Global Warming

Here's the main body of a letter from Frank de Jong to a newsgroup I belong to.

"Climate change is again at the top of the global agenda. Hopefully this time the nations of the world will take concerted action.





Two points:




1. Conventional wisdom states that addressing climate change will cost huge amounts of money. The climate change defenders say it would be money well spent, while the climate change deniers say it would be a waste of money. But this entire premise is incorrect.





Climate change can and should be addressed at zero cost, by using the tax structure as a policy tool, through tax shifting, i.e. untaxing jobs and business and up-taxing resource use, land values and the privilege of polluting. Green tax shifts are revenue-neutral and cost taxpayers and governments nothing. In fact they benefit the economy by rewarding value-added, labour-intensive, resource-efficient, clean production and punishing ecologically destructive manufacturing and life styles.




2. Switching the source of government revenue from personal incomes and business profits to levies and fees on the use and abuse of the global commons, should become policy whether climate change exists or not. There are multiple benefits to green tax shifting, including more jobs, a more prosperous economy, less sprawl, more walkable neighbourhoods, increased economic viability of local food and clean energy, resource conservation, nature preservation, less poverty, less cancer, heart disease, diabetes and asthma.


These points obliterate the arguments of the climate change deniers by presenting a fiscally responsible, politically attractive market mechanism that will address climate change by dramatically reducing the human impact on the Earth without unfair subsidies or punitive compliance legislation."

I think he has some good ideas here. What do you think?

Seeds of Destruction

Back when world communism was alive and well, the communists taunted us and warned us that capitalism sows the seeds of its own destruction. Their observation is true, of course, but they failed to notice that communism also sows the seeds of its own destruction, the very same seeds, in fact, and by pure chance their seeds germinated first.

So what are these seeds of destruction?

Every elementary economics textbook begins by explaining that all wealth is made from land, labor, and capital. When an entrepreneur first establishes a business, he spends his initial investment on land and capital, then hires employees to perform the labor.

This initial investment lumps land and capital together and refers to the composite as the Means of Production. Capitalism places the Means of Production under corporate control and communism places the Means of Production under government control. Is one inherently better than the other? Should we care?

The need for the entrepreneur to lump land and capital together for investment purposes leads to the error of failing to see the fundamental difference between land and capital. Land is part of the universe. No human being, alive or dead, made it. It's a Gift of God (if you're a believer) or a Fact of Nature (if you're a non-believer). Capital is made by living people, and the quantity of it is a product of human decisions, thus capital bears a much closer kinship to labor than to land.

And therein lies the Seeds of Destruction. Whenever land and capital are treated identically for taxation and administrative purposes, land becomes subject to uncontrollable price inflation that eventually renders land such a large percentage of the corporate assets that it becomes more profitable to cut back production instead of increasing production. Downsizing happens. People lose their jobs. Newly unemployed homeowners default on their mortgages and banks are left holding the bag with properties that can't be sold for the amount of the outstanding balance.

In short, we have a depression.

Is the current economic downturn a mere recession that will soon turn back up again? Are we headed for a depression that will take years to pull back out of? Is this the depression that will cause total collapse of the entire world order as we know it? I'm not going to make a prediction, and I'm not going to believe any prediction anybody else makes, either.

Whatever the next presidential administration tries to do to fix our economy, it's doomed to fail unless something is done to rein in land speculation. The land value tax suggested in the nineteenth-century book Progress and Poverty by Henry George would be a very good place to start.

Now, if we do finally get wise and find a way to stop uncontrollable land-price bubbles, should the government own and administer major capital investments, as recommended by communists and socialists? In some cases, perhaps yes, but in other cases it won't make any difference.

An Open Letter to Our Next President

Dear Next President, whoever may win this election:
 
Prepare ye this day for the monumental challenge of the century, our economy.  For this, I have two suggestions.
 
First, converse with a few real estate salespeople.  Take note of the many times they recite the ever-popular real estate mantra, "The three most important things about a location are location, location, and location."
 
Next, read the nineteenth-century book Progress and Poverty by Henry George, which explains what all this location business is all about.
 
You see, all human activities, without exception, have one thing in common, that is they require a location.  At a minimum, in order to do anything you have to be someplace while you are doing it.  Some locations are better than others for certain activities.
 
It should come as no surprise, therefore, that all meaningful investments contain a major component consisting of the market value of their location.  The influence of land speculation artificially jacks up this location value component, making the entire investment appear more valuable than it really is, thus we end up with investment "bubbles" of various sorts.
 
When the location value component reaches a certain point, land usage patterns become less dynamic because of the greater amount of money that needs to be borrowed for a land sale, thus decreasing the efficiency of industry and leading to economic stagnation.
 
Mr. McCain, your party has traditionally believed that the Invisible Hand envisioned by Adam Smith will, if government simply butts out, magically cause more wealth to be created.  How do you expect this to happen if the Invisible Hand is chained to the dungeon wall of land speculation?
 
Mr. Obama, your party has traditionally believed that there's plenty of wealth and all that's needed is equitable distribution.  If you redistribute wealth from the rich to the poor, how do you propose to prevent the forces of land speculation from re-redistributing it back to the rich?

Mr. Next President, whichever of you should win, you've got your work cut out for you!

A sermon on poverty and hunger

At a recent church service, the sermon topic was poverty and hunger. After the obligatory weeping and wailing and gnashing of teeth over the amount of poverty and hunger in the world, the preacher presented a comparison between Herbert Spencer and Jesus Christ. Naturally, in accordance with the Christian Party Line, the conclusion was that Jesus Christ had the True Answer. We must increase our charitable giving.

Herbert Spencer was a nineteenth-century English philosopher and political theorist who, upon reading Origin of Species by Charles Darwin, concluded that natural selection leading to the survival of the fittest applied just as well to human society. Give the poor nothing, he said. They're poor because they're less fit. Allow them to starve, and the next generation will be stronger and wealthier because the weaker members will have died without leaving descendents.

Spencer was, in principle, correct, except for one problem. The laws of his time, like the laws of our own time, grant certain people unnatural advantages because they've been born into positions of special privilege, or had the good luck to move into positions of special privilege. If fitness were the primary determining factor of wealth, Paris Hilton would probably be a homeless waif sleeping on steam grates and begging crumbs.

So I think we can safely dismiss Herbert Spencer's proposed solution. But did Jesus Christ really do any better?

We Christians love to think that Jesus was the Supreme Humanitarian. Unfortunately, there isn't much in any of the Gospels to support that view. Although he was a pretty nice guy in most of the Gospel stories, he really doesn't appear to have been particularly intelligent. He appears to have had no idea that poverty is caused primarily by legally enforced special privileges, leading to inequality of opportunity. Charitable giving was all he could think of, utterly ignoring the underlying injustice.

There is one thing that all human activities, without exception, require, and that is a location, a place to be while you are doing it. You can just about hear the real estate salesperson in the background, whispering, "Location, location, location." Food can be grown more easily on land near where strong people live to till the land, and near where hungry people live to eat the food, and people move around for various reasons and their needs and wants change with the seasons.

Our present laws treat land, that is, locations, as property. It doesn't work that way. A location is part of the world, not manufactured by any person, and its value is determined by the activities going on around it, not by anything the owner does. The law of supply and demand simply drives the price up to the point where land is difficult to buy and sell, but easy to own on a long-term basis. We can't just build another factory to make more land and ship it to anywhere we need it, the way we do with automobiles or refrigerators or whatever.

When a piece of land is very expensive to purchase initially but very cheap to hang onto once you've got it, it changes hands very slowly. However, the need for dynamic usage of land is very great. It must change hands frequently as society's needs change.

Therefore, we've got to think of some way to make land very cheap to purchase initially but very expensive to hang onto, in order to dump currently unused, underused, misused, and inappropriately used land onto the market priced for a quick sale. A variety of methods have been proposed, but the simplest approach appears to be to adjust real estate taxes to bear more heavily on the value of the location and more lightly, if at all, on the buildings. Perhaps other taxes, such as income taxes and sales taxes, can also be reduced.

But would our religious leaders ever think of anything like that? Well, it's been about two thousand years and they haven't thought of it yet.

Now, don't get me wrong. Charitable giving and welfare programs will still be needed. But the fundamental justice provided by dynamic land usage patterns is a prerequisite for any sort of charity to be effective.