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Lindy Davies: Land and Justice
To get rich, or more likely to stay rich, some of us can develop land, especially sprawling shopping centers, and extract resources, especially oil. While sprawl and oil depletion are not necessary, they are more profitable than a car-free functionally integrated city. Under the current rules of doing business, waste returns more than efficiency. We let a few privatize rent -- ground rent and resource rent -- although rent is a social surplus. As if rent were not profit enough, winners of rent have also won further state favors -- tax breaks, liability limits, subsidies, and a host of others designed to impel growth (20 major ones follow herein).
If we are to sustain our selves, our civilization, and our eco-system, we must make some hard choices about property. What we decide to do with rent, whether we let it reward our exploiting or our attaining eco-librium, matters. Imagine society waking up to the public nature of rent. Then it would collect and share its surplus that manifests as the market value of sites, resources, the spectrum, and government-granted privileges. Then we could forego taxing labor and capital. On such a level playing field, this freed market would favor efficiency -- the compact city -- not waste -- the mall and automobile. ...
Drawing their cue from the public, governments tolerate "rentention", the private retention of publicly-generated land values. Lacking this Rent, states turn to taxes. But to grow the economy, all governments -- left, right, or undecided -- hustle to stimulate development; they cut taxes and slop subsidies. Going beyond the call of duty, the state excuses producers' their routine pollution and limit liability, thereby cutting the cost of insurance. Companies that don't impose on nature, worker, or customer are not benefited at all but lose a competitive advantage. On this tilted playing field, one with the lumps of subsidies and the tilts of taxes, technologies lean and clean have a hard time competing as suppliers of materials, homes, food, rides, and energy. ...
Noticing rent, realizing its social nature, accepting that it's to be shared, and understanding that wages and interest should not be expropriated, for most people that's a new way of thinking. Thinking such thoughts leads to a new way of conceiving economics, too. Ecological economics becomes not just a branch of economics but a whole new discipline, needing a new name. In geonomics we maintain the distinction between items bearing exchange value that come into being by human effort - wealth - and those that don't - land. Keeping this distinction in the forefront makes it obvious and non-controversial that speculating in land drives sprawl, that hoarding land retards Third World development, that borrowing to buy land plus buildings engorges banks, that so-called "interest" is quasi-rent, that the cost of land inflates faster than the price of produced goods and services, that over half of corporate profit, says the Urban Land Institute, is from real estate.
Summing up these analyses, geonomists offer a Grand Unifying Theory, that the flow of rent pulls all other indicators in its wake. Geonomics differs from economics as chemistry from alchemy, as astronomy from astrology. The acid test of any science is prediction, a test that economics fails and geonomics passes. Plugging in the land price cycle of 17+ years lets geonomists crank out predictions more accurate than those generated by "the experts" who missed, for example, the collapse of mighty Japan. When the land of the Rising Sun was on the market for four times the assessed value of all America, that's when a few geonomists, like voices in the wilderness, countered conventional wisdom by proclaiming that the Japanese boom would bust. According to these geonomic prognosticators, don't expect America's next downturn for at least another five years, despite the tech wreck or any other stock market fluctuations. ...
To sustain that which we love, we
must transform our relationships
to nature, to government, and to each other. We need to become
geonomists in worldview, theory, discipline, and policy. Geonomics
creates an economy that's not at war with but aligned with the
natural world. ... Read the whole article
It is far easier to outline the basic premises of Georgist economics than it is to do so for the emerging field of ecological economics. Georgism is a tradition that grew out of a clearly formed tradition of 19th century classical economics and has been refined further for the past century. It was neoclassical economics that diverged from the reigning orthodoxy. The differences between the classical tradition as represented and defended by Henry George and the emerging neoclassical school were vividly portrayed from their earliest divergence, even to the staging of formal debates between George and the new orthodoxy’s adherents. 75 In contrast, ecological economics along with other emerging heterodox schools is itself very much a reaction to the neoclassical tradition’s insensitivities and failures. The differences between ecological economics and the floundering discipline of neoclassical economics are as much by way of the former’s criticism of the latter as they are an enunciation of clear starting points.
To be sure, neoclassical economics emerged gradually over a period of some fifty years, and only reached its heyday, one might argue, with the arrival of Paul Samuelson. Samuelson, the MIT economist whose text has gone through some 16 editions and has outsold all other text combined once said, “I don’t care who writes a nation’s laws . . . if I can write its economics textbooks.” 76 The neoclassical position developed ever greater abstract mathematical applications, with models ever more detached from “real world” market forces. This system of analysis now has reached a point of questionable utility due to its hermetic and Newtonian emulations.77 Little by little, one premise and formula after another have been cast aside, to a point now that there is a broad recognition among economic theorists at least that the discipline faces an intellectual crisis.78
75This history is well chronicled in Mason Gaffney, The Corruption of Economics, London: Shepheard-Walwyn, 1994, as well as in several biographies of Henry George’s life.
76Originally in New York Times, October 12, 1986, sec. 3; quoted more recently in “The Puzzling Failure of Economics,” The Economist, August 25, 1997.
77This is the criticism brought to bear on neoclassical economics by E.O. Wilson in Consilience: The Unity of
Knowledge, New York: Knopf, 1998.
78Economist Albert O. Hirschman of the Princeton Institute for Advanced Study begins one book, Essays on Trespassing (New York: Cambridge University Press, 1981,) page v, with a quote from the Russell Sage
Foundation’s current view:
. . . the discipline[of economics] became progressively more narrow at precisely the moment when the problems demanded broader, more political, and social insights. (From Russell Sage Foundation, Annual Report, 1979, New York, 1980, p. 12.)
Without enumerating further criticisms that have been levied against neoclassical economic thinking, something that has been done far better elsewhere than is possible here, suffice it to say that some of the most compelling charges have been made by the ecological economists.79 The most trenchant one as explicated by economist Nicholas Georgescu-Roegen is its violation of the basic laws of physics.80 It assumes a continuing draw-down of the earth’s store of energy, of which there is, of course, only a finite amount. If the economy continues to expand to include all elements of the earth, it will consume so many resources, particularly energy resources, that ultimately life itself is destroyed. One study calculated that if everyone in the world lived at the level of the average American, three “earths” would be necessary to accommodate us all. 81 The challenge, argue the ecological economists, is to structure economic analysis and the economy itself in such a way that markets are contained and that existence outside economic reach is respected and preserved. Whereas other studies of the environment within the framework of conventional neoclassical economics attempt to price nature in a way that its value is assured, ecological economists work from the conviction that such an approach is questionable if not futile, as it can never achieve any accurate and reliable market values for such existence.82
79See, for example, Herman E. Daly, Beyond Growth: The Economics of Sustainable Development, Boston: Beacon Press, 1996; John Gowdy and Sabina O’Hara, Economic Theory for Environmentalists, Boca Raton: St. Lucie Press, 1995; and Charles S. Hall et al, (ed.) Quantifying Sustainable Development: The Future of Tropical Economies, New York: Academic Press, 2000. An extentive treatment of the assumptions of the discipline of mainstream economics is to be found in the work of Robert H. Nelson, Reaching for Heaven on Earth: the Theological Meaning of Economics, Boston: Rowman & Littlefield, 1991, which is excerpted in places on the extensive website of Professor Jay Hanson at www.dieoff.org.
80Nicholas Georgescu-Roegen, The Entropy Law and the Economic Process, iUniverse.com, 1999.
81Mathis Wackernagel and William Rees, Our Ecological Footprint, New Society Publishers, 1995.
82Benardo Aguilar, “The Implications of Ecological Economic Theories of Value to Cost Benefit Analysis:
Importance of Alternative Valuation for Developing Nations With Special Emphasis on Central America,” Indian Journal of Applied Economics, Vol.7, No. 3 (1998), pp. 367-420.
A central premise of ecological economics is a recognition that market prices do not reflect the value of commodities, particularly the resources and services of nature. Oscar Wilde first noted that a cynic was “a man who knows the price of everything and the value of nothing.” 83 But it is clearly not only cynics who hold such ideas today. The growing “commodification” of all things — the consequence of a gradual and inexorable privatization of the whole world and the ever expanding attempts to include everything which humans touch in a market economy, where objects and services which lack a market price are thus treated as free goods — means either that ultimately everything must be priced or else that other means must be found by which to identify value. The subfield of environmental economics is based on just this view — that everything must be priced. To be sure, we cannot live without the natural environment, yet treatment of natural goods and services as free under the neoclassical economics framework leads inevitably to their total consumption and destruction.84 The looming exhaustion of natural resources compels us to recognize that market prices have limited worth in signaling true value, whether those resources be the biota of the world upon which human beings also depend for their existence or mineral wealth in the form of fossil fuel energy which drives modern economies. If we do try in any way to price the goods and services provided by the environment, they are so far beyond counting that it becomes self-evident that our economic approach must change.85 ...
The heart of ecological economics is ecological carrying capacity and the premise of economic sustainability. Although this term has to some extent become a mantra and widely abused, its most popular definition remains that first enunciated by the 1987 Brundtland Commission Report: "development that meets the needs of the present without compromising the ability of future generations to meet their own needs."92 Principle 3 of the 1992 UNCED Rio Declaration: "The right to development must be fulfilled so as to equitably meet developmental and environmental needs of present and future generations."93 At various times scholars have sought to improve upon this definition; one offered by adherents of the ecological economics school reads as follows:
1. For renewable resources (fish, trees, etc.), the rate of harvest should not exceed the rate of regeneration.
2. The rate at which we allow economic activity to generate wastes that must be passed into the environment should not be allowed to exceed the environment’s ability to absorb them.
3. The depletion of nonrenewable resources (oil, coal, etc.) should not be offset by investment in and development of renewable substitutes for them.94 ...
Economics: Moral Premises
I do wish to point out that this ‘holistic’ view of the Earth’s ecological systems [i.e., the natural world as an organism] does not itself constitute a moral norm. It is a factual aspect of biological reality, to be understood as a set of causal connections in ordinary empirical terms.98...
POINTS OF SYNTHESIS OF GEORGIST AND
1) preservation of the commons,
2) sustainable development,
3) appropriate valuation of natural capital,
4) ensuring social and biological community,
5) fostering individual self-realization, and
6) securing economic justice.
Implicit in all these points is the view that market activity needs to be circumscribed and juxtaposed to the non-human, biological realm. It appears that there is lots to be gained by some synthesis of the two fields of discourse.
Ecological economists worry about the encroachment, and even the elimination, of those elements of nature to which private property title has not been granted. In their concern about the need to protect the “commons,” they are torn between the view that only through privatization can all the world’s assets be preserved and the alternative view that any private appropriation of the commons constitutes a moral compromise. They fear a repeat of Garrett Hardin’s “tragedy of the commons.” Their argument often proposed is rather complex to explicate: it assumes that private property titles may perhaps provide the best incentive not to exploit the fruits of the earth and the earth itself.126 To Georgists, on the other hand, the earth and all its resources are already in fact the birthright of all humanity; individuals are entitled to its use in return for the payment of rents. Further privatization is anathema. The key rather is in distinguishing the various components of ownership and getting prices right — mainly in the collection of economic rents. ...
Herman Daly appears by one of his most recent papers134 to be ever more closely drawn to the Georgist position that the “from the point of view of equity it matters a great deal who receives the prize for nature’s increasingly scarce services. Such payment is the ideal source of funds with which to fight poverty and finance public goods.”
133For accounts of these visits, see the recent issues of the British Georgist Publication, Land and Liberty.
134Address of Professor Herman Daly to the World Bank, April 30, 2002, “Sustainable Development: Definitions, Principles, Policies,” online at www.earthrights.net/docs/daly.html.
Professor Daly goes on to say that
Value added belongs to whoever added it. But the original value of that to which further value is added by labor and capital should belong to everyone. Scarcity rents to natural services, nature's value added, should be the focus of redistributive efforts. Rent is by definition a payment in excess of necessary supply price, and from the point of market efficiency is the least distorting source of public revenue.
Appeals to the generosity of those who have added much value by their labor and capital are more legitimate as private charity than as a foundation for fairness in public policy. Taxation of value added by labor and capital is certainly legitimate. But it is both more legitimate and less necessary after we have, as much as possible, captured natural resource rents for public revenue.
The above reasoning reflects the basic insight of Henry George, extending it from land to natural resources in general. Neoclassical economists have greatly obfuscated this simple insight by their refusal to recognize the productive contribution of nature in providing "that to which value is added". In their defense it could be argued that this was so because in the past economists considered nature to be non-scarce, but now they are beginning to reckon the scarcity of nature and enclose it in the market. Let us be glad of this, and encourage it further.
I am not advocating revolutionary expropriation of all private property in land and resources. If we could start from a blank slate I would be tempted to keep land and minerals as public property. But for many environmental goods, previously free but increasingly scarce, we still do have a blank slate as far as ownership is concerned. We must bring increasingly scarce yet unowned environmental services under the discipline of the price system, because these are truly rival goods the use of which by one person imposes opportunity costs on others. But for efficiency it matters only that a price be charged for the resource, not who gets the price. The necessary price or scarcity rent that we collect on newly scarce environmental public goods (e.g. atmospheric absorption capacity, the electromagnetic spectrum) should be used to alleviate poverty and finance the provision of other public goods.
The modern form of the Georgist insight is to tax the resources and services of nature (those scarce things left out of both the production function and GDP accounts) -- and to use these funds for fighting poverty and for financing public goods. Or we could simply disburse to the general public the earnings from a trust fund created by these rents, as in the Alaska Permanent Fund, which is perhaps the best existing institutionalization of the Georgist principle. Taking away by taxation the value added by individuals from applying their own labor and capital creates resentment. Taxing away value that no one added, scarcity rents on nature's contribution, does not create resentment. In fact, failing to tax away the scarcity rents to nature and letting them accrue as unearned income to favored individuals has long been a primary source of resentment and social conflict.
The justice in the Georgist tradition grows out of the premise that one is entitled to what one makes with one’s own hands or mind, but one is not personally entitled to the gains that grow out of communal efforts. Those are owed to and should be returned to the community. The justice inherent in ecological economics, to the extent that it has solidified, involves a recognition that preservation of natural capital is in the interest of everyone. Both recognize and value the preservation of a world commons in nature. Both appreciate the diversity preserved in local community institutions and cultures. Both accept models based on self-regulating assumptions — in one case using the phrase “steady state” economics, in the other case the recovery of land rent in the pursuit of open and stable markets over monopoly control. There is great promise in the confluence of the two perspectives: they offer a solution to the age-old challenge of resolving what in the world ought to be public and common, and what else ought to be individual and private. It remains now for proponents of each perspective to continue exploring commonalities.... read the whole article
Mason Gaffney: Economics in Support of Environmentalism
Economics in support of environmentalism" - is that an oxymoron? There are economists who put down environmentalists as unwelcome intruders in social policy; there are environmentalists who file economists under "The Great Satan." Some economists deserve it. I will show how these differences arise, and how we may compose them.
I. Worthy goals often conflict with each other A. Corn vs. Barley B. New rules C. Unresolved conflicts D. Danger of isolation through overkill
II. The Dereliction of Economists A. Defining away land B. Private property: from means to end C. Leapfrogging, floating value, and compensation D. Siege mentalities
III. Gifford Pinchot's Winning Formula A. Defining "Conservation" B. Finding common ground
IV. Pinchot on "Development"
V. Urban Sprawl A. Development is not identical with Sprawl B. Sprawl is not a quest for open space C. Sprawl is not the product of free choice D. Looking for Mr. Goodbar E. The public pays twice F. Proactive solutions
Dig deep ... read the whole article
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Wealth and Want
... because democracy alone hasn't yet led to a society in which all can prosper