what became
known as the Law of Rent. Ricardo's analysis of rent proved that once
all freely available land is claimed, then as production increases,
rent will eat up virtually all of the increase in production. This
explains why all of the amazing technological improvements of the day
were doing nothing to improve the conditions for the large masses of
landless paupers.
This is why technology alone can't save us; we need systemic reform.
If you're aware of the problems in the biotech industry regarding the
patenting of life, you should recognize that is very much like another
form of land monopoly, as it creates private sovereignties over the
fruits of nature which should belong to all. Yet, biotech also
increases the rent of real estate simply by improving crop yields or
indeed whenever it does anything of value at all.
Same with any other advanced technology. We can't rely on the
super-rich to build us all nano-fabricated housing projects out of the
goodness of their hearts, we need to reign in the privilege bestowed
by the state upon private entities. I'm confident that the day they
figure out how to upload minds into computers, they'll still find a
way to make you pay rent.
Ideology doesnt matter; were in this together
While not everyone bases their political views on principles, I am
confident that most do. In the case of LVT, it isn't Right vs Left,
but the principled vs the corrupt. Any serious political view, short
of misanthropy, has every reason to support it.
If you are an
environmentalist, you should support Land Value Taxation in
order to spark more efficient use of land. We'd still require all the
usual mechanisms to internalize externalities, but the LVT alone would
encourage all the more sensible agricultural practices promoted by
environmentalists, such as permaculture and vertical farming.
Industrial monoculture and factory farming is highly land-intensive.
If holding land becomes expensive, then the markets would more
accurately reflect the social costs of such massive landholding.
If you are a humanitarian, you should support Land Value
Taxation primarily because until the land monopoly has been defeated,
no amount of philanthropy can possibly stop the trend of wages tending
towards subsistence.
If you are a serious technocrat, you should support LVT in
order to reduce unemployment, increase wages, and promote peace. On a
local scale there is evidence of all of this, including reduced crime
rates. I have no doubt that if countries follow this model, we will
see many former enemies become prosperous interdependent trading
partners.
If you believe in natural rights, you should support Land
Value Taxation in order to end the confiscation of honest income and
interest, and return that which belongs in the commons. The concept of
the LVT really has its roots in the writings of people like Adam
Smith, Thomas Paine, and others who passionately believed that labor
is the sovereign property of the individual, but that the Earth is our
common inheritance.
"Men did not make the earth& it is the value of
the improvement only, and not the earth itself, that is individual
property. Every proprietor owes to the community a ground rent for
the land which he holds." -- Thomas Paine
Especially you, Progressives
It hardly seems possible that a concept which was supported by many
of the original free market capitalist ideologues could be a
progressive one. Yet, if you are a progressive, you absolutely
should support Land Value Taxation, not as a small footnote of a
larger platform, but as a central tenet.
The ideas of Henry George and the Single Tax Movement were one of the
original inspirations of the Progressive Movement in the early 20th
Century. Progressives like John Dewey were awestruck by the power of
the arguments of Henry George in his masterpiece Progress and Poverty.
Of Henry George, Dewey wrote, "No man, no graduate of a higher
educational institution, has a right to regard himself as an educated
man in social thought unless he has some first-hand acquaintance with
the theoretical contribution of this great American thinker." To
this day, some of the most principled progressives like Dennis
Kucinich and Ralph Nader have drawn inspiration from him.
When you look at any vast fortune, you will virtually always find the
heavy hand of government as part of the essential underpinning.
Whether it is through regulatory capture, patents, state-sponsored
licensing cartels, corporate personhood, or any other sort of
government-granted privilege. Yet, as long as the mother of all
monopolies remains, it would make no difference how many of those
other privileges were struck down. The land monopoly would absorb all
the of the difference that the elimination of privilege might
otherwise have made.
It is true that even under our land monopoly there are a small subset
of progressive reforms that improve conditions of the lower classes,
though often in an imprecise or inefficient manner. Yet, the
only way one can even know what those are is though an understanding
of the land monopoly. The reforms I am speaking of are very much like
the previously mentioned artificial scarcities which favor big
business. I am speaking of artificial labor scarcities.
The Fair Labor Standards Act of 1938 is a perfect example of this.
By banning child labor and establishing the Eight Hour Day via
overtime legislation, the FLSA restricted the supply of labor,
increased leisure, and reduced the number of unemployed. Most think of
it as the law which established the first federal minimum wage, but
actually that was more like an afterthought meant to encourage
automation in light of the artificial labor scarcity. The post-war
economic boom and creation of the middle class was a result of such
labor scarcities.
Unfortunately it is difficult to enforce overtime laws, and nowadays
businesses have become so proficient at evading this regulation that
it is practically non-existent for most. As with the income tax,
overtime laws are not that difficult for people to evade. Even if it
were a good idea, the government simply can't be very efficient at
sticking its nose into every business deal.
Land, however, cannot be hidden. It would therefore be much harder
for individuals to evade. Thus, compared to many other economic
reforms, it is fair, efficient, and straightforward. Our current
system of real estate assessment would not even need to change
drastically, and it could obsolete certain agencies like the IRS.
Income taxes cannot be truly progressive, by their nature, no matter
what sorts of brackets are in place. Taxing income does not change the
fundamental market power of individuals, and as such the burden of
taxes are just passed around until the income distribution reflects
market power. Again, it wasn't income taxes that created the modicum
of equality after WW2, it was merely labor scarcities, and those can
only do so much.
Additionally, we are suffering under the volatility of speculative
land bubbles, like the recent mortgage crisis, which are a byproduct
of the land monopoly. People like to point to all sorts of things like
CDOs, derivatives, credit default swaps, and so on, yet they ignore
that each of these are predicated on the ability to speculate on land.
The LVT would change all that in a truly progressive manner, and end
the volatile land bubbles. It would reshuffle market power in favor of
productive activity and away from unproductive hoarding of land. Most
importantly, it would allow us to actually benefit from other sorts of
reforms, and as such must be the top priority. Until then we're merely
reshuffling deckchairs on the Titanic.
Bring on The Remedy
There is hope. The hope lies not in austerity, monetary policy,
deficit spending, or even technology. That last one was a hard pill I
had to swallow, but the sooner we all accept that the better.
The beauty of this simple reform is almost surreal. It solves so
much, yet asks so little. Instead of increasing bureaucracy, it would
reduce it. Instead of weakening incentives for production, it would
actually create them. Instead of encouraging waste and urban sprawl,
it would promote efficient use of land.
The LVT has been experimented with in many times and places, and it
has always succeeded to the extent that it was tried. It holds the
potential for uniting principled minds of every persuasion, if only we
can break free of the ignorance espoused by the talking heads who tell
us that the only remedies available are painful and complex.
Let's show those bastards that they're wrong. A better way is
possible, and through it we can finally reach that golden age we're
always dreaming of.
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