March 27, 2008

"George Bush called this the ownership society, but what he really meant was 'you're-on-your-own' society."

A pithy and memorable quote from Barack Obama. But do Americans share that attitude toward economic policy?

72 comments:

Kevin said...

Obama: I'm from the government and I'm here to help!

Larry J said...

There are some people who are facing foreclosure for reasons beyond their control, such as losing their jobs or a serious illness. They make up only a small percentage of homeowners in trouble. We can discuss whether or not it's the government's responsibility to help those people.

For those who foolishly bought on speculation or those who were stupid about their mortgage decisions, they deserve no help IMO. Stupidity should be painful. Why should those of us who weren't stupid have to pay to make good those who were?

Bullwinkle4Amy said...

Americans are generous people (cf. the American Red Cross donations through Amazon.com during the tsunami; cf. also Katrina relief efforts). There's widespread support for the idea of a "safety net" for the truly needy as well as some kind of temporary support for people who have been dislocated.

Where it seems to me that people of good conscience differ is in their beliefs as to how many of these people there are in our society, and/or the extent to which these support systems should consist of being taxed and trusting the government to provide the relief. "The ownership society" appeals to those of us who like to think of American society as self-reliant, having a can-do spirit, with countless millions of entrepreneurs and those who invest in such entrepreneurs. The "you're-on-your-own" society is likely to be repugnant to those who believe that part of the government's role is to provide that safety net, and for whom notions such as partial privatization of the Social Security system are tantamount to a violation of the social contract that a government has with its citizens.

Personally, I lean rather heavily towards the former of these groups and believe that greater emphasis should be placed on private charity than public redistribution of wealth. Obviously, not everyone shares this opinion.

AJ Lynch said...

That is "Just Words" and Obama also "borrowed" these words from someone else.

I know I heard this before way back in 2000 maybe?

Henry said...

The 'you're-on-your-own' society sounds like a good thing to me.

It is certainly preferable to the "college dorm" society that Obama promotes -- that society where everyone pretends to be grown-up, but nobody has any real responsibility.

MadisonMan said...

If the Government can afford to hold JP Morgan's hand while it swallows Bear Stearns -- possibly costing how many billions? -- then I think the government can help individual home owners.

My preference is that the government do nothing in either case, because you can't fix dumb, but I'm not in charge.

Hoosier Daddy said...

Why should those of us who weren't stupid have to pay to make good those who were?

I take it you're new to the Democratic platform.

There are some people who are facing foreclosure for reasons beyond their control, such as losing their jobs or a serious illness.

Well that has been pretty much the case since, forever. I guess Obama would have you believe that foreclosures never occured prior to the Bush junta.

Hoosier Daddy said...

My preference is that the government do nothing in either case, because you can't fix dumb, but I'm not in charge.

Agreed.

How much Federal tax money is JP getting on this? I confess I haven't read a whole lot on this deal.

AlphaLiberal said...

Depends if you're going by polls, yes. If you're projecting your own opinion, perhaps less so.

Late-breaking news: Saint McCain plagiarizes Admiral. Nothing admirable about that. No news at 10. Reporters hope for more BBQ.

MadisonMan said...

I don't think JPM is getting any money initially; the Fed is underwriting the worst of Bear Stearns' loans and the total of those bad loans was in the neighborhood of $30bn -- so if the loans go bad, Uncle Sam will just write a check or something.

The loans might not go bad -- but then if there was a good chance of them not going bad, would Bear Stearns be kaput?

This is all from memory -- I was listening to Marketplace or some such radio show and they were talking about it.

save_the_rustbelt said...

Bush meant that 10% of Americans own all of the country.

His legacy is corruption and cronyism - I'm a Republican and it makes me gag.

Hoosier Daddy said...

Bush meant that 10% of Americans own all of the country.

Actually I think the Feds own most of it. Land anyway.

rhhardin said...

The Fed isn't rescuing Bear Sterns or JP Morgan. It's sopping up counterparty risk that paralyzes the system.

Nobody knows if anybody can safely be traded with, both parties being in fact perfectly fine, far from Bear Sterns.

Bear Sterns is taking a bath financially. Whether the shares are worth $0 or $10 in the end isn't much of a difference, it's a wipe-out.

JP Morgan has to be induced to take over Bear Sterns voluntarily, and so that costs something.

The Fed could wind up holding junk in return, or could make money on the deal, and so you have to know the odds to know if in fact which way the money goes. A fact you can't know because the Fed has no more idea of the value of the securities it's taking than anybody else.

But the point is to free up the system, not these particular players.

hdhouse said...

pithy but accurate.

Elliott A said...

Had the government been proactive and moved to guarantee all the potentially troubled mortgages last summer, as distasteful as that is, the entire mess could have been averted. Once the mortgages were guranteed, then the individual mortgages with particularly bad futures could have been renegotiated with the mortgage company biting the bullet for making the loan in the first place. With the prices supported, and no dominoes falling, the whole mess could have been fixed for 50 billion or so. Instead, we all share 600 billion in losses and depressed values of our assets.

While the prior lending guidelines were perhaps too rigid and not best for the modern market, no one should be able to get a loan that they cannot qualify for the future, not present payments. If they are foolish enough to make all these loans, the mortgage companies have not earned the right to function independent of regulation. The regulation, however, must not extend past oversight of compliance with lending guidelines. Not everyone has to live in a McMansion.

Freder Frederson said...

The Fed could wind up holding junk in return, or could make money on the deal, and so you have to know the odds to know if in fact which way the money goes.

Wrong, the Fed is only guaranteeing losses, it is not getting equity in Bear Strean or JP Morgan. No matter how you spin it, it is a bailout. Without the federal guarantee of BS's bad loans, nobody would have come to their rescue and they would have declared bankruptcy.

The risk has been socialized but not the profits.

Simon said...

Presumably, Senator Obama would prefer a "training wheels and candy kisses from mommy" society.

Pastor_Jeff said...

The nice man at the BMW dealership said I really could afford the 7 series (even though I only make $30K/yr), but now I can't make the payments and they want to take the car back. Can they do that? I'll be out of wheels! Shouldn't the government pick up my car loan or something?

George said...

Obama: In America, but not of it, as Asian commentator Spengler said.

It's called independence.

We've been lovin' it since 1776.

Pastor_Jeff said...

And as far as Bear Stearns goes ...

Sure, I invested in junk bonds, too. Did you see those rates of return? But now they've all tanked! Shouldn't the government bail me out?

rcocean said...

Music for Wall streets ears.

Any losses will be publicly owned while all profits will be privatized.

Pastor_Jeff said...

Just remember a key principle of economics and politics -- you always get more of whatever behavior you subsidize.

Windbag said...

The "on your own" quote is a Hillary quote. HotAir has a link. The sentiment it reflects is the stale rhetoric of the left that the right doesn't care about poor people. Edwards-type two-Americas blather.

The government's task is not to prop up any stupid economic decision made by its citizenry. Obama reveals more of his communist leanings--the government is the mother sow, doling out the pork.

When it comes to investment risks, you *should* be on your own. I don't want to pay for someone's failed mortgage any more than I want to pay for someone's loss of a beachfront vacation home when the next Katrina blows through.

John K. said...

This epitomizes why, even if (as I think) Obama is the lesser "evil," he's still very "evil." Hell yes I want a "you're-on-your-own" society, at least with respect to the government. The single most important thing the government could do is drastically slash taxes on the lower and middle class (preferably without having to raise them on the upper class, by ending the stupid immoral drug war and other stupid immoral wars for starters). If the government stopped stealing their (our) money in the first place, there would be less need for the government to oh-so-graciously hand it back to them in bits and pieces on an "as need" basis, in the demeaning and dishonest form of government charity. We wouldn't need Obama's proposed $4k per year government subsidy for higher education, especially if we rolled back all these protectionist government-enforced occupational licensing schemes would-be new businesspeople now have to contend with. (See Thomas Paine's great essay "Agrarian Justice" for one very good reason, grounded in natural justice, why taxes should be drastically slashed for the poor and lower middle class, while some taxes on the upper middle class and rich make sense).

But are Republicans going to meaningfully reduce taxes on the lower and middle class? No, but they will bail out their banking buddies while being much more stingy with government benefits to ameliorate the poverty the government itself has caused or contributed to.

John K. said...

I forgot to add, if the government stopped taxing the income of lower and middle class people we'd probably have a better chance of paying our mortgage, and buying health insurance.

Michael said...

Sure, I ran up a $2000 cell bill from texting all my friends. Email is so yesterday! But now my cell carrier is cutting me off because I haven't paid my bill! Shouldn't the government step in to stop this evil corporation from taking away my phone rights?

O-Bama in O-eight!

Michael said...

Sure, I've been pulling a train every night at the local bath house for the last six years. A girls gotta do what a girls gotta do! But now I've got the AIDS! It's all Reagan's fault - the government should have done something!

Got to go! It's free lube night at the Boot Camp.

O-Bama in O-eight!

Michael said...

John K.: I forgot to add, if the government stopped taxing the income of lower and middle class people...

...then the lower and middle class people would vote for whomever promised them the most government services and handouts at taxpayers' (not them!) expense.

Consider that we're already at the point where the bottom 50% pay only 3.07% of all income tax dollars collected by the feds. There is no incentive for these people to vote for smaller government.

Hoosier Daddy said...

No matter how you spin it, it is a bailout. Without the federal guarantee of BS's bad loans, nobody would have come to their rescue and they would have declared bankruptcy.

So whose getting bailed out? It certainly ain't the shareholder if JP goes for the $10 share price versus the $2. Big whoop, the shareholder is still getting shafted. Any Bear Stearns employees left?

I guess a bailout to me would be if the Fed backed all of Bear Stearns risk and let them continue on as usual. From what I have read so far, all the Fed is doing is providing a guarantee on some of the risk, not all of it.

MadisonMan said...

Any losses will be publicly owned while all profits will be privatized.

But taxing those subsidized profits? That would be heresy.

ricpic said...

When will it be a you're-not-on-your-own society; when we are pledged to the State, body and soul, at birth?

The Drill SGT said...

McCain is correct that there are 2 "bubbles", a Housing bubble and a mortgage bubble.

Economists call this the "theory of the greater fool" or 2 fools in this case.

1. The Government did all sorts of stuff to encourage home ownership (e.g. Black home ownership is up, 44%->48% in 10 years.). Folks believed prices always went up. They knew that they were in much too much house, but if the rate was low, and the prices went up, they could cash out at any time. And there would always be a greater fool to come along and buy their inflated house.

2. Lenders loaned money to folks who clearly could not make the payments in the long run. e.g. ARMS. its one thing to loan a lot to a brand new lawyer married to a medical intern. The bank and you knwo the income stream will increase faster than payments, but banks were loaning single mothers secretaries 400k for houses.

3. Lenders made those loans because they knew they could repackage them and unload them before they became non-productive in the industry term. Smart savy wall street types with Harvard MBA's and Yale JD's researched and recommended buy decisions. because there was always a greater fool willing to step in and buy the security at a higher price.

4. Then both groups (owner) and (Investor) ran out of greater fools and both bubbles burst.

5. all of them knew better and there is no reason to eliminate all the pain of the loss, doing so would just encourage more of the same and would be paid for by other owners who make their payments and other banks that didnt make the bad loans.

Larry J said...

But are Republicans going to meaningfully reduce taxes on the lower and middle class? No, but they will bail out their banking buddies while being much more stingy with government benefits to ameliorate the poverty the government itself has caused or contributed to.

This is the same meaningless rhetoric that gets put out by Democrats. Look, the IRS's own numbers show that the bottom 50% of wage earners based on adjusted gross income only pay less than 5% of all income taxes. Just how much lower can their taxes go?

Second, I'd love for some Democrats to define what income levels they consider as "lower class" and "middle class." I'd like real hard numbers, not mere handwaving.

Synova said...

I think that there is already a very strong feeling that if something is allowed that it's been approved and vetted and what-all by someone. Namely "the government."

So if you *can* borrow money then it's got to be okay because if it wasn't okay then it would be illegal.

And whatever you purchase, must be safe, because if it wasn't safe it would be illegal.

I really do think that a whole lot of people don't think they have to try to decide if something is a good idea or not simply because there are so many rules about everything.

I don't think this is a good thing.

I think that a "on your own" society would be better in a whole lot of ways... in the context that Obama used the phrase.

Revenant said...

This IS the "you're on your own" society and I'm ever so thankful for it. The alternative is a "the government won't leave you alone" society. I'll pass.

John K. said...

Michael said: "Consider that we're already at the point where the bottom 50% pay only 3.07% of all income tax dollars collected by the feds."

If that's true, then the federal government can eliminate all income taxes on the bottom 50% without busting the budget, by tightening its belt ever so slightly. The positive economic effects would be well worth it (the $6k or whatever it is the government takes from someone making $30k per year could do a hell of a lot for that person's stability and hence for the stability of society), unless you're of the perennial school of economic thought which believes it necessary that large numbers of people be kept poor and desperate in order to hold down the price of labor.

Note also that the top 50% own far far more than 50% of the country's wealth, so it makes sense that they should pay far far more for the protection of their wealth and the status quo than those who own virtually nothing.

"There is no incentive for these people to vote for smaller government."

Actually, I think your typical welfare recipient is far less likely to vote than your typical poor or middle class person (though there's obviously some overlap between the two categories). If you got rid of income withholding so people actually knew how much they were paying in taxes and actually had to write the check, and you then did a poll of everyone making less than the mean income (even including welfare recipients), I bet the vast majority would not "vote for whomever promised them the most government services and handouts" over the alternative of eliminating their federal tax bill. Why then are they paying so much in taxes, if they constitute such a large voting bloc? Because the wealthy have a disproportionate influence over tax policy because of the costs of political campaigning, and because politicians and other government workers (e.g. teachers) and regulators are a powerful class and interest group all their own, whose interests coincide with higher taxes.

I still think there's a place for welfare, but it should be administered and funds for it collected on the local level, and there would be much less of a need for it if, as I said, the government stopped extorting so much of the livelihoods of the poor and middle class (not only through income taxes, but also sales taxes).

Revenant said...

If that's true, then the federal government can eliminate all income taxes on the bottom 50% without busting the budget, by tightening its belt ever so slightly.

Yes, but why should they? Why should half the country get to be leeches?

rcocean said...

"Yes, but why should they? Why should half the country get to be leeches?"

To help Demi Moore remove toxins.

Hector Owen said...

Possibly relevant to what Revenant just said, from England: Meet the families where no one's worked for THREE generations - and they don't care.

"Because my gran, Jean, didn't work either then I suppose it's just normal in our family not to have jobs.

"I don't like the idea of having to be bossed around at work and I don't want to go to college or anything because I like to stay in bed in the morning. In the meantime, it's my right to claim benefits. One day I'd like a council flat."

ricpic said...

A flat tax of 10%, no higher than the traditional tithe and no loopholes, would make ALL equal participants in our society, not those taken from and those who take. Isn't that what the Left purports to want, equality?

Trooper York said...

rcocean said....
To help Demi Moore remove toxins.

Ding, ding, ding. We have a winner. RC wins the thread.

rcocean said...

So, where's my prize?

Middle Class Guy said...

MadisonMan said...
My preference is that the government do nothing in either case, because you can't fix dumb, but I'm not in charge.

I heartily agree. If people or the people who run institutions make stupid decisions they should suffer the consequences.

Price of Everything said...

I don't what makes Obama think the "you're on you're own society" is a bad thing.

Middle Class Guy said...

Well, I own my home outright, I own my car outright. Far as I am concerned it is an ownership society.

Middle Class Guy said...

ricpic said...
A flat tax of 10%, no higher than the traditional tithe and no loopholes, would make ALL equal participants in our society, not those taken from and those who take. Isn't that what the Left purports to want, equality?


Steve Forbes proposed that when he ran for President and still advocates an across the board flat tax. Everybody pays. That is the way it should be.

Tim said...

Oh-Bah-Muh wants taxpayers to subsidize irresponsible behavour, thinking he can buy votes that way.

But most taxpayers who own homes make their payments on time, and are not at risk of foreclosure.

I'm not thinking his magic spell is gonna buy too many votes.

John K. said...

"Yes, but why should they? Why should half the country get to be leeches?"

I think the best tax regime would be that proposed by Henry George, a "single tax" on the unimproved value of land, with all other taxes eliminated. Obviously, this means that a middle class person who owned any real estate would pay his share of the tax.

George based his proposal not only on economic but also on moral justifications, and the moral justifications were essentially the same as those outlined by Thomas Paine a century earlier in his essay "Agrarian Justice":

There could be no such thing as landed property originally. Man did not make the earth, and, though he had a natural right to occupy it, he had no right to locate as his property in perpetuity any part of it; neither did the Creator of the earth open a land-office, from whence the first title-deeds should issue. Whence then, arose the idea of landed property? I answer as before, that when cultivation began the idea of landed property began with it, from the impossibility of separating the improvement made by cultivation from the earth itself, upon which that improvement was made.

The value of the improvement so far exceeded the value of the natural earth, at that time, as to absorb it; till, in the end, the common right of all became confounded into the cultivated right of the individual. But there are, nevertheless, distinct species of rights, and will continue to be, so long as the earth endures.

It is only by tracing things to their origin that we can gain rightful ideas of them, and it is by gaining such ideas that we, discover the boundary that divides right from wrong, and teaches every man to know his own. I have entitled this tract "Agrarian Justice" to distinguish it from "Agrarian Law."

Nothing could be more unjust than agrarian law in a country improved by cultivation; for though every man, as an inhabitant of the earth, is a joint proprietor of it in its natural state, it does not follow that he is a joint proprietor of cultivated earth. The additional value made by cultivation, after the system was admitted, became the property of those who did it, or who inherited it from them, or who purchased it. It had originally no owner. While, therefore, I advocate the right, and interest myself in the hard case of all those who have been thrown out of their natural inheritance by the introduction of the system of landed property, I equally defend the right of the possessor to the part which is his.

Cultivation is at least one of the greatest natural improvements ever made by human invention. It has given to created earth a tenfold value. But the landed monopoly that began with it has produced the greatest evil. It has dispossessed more than half the inhabitants of every nation of their natural inheritance, without providing for them, as ought to have been done, an indemnification for that loss, and has thereby created a species of poverty and wretchedness that did not exist before.

In advocating the case of the persons thus dispossessed, it is a right, and not a charity, that I am pleading for. But it is that kind of right which, being neglected at first, could not be brought forward afterwards till heaven had opened the way by a revolution in the system of government. Let us then do honor to revolutions by justice, and give currency to their principles by blessings.
***


Paine's proposal was to have the government pay every citizen upon attaining the age of 21 a certain substantial sum, as compensation for the loss of their natural inheritance, out of funds accumulated through an inheritance tax. Paine went on to say:

"I care not how affluent some may be, provided that none be miserable in consequence of it. But it is impossible to enjoy affluence with the felicity it is capable of being enjoyed, while so much misery is mingled in the scene. The sight of the misery, and the unpleasant sensations it suggests, which, though they may be suffocated cannot be extinguished, are a greater drawback upon the felicity of affluence than the proposed ten per cent upon property is worth. He that would not give the one to get rid of the other has no charity, even for himself.

There are, in every country, some magnificent charities established by individuals. It is, however, but little that any individual can do, when the whole extent of the misery to be relieved is considered. He may satisfy his conscience, but not his heart. He may give all that he has, and that all will relieve but little. It is only by organizing civilization upon such principles as to act like a system of pulleys, that the whole weight of misery can be removed.

The plan here proposed will reach the whole. It will immediately relieve and take out of view three classes of wretchedness-the blind, the lame, and the aged poor; and it will furnish the rising generation with means to prevent their becoming poor; and it will do this without deranging or interfering with any national measures.

To show that this will be the case, it is sufficient to observe that the operation and effect of the plan will, in all cases, be the same as if every individual were voluntarily to make his will and dispose of his property in the manner here proposed.

But it is justice, and not charity, that is the principle of the plan. In all great cases it is necessary to have a principle more universally active than charity; and, with respect to justice, it ought not to be left to the choice of detached individuals whether they will do justice or not. Considering, then, the plan on the ground of justice, it ought to be the act of the whole growing spontaneously out of the principles of the revolution, and the reputation of it ought to be national and not individual.

A plan upon this principle would benefit the revolution by the energy that springs from the consciousness of justice. It would multiply also the national resources; for property, like vegetation, increases by offsets. When a young couple begin the world, the difference is exceedingly great whether they begin with nothing or with fifteen pounds apiece. With this aid they could buy a cow, and implements to cultivate a few acres of land; and instead of becoming burdens upon society, which is always the case where children are produced faster than they can be fed, would be put in the way of becoming useful and profitable citizens. The national domains also would sell the better if pecuniary aids were provided to cultivate them in small lots.

It is the practice of what has unjustly obtained the name of civilization (and the practice merits not to be called either charity or policy) to make some provision for persons becoming poor and wretched only at the time they become so. Would it not, even as a matter of economy, be far better to adopt means to prevent their becoming poor? This can best be done by making every person when arrived at the age of twenty-one years an inheritor of something to begin with."
***


The dispossessed that Paine is talking about have started from less than zero -- less than is their natural right. Not having a piece of land of their own upon which to stand or sleep or work, they'll have to pay someone else rent until such time as they can afford to make a down payment on a house, from which time they'll have to pay the mortgage lender interest until the mortgage is paid off twenty or thirty years later. (Most of the value in a typical home is in the improvements rather than the land, and it's of course only right that the purchaser or renter pay for what someone else built, but it's not right that private landlords absorb all of the rental value of the land to which everyone born into society has an equal right.)

The income tax when it was first enacted, which coincided with the heyday of Henry George's popularity, only applied to the top few percent of income earners, and was actually intended to absorb income from unearned increment in value, especially the value in land.

Like I said, I'd prefer there be no income tax at all, and that only the unimproved value of land be taxed. It also seems that an argument can be made for an inheritance tax, based on the fact that it's impossible for a dead guy to own or transfer property, and that such posthumous transfers are effected by a legal fiction under the auspices of the state.

But the income tax is doubly evil when applied to someone who is starting from less than zero and trying to accumulate the capital necessary for financial independence. The current paltry personal exemption amount is presumably based upon the recognition that a certain amount of income is necessary to live. I would simply follow Adam Smith in his recognition that the definition of "necessaries" should not merely be based on bare subsistence but on what is necessary to live a decent life in the society in which one lives. This argues for a personal exemption more in the neighborhood of the U.S. mean income.

Revenant said...

A tax on the unimproved value of land would have made sense back when land was the primary store of wealth and the primary source of income. But we're not an agriculture-based society anymore. A flat tax with no deductions would produce the same effect without all the headaches associated with appraising land values. Either plan, though, results in lower-income people paying a vastly higher percentage of taxes then they currently do. After all, the poorest 50% of Americans use roughly 50% of the land, same as the richest 50% do.

XWL said...

But do Americans share that attitude toward economic policy?

No.

Those that agree with Sen. Obama's statement are more likely not to think of themselves as something so provincial as "American" (afterall couldn't someone from Brazil, Canada or Guyana also be considered 'American'?), instead his fellow travellers are more citizens of the world.

So, there are people eligible to vote in our elections (being citizens of the United States and all) that probably do agree with Sen. Obama, but those that are American (and embrace the identity rather than bristle at it) certainly don't.

Revenant said...

To clarify that point a little: whoever uses the land ends up paying the tax on it, one way or another.

Let's say that land in suburban Topeka is taxed at $600 per quarter-acre per year. If you own a house on a quarter acre of land, you pay $600 a year to the government. The person renting the quarter-acre lot next to you just pays an extra $50 a month in rent, instead, as the actual owner of the land passes on the cost of the tax to his customer. So both the middle-class homeowner and the lower-income renter end up paying the exact same amount of tax -- $600. They also both require roughly the same acreage of land for the food they're consuming (taxes from which are added to the cost of the food), roughly the same amount of workspace to work in (taxes from which lower salaries or increase the price of finished goods), etc. All told, the filthy-rich end up paying only marginally more than the dirt-poor.

John K. said...

Revenant said: "A tax on the unimproved value of land would have made sense back when land was the primary store of wealth and the primary source of income. But we're not an agriculture-based society anymore."

Note that Henry George's book Progress and Poverty became the highest selling book outside the Bible (and still the best selling book on economics ever) around the turn of the 20th century, when the Industrial Revolution was already in full swing and we were already "not an agriculture-based society anymore." Although the argument from authority is the weakest of arguments, note that supporters of Georgism included smart people like Mark Twain, Albert Einstein, Leo Tolstoy, Winston Churchill, Albert Jay Nock, William F. Buckley, and many others. Milton Friedman in an interview stated that "in my opinion the least bad tax is the property tax on the unimproved value of land, the Henry George argument of many, many years ago."

The value of land is of course not primarily a function of acreage but of location, especially proximity to population centers and government funded improvements such as subway lines and highways. A half acre in downtown Manhattan or Silicon Valley is worth far more than a hundred acres in rural Indiana. Hence, the richest 50% of Americans use far more than 50% of the land value in America, while the poorest 50% of Americans use far less.

Even though information technologies and other forms of capital are far more important to the economy than they were in a primarily agricultural economy, the distinction upon which the Georgist idea is based is still valid -- natural property such as land, water and air belongs to everyone in society equally, while the fruits of one's labor belongs to the one who produced it. Henry George, to quote someone I've read recently but whose name I don't recall, "was the best friend the capitalist ever had."

John K. said...

Revenant-

"There could be no limit whatever to prices did the fixing of them rest entirely upon the seller. To the price which will be given and received for anything, two wants must concur—the want or will of the buyer, and the want or will of the seller. The one wants to give as little as he can, the other to get as much as he can, and the point at which the exchange will take place is the point where these two desires come to a balance or effect a compromise. In other words, price is determined by the equation of supply and demand. And, evidently, taxation cannot affect price unless it affects the relative power of one or other of the elements of this equation. The mere wish of the seller to get more, the mere wish of the buyer to pay less, can neither raise nor lower prices. Nothing will raise prices unless it either decreases supply or increases demand. Nothing will lower prices unless it either increases supply or decreases demand. Now, the taxation of land values…neither increases the demand for land nor decreases the supply of land, and therefore cannot increase the price that the landowner can get from the user. Thus it is impossible for landowners to throw such taxation on land users by raising rents. Other things being unaltered, rents would be no higher than before, while the selling price of land, which is determined by net rents, would be much diminished." -- Henry George, Why the Landowner Cannot Shift the Tax on Land Values

Revenant said...

Note that Henry George's book Progress and Poverty became the highest selling book outside the Bible (and still the best selling book on economics ever) around the turn of the 20th century, when the Industrial Revolution was already in full swing and we were already "not an agriculture-based society anymore."

"Progress and Poverty" was published in 1879, at which point approximately 50% of the work force was farm labor. Today the figure is less than 2%. So while you're correct that the book sold well (although why that matters remains a mystery), you're wildly wrong about when it came out and what the US economy of the time was like.

Although the argument from authority is the weakest of arguments, note that supporters of Georgism included smart people like [snip]

The argument from authority is a logical fallacy, and as such doesn't even rise to the level of "weak argument".

The value of land is of course not primarily a function of acreage but of location, especially proximity to population centers and government funded improvements such as subway lines and highways.

I think we can dispense with the notion that the wealthy are eager to live in close proximity to subways and government improvements. In reality, of course, the wealthy generally go through a lot of effort to keep those things, which are primarily used by the middle-class and the poor, out of their neighborhoods.

A half acre in downtown Manhattan or Silicon Valley is worth far more than a hundred acres in rural Indiana.

The reason Manhattan and Silicon Valley real estate is expensive is that a lot of extremely economically productive people live there. There's nothing magical about the land itself; its base value is quite low.

Hence, the richest 50% of Americans use far more than 50% of the land value in America, while the poorest 50% of Americans use far less.

I've already explained why you're wrong, but I'll try giving another example.

The land in Silicon Valley is worth a lot of money, so people who own that land get nailed by high taxes. That means high tech companies need to pay a lot more in rent to the owners of that land. It also means that their employees need to pay a lot more in taxes and rent, and therefore command higher salaries from the companies in that area. This means -- like I pointed out before -- that all of the customers of those industries, also known as "The Entire Population of the United States of America", gets to pay sharply higher prices for a wide range of goods that rely on Silicon Valley.

At the other end of the country you have all of the stockbrokers and banks in Manhattan. Well, their rent and salaries get passed right along to middle America in the form of higher fees for banking, higher interest rates for loans, and lower payments on deposits and investments. In a best-case scenario you simply end up breaking up clusters of productivity such as are found in Manhattan and Silicon Valley.

Then, of course, there's the fact that poor and middle-class people ALSO live in and around those areas. The land a school teacher's 1-bedroom apartment in Queens is sitting on would pay for a mansion in the Midwest -- but that doesn't make her rich. She has a (relatively) high income that goes almost entirely to paying her huge cost of living. Shifting the tax burden off of the Kansas millionaire and sticking it on her landlord simply pumps up her monthly rent.

the distinction upon which the Georgist idea is based is still valid -- natural property such as land, water and air belongs to everyone in society equally, while the fruits of one's labor belongs to the one who produced it.

The idea is still AS valid, which is to say "not at all". We are well past the point where the typical landowner inherited his land. The typical landowner bought it from a previous, societally-recognized landowner in a legal, societally-recognized manner. Anyone who favors retroactively voiding all of those contracts should be put up against the wall and shot like the thieves they are.

Paul Zrimsek said...

A Georgist is someone who considers it a terrible injustice that you had to pay for land you should have been able to claim by right of birth... and wants to make it up to you by forcing you to pay for it a second time.

Sloanasaurus said...

It is certainly preferable to the "college dorm" society that Obama promotes -- that society where everyone pretends to be grown-up, but nobody has any real responsibility.

This is brilliant stuff. That describes Obama and liberal democrats exactly...

This slogan needs to be adopted into the mainstream.

EnigmatiCore said...

Amazingly enough, AlphaLiberal hasn't come back to correct his off-topic slam at McCain, now that it turns out he did not plagiarize the Admiral, but vice-versa.

I am sure he'll get to it.

John K. said...

Revenant, just when I think you're ready to have a reasonable discussion you show your true bitch colors and get a wild hair up your ass, like you have so many times before. I mean, you've said so many ignorant things in that last comment that so misunderstand the point or are so beside the point (I presume willfully) that it's not really even worth having a discussion with you. Just to take one example -- you point out that immediately gutting and rendering almost valueless the titles to land that people have paid for with money they've honestly earned would work an injustice. Yes. That's why you wouldn't, and couldn't, do it overnight. You'd start by shifting ordinary property taxes off the improvements and onto the land, for example with a split-rate system that counties in several states have moved towards. You'd give land speculators, which isn't an honest way to make a buck anyway, a chance to unload their property on someone who's actually going to put that land to use. As far as poor people living in high rent districts -- their rent's not going to go up, for the reasons explained in my last comment. At least they won't be paying income taxes. At least their rent payments won't be going to enrich some landlord (and instead will be going into the public treasury where they can reduce the perceived need for other, unjust taxes, like income and sales taxes), except to the extent the landlord has created value on that land by improving the land. There is also an argument for having a lower tax rate on residential land than on commercial land. But we don't get to any of these distinctions and qualifications because you start flinging shit everywhere.

John K. said...

And to address one other of your points that are really beside the point, Georgism was quite prominent and influential for many years after the initial publication of Progress and Poverty. Naming the prominent people who were persuaded by its principles was simply a shorthand way of addressing your contention that it was only applicable to a more agricultural society, which if you were more honest and less hysterical you would have understood.

Here's a couple more for you to stick up your ass, both agrarians and non-agrarians:

Thomas Jefferson -- "The earth is given as a common stock for men to labor and to live on... Wherever in any country there are idle lands and unemployed poor, it is clear that the laws of property have been so far extended as to violate natural right. Everyone may have land to labor for himself, if he chooses; or, preferring the exercise of any other industry, may exact for it such compensation as not only to afford a comfortable subsistence, but wherewith to provide for a cessation from labor in old age."

Adam Smith -- "Both ground rents and the ordinary rent of land are a species of revenue which the owner, in many cases, enjoys without any care or attention of his own... Ground rents seem, in this respect, a more proper subject of peculiar taxation... Nothing can be more reasonable than that a fund which owes its existence to the good government of the state should be taxed peculiarly…"

J.S. Mill -- "Landlords grow rich in their sleep without working, risking or economizing. The increase in the value of land, arising as it does from the efforts of an entire community, should belong to the community and not the individual who might hold title."

Leo Tolstoy -- "[P]eople do not argue with the teachings of George, they simply do not know it. And it is impossible to do otherwise with his teaching, for he who becomes acquainted with it cannot but agree."

Mark Twain -- "The earth belongs to the people. I believe in the gospel of the Single Tax."

Clarence Darrow -- "Henry George was one of the real prophets of the world; one of the seers of the world... His was a wonderful mind; he saw a question from every side... When we learn that the value of land belongs to all of us, then we will be free men – no need to legislate to keep men and women from working themselves to death; no need to legislate against the white slave traffic."

John Dewey -- "Henry George is one of the great names among the world's social philosophers. It would require less than the fingers of the two hands to enumerate those who, from Plato down, rank with him... No man, no graduate of a higher educational institution, has a right to regard himself as educated in social thought unless he has some firsthand acquaintance with the theoretical contribution of this great American thinker."

Albert Einstein -- "Men like Henry George are rare, unfortunately. One cannot imagine a more beautiful combination of intellectual keenness, artistic form, and fervent love of justice."

Henry Ford -- "We ought to tax all idle land the way Henry George said – tax it heavily, so that its owners would have to make it productive."

Milton Friedman -- "Land should be taxed as much as possible and improvements as little as possible."

William F. Buckley -- "Henry George told us this system would work a hundred years ago."

Etc.

peter hoh said...

It is certainly preferable to the "college dorm" society that Obama promotes -- that society where everyone pretends to be grown-up, but nobody has any real responsibility.

As opposed to the "frat house" society that GWB promotes. "Heck of a job, Brownie."

Revenant said...

Revenant, just when I think you're ready to have a reasonable discussion you show your true bitch colors and [misc. whining deleted]

That you consider the claim that private property has no legitimate foundation to be "reasonable" pretty well sums it up. Most people immediately recognize that idea as "totally insane".

The problem with having any discussion with you, John, is that you treat politics and economics like a religion -- the revelations of the great men of the past are all you feel you need to know. In reality, of course, economics and politics are areas of human knowledge in which our understanding is ever-improving, with the inevitable result that many of the great men of yesteryear have since been shown to be embarrassingly wrong in their beliefs.

Hence, your ignorance of (or inability to process) the fact that the decision that land owners aren't *really* entitled to their land has in all times and places caused greater misery than leaving them in peace; hence, your ignorance of the fact that most of the rich are in no way tied to their land anymore and cannot be reliably taxed on its value. Etc, etc.

In short, John, you are completely ignorant of both the facts and the theory underlying the American economy -- ergo having a "reasonable" discussion with you about it is about as likely as having a reasonable discussion of calculus with a kindergartener.

As far as poor people living in high rent districts -- their rent's not going to go up, for the reasons explained in my last comment

I figured you'd realized how embarrassingly wrong you were about that, but I guess I gave you too much credit.

The reason businesses cannot always pass along costs to their customers is that the customers have a choice. But nobody has a choice about having a place to live -- nobody opts to be homeless. Ergo landlords have a great deal more power to pass costs along to renters, especially when every other landlord in the country is facing the same cost increases.

Sure, the poor person can avoid some of the cost increase by moving to a place where the rental units are located on cheaper land. But those units are already being rented by OTHER poor people. That means increased demand, which means higher rents... which in turn makes the land more valuable, which raises its tax burden. There is no escape. There is no magic solution, as pretty much every economist of the latter half of the 20th century -- i.e., the ones writing about 80 years after you stopped paying attention -- has realized.

John Lynch said...

I'm fine on my own. The government isn't my family.

Synova said...

http://xkcd.com/386/

I find the idea of a tax on property repulsive. What would result is that only property that brought an income would be owned. No one could afford to have property that wasn't bringing in money, either rent or industrial... farmers have property that is worth a whole lot, but they don't *make* a whole lot of money... add taxes according to how much that property is worth and it wouldn't be pretty.

Because taking away income taxes means that property taxes have to take up *all* the slack.

So ask... would you rather live next to a home owner or a renter? Because everyone will be renting... forever. Also... how much would you like to pay for food because ALL the farmers property tax burden WILL be paid by those who buy bread and milk. ALL of it.

There is also the disincentive to prepare at all for retirement, to buy a home and either pay it off and live in it during those years when one no longer has an income to pay hefty property tax (remember that the entire tax burden for the nation will be on property instead of just a portion of it as now, and being taxed out of your home is already a possibility) or else build equity to live off of during retirement.

Sales tax at least lets a person be frugal if necessary.

Income tax at least lets a person who isn't making any money not have to pay out.

Property tax levels already make it hard to plan ahead and live without being a burden on others... adding to that would make it impossible.

John K. said...

Revenant,

My best friend is a landlord with about fifteen residential properties. Property taxes have recently gone up sharply here locally, and it's killing him and other local landlords, because he hasn't been able to shift those costs onto his tenants . . . because he was already charging the highest rent the market would bear. This is pretty unfair, because most of the value in residential property is in the houses that are built on the land rather than the land itself, and these increased property taxes are primarily an increased tax on those improvements. But there's nothing wrong with charging rent on a man-made improvement like a house, just as there's nothing wrong with charging rent for a car you built or purchased.

Suppose you're a landlord on an island from which "there is no escape," as you so ominously put it, but also suppose that the government has determined to take the full rental value of all land on the island in taxes (George actually advocated taxing close to but not the full rental value of the land). Suppose you raise the rent you're charging your tenant in response, and he escapes for the time being to another landlord who hasn't raised his rent in response, but then suppose you and all the other landlords get smart and decide to raise all of your rents, so that you're all making the same profit you were making before the government enacted its odious policy. The tenants are stuck, there's no escape, and they have no choice but to pay your higher rent. But guess what? If the tenants are "willing" to pay that extra rent, your land value by definition went up by just that amount, and you'll owe the government everything you hoped to recoup by raising your rents. You might as well have left the rents where they were.

Pretty simple, huh?

John K. said...

Synova --

I recommend the Geolibertarian FAQ at http://members.aol.com/_ht_a/tma68/geo-faq.htm

In response to your observations I particularly suggest #11 on "Wouldn't the LVT make it more difficult to own land, especially for poor people?" and #17 on "Wouldn't the LVT hurt farmers?"

Synova said...

"the LVT would fall primarily on urban land, not rural land, since land values are concentrated primarily in urban areas."

I also particularly liked the idea that this LVT thing would reduce urban sprawl.

I won't argue. I really don't see the point. Land value is based on the system we have now. Change that system and land value will change. The claim that rural areas won't be destructively taxed is handwavium at its best. The idea that urban sprawl would be reduced is just plain funny... if urban land produces more, then urban uses will dominate.

In order to avoid all of that the LVT would have to be hugely micro-managed to create incentives.

We could do it that way, but why? Why exchange this convoluted mess with a different convoluted mess?

People who push for sales tax or flat tax alternatives to income taxes at least claim that those options would be simpler.

Synova said...

I read a little more and I'm convinced that LVT an exercise in puzzle solving, pleasuring the pattern recognition centers in the brain by building a matrix of relationships and making them fit together.

We all do this as we interpret and make sense of the world as it is. That we come up with often disparate patterns shows that interpretation is flexible. Reality isn't, of course, but understanding is flexible.

Some of us do this when we make up alternative patterns that are fantasy. I do this when I do world building for science fiction or fantasy stories.

Still, I like the FAQ... the answers to "Wouldn't *this* happen?" seem mostly to be, "No, that wouldn't happen because that wouldn't happen."

Whee!

John K. said...

But apart from my island example, and even if the single tax was set at only 50% of the land value --

Landlords always charge the highest price they can get (just like every seller of goods or services does) -- and necessarily can charge no more than the highest price they can get. In the real world, tenants aren't trapped on an island. If every landlord in town is charging more than the market will bear, if the price is really that high, they'll move out of town. (And will landlords as a group really be willing to set their rents so high that a lot of people would rather move out of town than pay them?) In a society that implemented the Georgist single tax, there'd be little incentive to own unimproved land for purposes of speculation -- meaning there'd be more land with no landlords at all to try and charge monopoly prices, to which such former town-dwellers could move, if it came to that. As far as the government is concerned, they should be able to squat there and set up a teepee or whatever, and would only need to pay rent ("tax") to the government if and when they seek to establish an exclusive right to possession, which they would presumably want to do if and when they build a permanent structure or other improvements on the land. Now, if some landlord has already built a worthy house on the outskirts of town, that would likely be a more attractive alternative. That landlord would be able to make money by renting out the value he has actually created, and shouldn't need in addition to personally profit from the value of the land on which the house is situated. And indeed, a Georgist system would ensure that he wouldn't, to the extent of whatever percentage of land value the tax is set at.

John K. said...

Synova --

The concept of the single tax is simplicity itself. Of course, it can't stay quite so simple when you start trying to respond to every possible objection.

I'm not a purist or hardcare dogmatic advocate of the single tax, although I think it provides a very good frame of reference from which to judge the justice of our current tax system.

This whole thing started in response to a challenge of my assertion that people making less than the mean income shouldn't have to pay any income tax at all. Thomas Paine's observations cited above, which relate to the Georgist single tax, provide one answer. A simpler answer is the one I also mentioned above -- that, per Adam Smith, it's unjust to tax people on the necessaries of life, including that amount of income and consumption that's necessary to establish and maintain a decent and reasonably independent and secure standard of living.

Crimso said...

"Just how much lower can their taxes go?"
Don't stop at looking at the bottom 50%, go to the bottom 25% or the bottom 10%. That'll answer your question. (Hint: zero taxes isn't the minimum).

Larry J said...

Yes, which brings to point the danger of having almost half of the population who pay little or no income tax - once they become the majority, it'll be virtually impossible to ever cut taxes again. They can just keep electing politicians who'll promise to keep raising taxes to pay for more goodies and programs.

TMink said...

A coworker in my office brings a carton of milk for us to share in our coffee. I prefer milk in my coffee to creamer, so every morning I go to look to see if the carton is there. Every morning.

I have never in the two years plus I have shared space with this fine milk provider brought my own milk. Not once. I frequently am disappointed when the milk is gone or he has failed to provide it, but I have never brought my own milk.

I own and run my own practice, do my own books, bill for the services I provide myself, and yet I have never brought my own milk.

That is how insidious dependency and handouts are. Whether Senator Obama is ignorant of human nature or power hungry, the society where the government meets your needs is one of stagnation and demise.

I need to go buy myself and my friends some milk.

Trey