After the quake and fire of 1906, San Francisco bounced back so fast its population
grew by 22%, 1900-10, in the very wake of its destruction; it grew another
22%, 1910-20; and another 25%, 1920-30, becoming the 10th largest American
city. It did this without state or federal help; without expanding its land
base, as rival Los Angeles did; while providing wide parks and public spaces.
How did San Francisco do it?
Mayor Nagin of New Orleans tells the world that Katrina wiped out most of
his tax base, so he is impotent. By contrast, in 1907 San Francisco Mayor Taylor's
Committee on Assessment, Revenue, and Taxation reported sanguinely that revenues
were still adequate. How could that be?
San Francisco continued to collect property taxes, which post-fire amounted
to pure land taxes, and used them to rebuild. If now New Orleans fails to collect
property taxes, it will allow absentee speculators to gum up the land market,
impeding coordination between residents who seek to rebuild.
History offers numerous examples of cities that pulled themselves up by their
own bootstraps after a disaster. New Orleans can too.
Our latest Nobelist in economics, Thomas Schelling, offers the following
advice in the wake of Hurricane Katrina: "There is no market solution to New
Orleans. It is essentially a problem of coordinating expectations... ." By
that he meant simply that each person's incentive to move home and rebuild
depends on his or her confidence that others will do likewise. "But
achieving this coordination in the circumstances of New Orleans seems impossible."
Actually, there is a time-tested way to solve the problem that defeats Schelling.
American urban settlers and investors have a long history of building and
rebuilding cities by "coordinating expectations." In 1891 the traveling Lord
James Bryce wrote of Americans, "Men seem to live in the future rather
than in the present: ... they see the country not merely as it is, but as it
will be..." They achieved critical urban mass by faith in each other,
a mutual faith more economic than theological.
"The chief tax is in every State," Bryce noted in 1891, "a
property tax...". The property tax at that time fell in many places
mainly on land values, because that is most of what there was to tax. This
the mechanism for "coordinating expectations." Each landowner
felt the pressure to use his land, knowing his neighbors felt the same
at the same time. (There were also pioneering religious and ethnic groups
that fostered mutual faith, as the Greek Orthodox community is doing now
small part of New Orleans. In game theory we are all greedy monads, so
such things do not happen in the models — and who cares about the
real] world outside the laptop?)
It's not that Schelling never heard of the stimulative effect of taxing land
values. In 1969 I had the privilege of presenting it to a seminar at the Brookings
Institution. I suggested raising the land tax, and lowering sales taxes and
taxes on buildings. Most attendees listened with at least moderate sympathy,
notably excepting Schelling, who objected that any change in tax policy would
break the social contract, destabilize expectations, shatter investor confidence,
and risk bringing the world down in ruins.
In 1966 I had spoken on the same point to a New Orleans civic group, sponsors
of a Brookings urbanism program. They were charming hosts, eager for ideas
to clear "undesirable" neighborhoods but obsessed with preserving
Le Vieux Carre, which they saw as unique, wholesome, a money machine,
and too fragile to survive competition that would replace it with the commonplace.
Like Schelling, they chose stasis, with the results that we see today.
there can be no stasis, as Bill Clinton has said: buildings depreciate
every year, and need constant upkeep, operation, adaptation to markets,
A going city or region, leveled by catastrophe, has an easier time returning
to critical mass than does a new city or region flying blind. London renewed
itself after the Great Fire of 1666; Schenectady after Frontenac razed
it in 1690; Lisbon after the 1755 quake; Dutch cities after flooding themselves
to balk successive Spanish, French, and German invaders; Moscow after 1812;
and Washington, D.C., after 1813. In 1848 John Stuart Mill highlighted "the
great rapidity with which countries recover from a state of devastation; the
disappearance, in a short time, of all traces of the mischiefs done by earthquakes,
floods, hurricanes, and the ravages of war." Since Mill there have
been a series of such rebirths: Atlanta after Sherman; Chicago after 1871;
of Wisconsin after the epic 1871 fire named for little Peshtigo; Johnstown,
Pa., after the killer 1889 flood; San Francisco after the quake and fire
of 1906; Flanders after World War I; Tokyo after 1926; the Mississippi
after the great flood of 1927; Nanking after Japan's devastating occupation.
After World War II came Germany's Wirtschaftswunder, and the rebuilding
of Coventry, Rotterdam, Tokyo again, Hiroshima, Nagasaki, and Russia after
There was Anchorage after its quake; Kobe after its; and on and on.
Permanent hazards may remain, as in New Orleans. Yet, Chicago was rebuilt
on the foundation of its "stinking swamp," where Chicago architects
and engineers pioneered the modern skyscraper on deep caissons. Tokyo was
rebuilt at the confluence of four tectonic plates, and after 1945 with
no navy or army
of its own. San Francisco was rebuilt on the San Andreas Fault, and went
high-rise on its crazy hills while Los Angeles was still capping building
opting for sprawl. Much of the Netherlands thrives below sea level.
After disaster, location remains, and location makes cities. Greater New Orleans
was recently the largest port in the world in tonnage shipped. People, enterprise,
and investment also make cities. Herein lies the greater hazard, for many Americans
cities wither away not with a bang but with a whimper, like Buffalo, Cincinnati,
Detroit, Camden, or St. Louis. New Orleans today has a kind of dynamism that
those cities lack. Demand for its real estate is holding up well, and rising
in the unflooded areas like Gentilly Ridge.
Even in the flooded and abandoned areas there is strong demand from absentee
bottom-fishers looking for a free ride up the price elevator as the efforts
of others bring back the neighborhoods. Yet, this kind of dynamism is worse
than stasis. These absentees choke out other buyers aiming to commit themselves,
to rebuild and reside and make neighborhoods. As "Each man kills the
thing he loves," do-nothing investors collectively drive away the
very people who could make their dreams come true. Many of them have no
are waiting for other people's plans. Coordinating expectations like those
up to nothing. Tragically, the tax system in New Orleans — as nearly
everywhere else — penalizes builders and doers, and spares free
Consider born-again San Francisco, 1907 to 1930, as a case study in success.
What can it teach New Orleans? It had no state or federal aid to speak of.
The state of California had oil, but didn't even tax it, as Louisiana (rightly)
does. It did have private insurance, but so does New Orleans today. It had
no power to tax sales or incomes. It had no lock on Sierra water to sell dearly
to its neighbors, as now; no finished Panama Canal, as now; no regional monopoly
comparable to New Orleans' hold on the vast Mississippi Valley. Unlike rival
Los Angeles (whose smog lay in the future) it had cold fog, cold-water beaches,
no local fuel nor easy mountain passes to the east. Its rail and shipping connections
were inferior to the major rail, port, and shipbuilding complex in rival Oakland,
and even to inland Stockton's. It was hilly; much of its flatter space was
landfill, in jeopardy both to liquefaction of soil in another quake and to
precarious land titles. Its great bridges were unbuilt, so it was more island
than peninsula. It was known for eccentricity, drunken sailors, tong wars,
labor strife, racism, vice, vigilantism, and civic scandals. In its hinterland,
mining was fading and irrigation barely beginning. Lumbering was far north
around Eureka; wine around Napa; deciduous fruit around San Jose. Berkeley
had the state university, Sacramento the capital, Palo Alto Stanford, Oakland
and Alameda the major U.S. Navy supply center.
How did a city with so few assets raise funds to repair its broken infrastructure
and rise from its ashes? It had only the local property tax, and much of this
tax base was burned to the ground. The answer is that it taxed the ground itself,
raising money while also kindling a new kind of fire under landowners to get
on with it or get out of the way.
Historians have obsessed over the quake and fire but blanked out the recovery.
We do know, though, that in 1907 San Francisco elected a reform mayor,
Edward Robson Taylor, with a uniquely relevant background: he had helped
more than anyone else, write Progress and Poverty in 1879. George, of course,
is the one who wrote and campaigned for the cause of raising most revenues
from a tax on the value of land, exempting labor and sales and buildings.
(See sidebar.) In 1907, single-tax was in the air, and it was natural to
with Cleveland (Mayors Tom Johnson and Newton Baker), Detroit (Mayor and
later Governor Hazen Pingree), Toledo (Mayors Samuel "Golden Rule" Jones
and Brand Whitlock), Milwaukee (the "sewer socialists" and Mayor
Dan Hoan), Chicago (Mayor Edward F. Dunne, ex-Governor J.P. Altgeld, muckrakers
Ida Tarbell and Henry D. Lloyd, Editor Louis F. Post, Nobelist-to-be Jane Addams,
Councilman Clarence Darrow, et al.), Vancouver (6-time Mayor Louis Denison "Single-tax" Taylor),
Houston (Assessor J.J. Pastoriza), many smaller cities, and doubtless other
big cities yet to be researched, that chose to tax buildings less and land
more. It was the golden age of American cities when they grew like fury, and
also with the grace of the popular "City Beautiful" motif.
San Francisco bounced back so fast its population grew by 22% from 1900 to
1910, in the very wake of its destruction; it grew another 22% from 1910 to
1920 and another 25% from 1920 to 1930, becoming the tenth largest American
city. It did this without expanding its land base, as rival Los Angeles did,
and without stinting its parks. On its steep gradients it housed, and linked
with publicly-owned mass transit, a denser population than any city except
the Manhattan borough of New York. It is these people and their good works
that made San Francisco so famously livable, the cynosure of so many eyes,
and gave it the massed economic power later to bridge the Bay and the Golden
Gate, grab water from the High Sierra, finance the fabulous growth of intensive
irrigated farming in the Central Valley, and become the financial, cultural,
and tourism center of the Pacific coast.
Mayor Nagin of New Orleans tells the world that Katrina wiped out most of
his tax base, so he is impotent. By contrast, in 1907 Mayor Taylor's Committee
on Assessment, Revenue, and Taxation reported sanguinely that revenues
were still adequate. How could that be? Because before the quake and fire
the city, land value already comprised 75% of its real estate tax base.
San Francisco also taxed "personal" (movable) property, but it
was much less than real estate, and secured by a lien on land. The coterminous
and school district used the same tax base. They also made extensive use
of special assessments on lands benefited by specific public works. In other
San Francisco had adopted most of Henry George's single tax program de
facto, whether or not they said so publicly.
It was a jolt to replace the lost part of the tax base by taxing land value
more, but small enough to be doable. This firm tax base also sustained
the city's credit, allowing it to finance the great burst of civic works
to follow. Taylor supported the next mayor but one, James Rolph (1911-1930),
who oversaw a long period of civic unity and public works. "Sunny Jim" Rolph
expanded city enterprise into water supply, planning, municipally owned
mass transit, the Panama-Pacific International Exposition, and the matchless
Center. Good fiscal policy did not turn all the knaves into saints: Rolph
eventually fell into bad company with venal bankers and imperialist engineers.
Francisco rose and throve.
New Orleans, sited below the Mississippi River and its levees, has its own
special problem. Milton Friedman and his like-thinkers proclaim that markets
have solutions for everything that governments botch. Building levees, however,
demands cooperation guided by some overall authority, which is what governments
are for. A levee protects the land behind it only by shunting water onto other
lands, which then require their own levees to shunt the water back, and downstream,
and even, as it turned out, upstream. Competition among levee-builders becomes
a vicious spiral. Over a century it has led step-by-step to levees four stories
Analytically, the problem is analogous to that of rivals pumping water or
oil from a common pool, or fishermen competing by taking fish from each
other. In those other contexts, private-property fanatics (i.e. most modern
see a "tragedy of the commons" and prescribe privatization. Levees,
however, are there to protect lands already private, and call for different
Since the Mississippi Valley covers half the country, the central authority
has to be Federal. In the great flood of 1927, Calvin Coolidge let Herbert
Hoover make himself czar of the river system. Hoover, who fostered cartels
in industry, declared that prosperity can be organized by "cooperative
group effort and planning" — i.e., by coordinating expectations
consciously, from the top down. It was too late, however, to keep the power
New Orleans, who ran Louisiana, from dynamiting the levee protecting St.
and Plaquemines Parishes, saving the city by flooding the rednecks. These
responded by electing Huey Long governor in 1928, breaking New Orleans'
Meantime, Hoover and a few rich power-brokers organized the Tri-State Flood
Control Commission to coordinate efforts among at least Louisiana, Mississippi,
and Arkansas. Hoover's approach achieved coordination by making local governments
pathetic supplicants (like Mayor Nagin and Governor Blanco) at the public trough,
brokered by the highly politicized U.S. Army Corps of Engineers. Over time
this arrangement has come to entail less coordination and more pork.
Hoover's czardom came too late to allocate lands for a bypass or overspill,
such as the broad one west of Sacramento that protects the lower Sacramento
Valley. Too many oxen would be gored. And last year the overbuilt levee system,
legacy of 150 years of the slow vicious spiral of misdirected competition to
beggar-thy-neighbor, finally betrayed the city.
What to do now? A strong dose of Georgist tax policy will revive the private
sector of any city, and the surrounding rural areas too. As to flood control,
we need an integrated system that will sacrifice some lands to benefit others,
and a tax system that will compensate the losers from the gains of the winners.
Given such integration, engineers since James B. Eads in 1870 have worked out
plans for the whole river system. It would take a catastrophe to shock Americans
into such a new mode of thinking-but the catastrophe just happened, so now
let us think. from http://www.masongaffney.org