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Takings and Givings

We get very upset when government — the community around us — takes from us in the form of physical property, but we seem to see its "givings" as our due. Those of us who own well-located land reap huge benefits, paid by our fellow human beings who, being human, need access to land and are willing and able to pay for access to well-located property.

Why should individuals be able to privatize those payments for land? It isn't as if he who owns the land created it, or added value to the land itself. Why should he be able to keep as private property the economic value of the land, either in the form of rent from another human being or in terms of appreciation in land value during his period of ownership when he is through with it, either by retirement, relocation or death?

Mason Gaffney: Nonpoint Pollution: Tractable Solutions to Intractable Problems
The Special Challenge to Economic Thinking
The Search for Surrogates
Sources of Nonpoint Pollution
What Problems are Created?
What Problems are Unsolved by Excise Taxes on Surrogates?
The Case of Forestry
The Case of Urban Settlement
The Case of Agriculture
The Common Theme from Forest, City and Farm

Mason Gaffney: Economics in Support of Environmentalism

Take 10,000 per square mile as a reference figure, because it is easy to calculate with, and because it works in practice, as noted. You may observe and experience it. At that density, 250 million Americans would require 25,000 square miles, the land in a circle with radius of 89 miles, no more. That gives a notion of how little land is actually demanded for full urban use. It is 9.4% as big as Texas, 4.2% as big as Alaska, and 7/10 of 1% of the area of the United States.

And yet, the urban price influence of Los Angeles extends over 89 miles east-south-east clear to Temecula and Murrieta and beyond, at which point, however, it meets demand pushing north from San Diego. Urban valuation fever thus affects much more land than can ever actually be developed for urban use. Regardless, most owners come to imagine they might cash in at a high price, with high zoning, at their own convenience, with public services supplied by "the public," meaning other taxpayers. This is the meaning of "floating value."

If their land is downzoned for farming, open space, or habitat, they regard it as a "taking," and plead the 14th Amendment. Once we buy into the Sanctity (Holiness, Sacredness) of private property, we owe them. If we think of the public's buying large quantities of it to preserve habitat or open space, the price is already high above its aggregate value, and the new demand will push the price higher yet.

Here is a case showing how this works. The Los Angeles Metropolitan Transit Authority (MTA) needed the old Union Station, northeast of downtown in a run-down neighborhood, as the centerpiece of its new, integrated mass transit system. With the decline of interurban passenger rail traffic, the old station was unused. The owners, mainly Southern Pacific, asked more than MTA offered, so MTA invoked its power of eminent domain and condemned the land. The case went to judgement, and in 1984 the court awarded SP an amount about twice the going price for land in the area. The court's reason was that the coming of mass transit would raise values around the new central station, and SP should be paid as much as neighboring landowners would be able to get after the station was built.

Thus, land originally granted to SP to help subsidize mass transit was used instead to obstruct and penalize mass transit. Private property had become an end in itself, Holy and Sacred, a welfare entitlement, rather than a means to an end. MTA (the taxpayers) had to pay a price for land based on the unearned increment that its own construction and operation was expected to create in the future.

Later, MTA was to stint on subway construction, resulting in subsidence on Hollywood Boulevard, but there was no stinting on paying off SP for doing nothing: the award came to $84.7 millions. This is how the 14th Amendment works in practice, making private property an end, sanctified for its own sake, rather than a means to a higher end. It makes landowners the spoiled children of the national family, inflating the cost of every program that entails acquiring land. It means there is no chance that the public, whether through government or the Nature Conservancy, can preserve more than token areas of habitat by buying it: it would bankrupt us.

Let's go back to those Channel Islands in British Columbia, with subsidized car-ferries. Naturally, as I said, these cheap ferries attract new visitors to the islands, and new demand for land there. Developers and hopeful subdividers bid up land prices. This is not what the old settlers had in mind: their environment is threatened, including the habitat of endangered species. They appeal to the Crown, which subsidizes their ferries, to help them preserve land for habitat.

They want the government to buy some of it, paying the high prices created by the ferry subsidy, to keep it from use by people who might use the ferries. Thus the government would pay twice: to subsidize the ferries, and then to retire the land at the high prices made possible by the ferries. Failing that, they want the Crown to downzone most of it. The landowners are not charged when the ferries raise their asking prices, but demand compensation when downzoned.

Here, in microcosm, is the American problem with sprawl and habitat. Multiply that ferry subsidy a thousand times, and you have the Great American System of Public Works and Services for Private Gain. First the public pays to bring urban demand to remote lands; now the landowners, the spoiled children of the national family, demand to be paid again for downzoning or selling that same land to preserve habitat. They demand payment not to cash in on the opportunities we just gave them free.

Thus far, it is true, the courts have let us downzone without compensating. However, now a storm has gathered. Proposition 300, on the ballot in Arizona, demands compensation for downzoning - it is aimed at the Clean Water Act and the Endangered Species Act. There is a movement in Congress to compensate for any Federal regulation that devalues land by more than 50%. It is led by Congressman Billy Tauzin, a Democrat from Louisiana. You can imagine what a more conservative Congress might do. Speculative landowners may soon get everything they demand, leaving heavy debts to which their light tax payments now contribute very little.

How do we dig out from this one? I'll repeat: go with the flow of cutting public spending by cutting down subsidies to urban sprawl. They are a major source of the problem. We'll never win the environmental fight until those subsidies are withdrawn. ...

Those are the carrots. A good stick is also needed. We have seen how leapfrogging results from the scattered locations of motivated sellers. We can motivate sellers near-in, and in compact increments as we expand spatially, by raising land taxes there.   read the whole article

Mason Gaffney:  Rent Seeking and Global Conflict
...We are trained and conditioned to think of land tenure as something stable and inherited, with secure roots in history. In fact, that which was inherited can never be taken as given unless the origins bear examination. Past appropriation invites future expropriation. One result of that is a legal system even in "capitalist" America which tolerates rather extreme invasions of land value through zoning, rent control, taxation, and field price controls, without there being a legal "taking" such as might be prohibited by the 5th and 14th Amendments.  ...  Read the whole article
Karl Williams:  Land Value Taxation: The Overlooked But Vital Eco-Tax
I. Historical overview
II. The problem of sprawl
III. Affordable and efficient public transport
IV. Agricultural benefits
V. Financial concerns
VI. Conclusion: A greater perspective
Appendix: "Natural Capitalism" -- A Case Study in Blindness to Land Value Taxation

But LVT has much more to contribute to the question of low-impact urban function, in the form of affordable and efficient public transport and other desirable infrastructure. The principle reason why public transport options are presently so limited is because the taxpayer-funded investment in this and other forms of infrastructure effectively disappears, in an almost unseen manner, into the "Black Hole" of landowners' pockets.

That is, not only is the resulting compact cityscape more amenable to the provision of public transport (not to mention walking and riding), but LVT makes the investment in such infrastructure affordable because the resulting enhanced land values are "recycled" back into public coffers. The extension of London's Jubilee line underground network, which opened in 1999, provides a good case in point of how desirable infrastructure can be self-funding if land values are recaptured. An independent study was performed which assessed the increase in land values extending to 800 yards from each of the 10 stations. The accumulated gain (to private landowners) was estimated to be around £13 billion, courtesy of the £3.5 billion of taxpayers funds it took to build the line! ...

A simple model will serve to illustrate. Presently, rail/metro infrastructure is almost prohibitively expensive because the windfall benefits are effectively handed over to landowners. To partially recoup the outlay, authorities are forced to set fares so high as to act as a disincentive to potential low-impact commuters.  read the entire article
Jeff Smith: How Profit Shapes Urban Space
Although society may have a feeble claim to many of the things it taxes, land value is precisely what society should not forgo. It’s not lone owners but the community who generates this value by its infrastructure and its mere presence. Leaving ground rent uncollected constitutes a "giving" that communities and eco-systems can ill afford. Let's wean owners from socially-generated site values and make urgent their hunger, and they'll hunt up their own built value where it's needed. ...   Read the whole article
Jeff Smith: What the Left Must Do: Share the Surplus
The much and justifiably criticized corporation is in essence its corporate charter, given value by limiting the liability of managers, directors, and investors. It’s worth at least the cost of the insurance payments not made by the corporation, which would equal the costs imposed upon worker, customer, and nature. As the “need” arises, legislatures extend limited liability even further: Congress legally lowered the greater risk of nuclear power to benefit Westinghouse, of the Valdez oil transport spill for Exxon, and the Y2K software design bug for Microsoft. Politicians define legally “safe” amounts of polluted air and water for GM and Monsanto, keeping safe the wealth of those responsible.

Not to be outdone by any legislature, the Supreme Court has ruled in favour of compensating landowners for environmental “takings”, but has remained silent about landowners compensating the public for any “givings”, as when site values skyrocket near a new light rail stop. Molly Ivins wrote,
"Henry George must be in his grave spinning' like a cyclotron. We, the people at large, make the land more desirable; and then the landowners want us to pay them because we won't allow them to poison the air or to pollute the rivers." (1995 March)
That’s how great fortunes are made: by sloughing off private costs (which become “negative externalities”) while soaking up public benefits (some “positive externalities”). Land titles, corporate charters, and other privileges – mere pieces of paper – are worth trillions each year. The corporations – from the Federal Reserve to Exxon (both founded by the “oiligarchy”) – that receive these privileges make their owners rich or richer. Their wealth is not compensation for the exertions of either labor or capital, not profit in the market from output, but rent from present lobbying of legislatures or past conquest of others’ lands. Thus laws (“privilege” means “private law”) funnel multi-trillions of dollars each year from the many to the few.  ... Read the whole article

Peter Barnes: Capitalism 3.0 — Chapter 6: Trusteeship of Creation (pages 79-100)

At the moment, there’s one law that does give preference to creation’s gifts: the Endangered Species Act, which says a species’ right to survive trumps capital’s right to short-term gain. The trouble is, the law comes into play only when a species has been so devastated it’s on the brink of extinction. Even then, the courts don’t always enforce it. Recently, in a very dry year, the government reduced its delivery of subsidized water to California farmers because endangered fish needed it to survive. Some farmers sued, arguing that the government had unconstitutionally “taken” their property. A federal court agreed, the Bush administration refused to appeal, and the farmers collected $13 million in damages.

It seems to me that, if anything is divine, it should be gifts of creation. Morally, they’re gifts we inherit together and must pass on, undiminished, to future generations. Economically, they’re irreplaceable and invaluable capital. Protection of these shared assets should trump transient private gain. Broad benefit should trump narrow benefit. The commons should trump capital. This should be written into our economic operating system and enforced by the courts. ... read the whole chapter

Lindy Davies: Ownership and the Law

President Bush's announcement of his vision for an "ownership society" met with thunderous cheers at the Republican Convention, and much eye-rolling elsewhere. The Bush Administration would like to start by encouraging private ownership of our retirement funds and our health-care decisions. They want to get the heavy hand of government out of such things and unleash the tremendous efficiency of millions upon millions of Self-Interested Individual Actors, the husky, brawling, broad-shouldered capitalism that made this country great. Prosperity depends on the security of private property and the potency of individual initiative! This is the self-evident truth that has been obscured by Hollywood Socialists, Democratic Girlie-men and purveyors of the Homosexual Agenda.

We should realize, however, that this is hardly a new initiative. It is really just the latest wave of an argument that has raged throughout the history of the United States, about just what -- if anything -- and on what basis -- if any -- the government can require us to surrender what we possess. There are some people out there -- and actually a fair number, after all -- who don't view the Bush Administration's privatization proposals as extremist at all -- but, rather, too soft. ...

Unfortunately, though, the law is not at all clear. Thomas Jefferson fudged the topic in the United States Declaration of Independence, inserting "the pursuit of happiness" where people expected the more loaded term "property". The Bill of Rights, however, is strong on property rights. It provides for security of "persons, houses, papers, and effects," that "private property shall not be taken for public use without just compensation" and that rights not specifically prohibited are reserved to the states or to the people. In fact, the US Constitution was so bullish on property that it provided for private property in human beings, a principle made explicit in Dred Scott vs. Sandford and many other cases.

Slavery was made unconstitutional by means of the 13th Amendment in 1865. This, however, left much to be resolved, and the Congress had a very difficult job -- perhaps, in strictly logical terms, an impossible job -- in drafting Amendment number fourteen.  ...

The 14th amendment reaffirms the rights of life, liberty and property, and binds the states to the same due process and equal protection restrictions as the federal government. However, it places the Constitution's first limit on the right of property, stating that the United States or any state shall not pay "any claim for the loss or emancipation of any slave". This could be seen as somewhat fishy in terms of the Fifth Amendment. After all the 13th amendment had taken the slaveholders' property three years before. Had not the Supreme Court ruled that slaves were property and had to be returned to their owners, even if they escaped to non-slaveholding states?

Although it would have been impracticable (to say the least) to enforce the Takings Clause to the tune of the market value of some four million human beings, that was what the Constitution required the government to do.  ...

The next amendment to the Constitution following the Reconstruction Amendments was another milestone in the debate over property rights. The 16th Amendment, ratified in 1913, allows Congress to “lay and collect taxes on incomes, from whatever source derived” -- contravening the restriction of this practice that had been laid out in Article I. The “from whatever source derived” part has been making people scream bloody murder ever since. ...

The original advocates of the income tax (many of them Single Taxers) sought to tax accumulation, not industry and initiative. They saw that the massive concentration of wealth among a privileged few was harmful to the nation, and they persuaded the states to accept a progressive tax that would compel robber barons to pay for public goods while letting entrepreneurs gain from their contributions to overall prosperity. And yet, over the years, a tax on income “from whatever source derived” came, one loophole at a time, to be a tax on exactly those productive, hardworking, middle-class people that it was designed to help. ...

In most people's minds, after all, land is the most solid and important kind of property; in fact, the word "property" in general conversation most often means "land". However, it has long been recognized that sometimes privately-held land must be taken for public purposes. The principle of eminent domain is not (particularly) controversial. If the state wants to put a highway through your house, it must pay you the fair market value of your property.  ...

This decision was important because it extended the Takings doctrine beyond physical seizure to the taking of value -- but it was also relatively uncontroversial in that the state legislature had removed all of the parcel's market value.  ...

If government were to be held liable for every single action that took away a portion of real estate value, it could scarcely do anything at all. That might be how some of the most strident militia-folk would like it. However, it would certainly not suit real estate owners in general -- who, while they might not enjoy paying for government, do benefit from the things that government does.

What the property-rights folks are forgetting (or disregarding) is that if a piece of land has a market value, that means that the net benefits conferred upon it by the community (which includes the government) are greater than the net costs. Location value is far and away the most important component of land value -- and location value is almost entirely the result of services and infrastructure that the government provides. ...

It's no accident that the issue of "regulatory takings" is such a stew of contradictions. Indeed, the terms of the argument deny the possibility of coherence (in much the same way as they did in 1868). Land is not the fruit of human labor, and its value is not the result of any actions taken by its owner. Therefore, private property in land is an entirely different sort of phenomenon than private property in the products of labor -- and as long as the law fails to recognize this fact, it cannot hope to make sense of the issue of "regulatory takings". ...

It could be suggested that "the conditions of the grant" could, without doing any violence to the secure right of private property, require the payment to the community of the land's rental value, to cover the cost of the community's expenses which, it turn, provide the land's value in the first place. That would, of course, require a clearer definition of the moral basis of property that the United States has ever been able to come to. Yet -- think of it for a moment -- what would have happened if the original Bill of Rights had articulated the individual's absolute right to property only in the products of labor -- and the community's right to the community-created value of the land?

It would have saved us an awful lot of trouble. True, the "slavery" states would have balked at joining the union under those rules. But under them, the nation would have been so prosperous that they would quite soon have seen the advantage of joining. We would have avoided the Civil War, and probably even World War I -- it is dazzling to think about how different -- and vastly better -- our history would have been, had the Framers taken the brave step of setting forth the moral basis of property along these lines.

It's interesting that we use the word "own" to mean two different things: the sense of possession, and the sense of personal acknowledgment, as in "owning up" to one's responsibilities. The relationship between the two was once closer than it now seems to be; the word "ought" is an archaic past participle of "owe". As we consider how to arrange our "ownership society", we'd do well to remember what we "ought" -- and bring the two senses of the word back together.   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