Selected extracts fromThe Georgist News, Volume Nine, Number Nine, March 1, 2007:
2g. Good Press: Housing Boom over, Full Price to be paid
The Guardian, February 19, 2007
By Ashley Seager
Residential property in Britain jumped by £410bn in value last year. Only about 2% of that gain was taxed by stamp duty or inheritance tax. Would prices have risen so far so fast if land values were taxed more? No. The discussion of land value tax, which has been around since the days of Adam Smith and David Ricardo, is gaining ground again as people reflect on the absurdities of the housing boom.
2h. Good Press: Investors see land price cycle
International Herald Tribune, February 8, 2007
Henry George wrote in his 1879 book "Progress and Poverty" that land's boom-and-bust cycle is natural because land is not produced by human labor and prices can be manipulated by owners who are able to delay selling to get higher prices. Speculators discovered Florida real estate in the 1920s, when the low cost of borrowing and improved transportation made second homes in the warm climate attractive to wealthy Northerners. Japan's land prices skyrocketed in the late 1980s, fueled by low interest rates and easy credit. The peak came in 1991. After the bubble burst, Japan was stuck in the mire of a stagnant economy.
Money Week, a free daily email that rounds up of the latest investment news and profit opportunities, reprinted (Jan 30) Fred Harrison, author of Boom, Bust: House Prices, Banking and the Depression of 2010: "Look at all the developed countries put together: real-estate prices have risen by more than $30trn over the past five years. That's equivalent to 100% of their combined annual GDPs. This eclipses the 1990s stockmarket bubble (an increase over five years of 80% of GDP), and Wall Street's bubble of the late 1920s (55%). But this bubble may not be done yet."
The Parade Magazine of December 24 noted that high-end office space rents are higher in Moscow than in New York City, $21 per square foot higher, at $95 per square foot. To capture those rents, investors are building a 93-story office tower, which will be Europe's tallest building.
Editor's note: If it's darkest before down, it's also brightest before sunset. It's at the end, the peak, of the land price cycle when investors put up the newest, tallest building.
2i. Good Press: India reads about geonomics
Punjab News, 28 January 2007
By G.S.Bhalla, professor in the department of Commerce and Business Management, Guru Nanak Dev University, Amritsar - via Ed Dodson
"Taxing unearned income is preferable to taxing earned income. The tax shift to resource use and community-generated land values will distribute income more fairly without dependence on income and business taxation to redistribute income. Taxing unearned income (resources, land) and not earned income (jobs, profits) will reduce the rich-poor gap since the rich are always in a better position to capture unearned or windfall income by their ability to hold assets that they do not have to consume. Pay for what you take, not for what you make. Businesses should not be taxed for hiring people or for earning a profit, but should be charged for using resources and polluting the planet. People should not be taxed for earning an income or purchasing products but should be charged for the value of land they own and the resources used in the products they buy. Resource use and polluting are privileges not rights, and businesses and consumers should pay for these privileges."
2j. Good Press: Bush's farm bill still too fat
Los Angeles Times, February 4, 2007
"So why should Americans care (about US farm subsidies)? First, because other nations retaliate against U.S. exports. Second, because subsidies kill competition with foreign growers that would ultimately lower prices on some produce in this country. Third, because taxpayers are shelling out roughly $20 billion a year to an agribusiness juggernaut that neither needs nor deserves the money at a time of ballooning deficits. And fourth, because the poor countries most harmed by our trade policies are the ones most likely to become failed states, embittered by our hypocritical preaching on the merits of 'free trade'."
3b. News: Not brain drain but go-getters get gone
USA Today, Feb 7 (2007)
Throughout U.S. history, immigrants have started small shops, restaurants, and other neighborhood businesses. Today, many come from strong merchant cultures -- such as Syria, Iran, Greece, South Korea, Israel and Brazil -- that have existed for centuries. Millions are well-educated, middle-class professionals. And many possess the same drive to succeed as U.S. business people. With the fast-rising immigrant population in recent years, highly skilled immigrant entrepreneurs in many industries are creating broader enclave economies of supermarkets, food-manufacturing companies, health clinics, banks, law firms, high-tech start-ups, and other companies. The growing number of immigrant entrepreneurs in major U.S. cities is giving a huge lift to urban economies and even outpacing self-employed native-born Americans.
Editor note: We all gain lower prices and greater variety from true free trade, when goods and services (out-sourced jobs) can cross borders without tariffs or quotas. Likewise, we all benefit from "free travel", when workers and consumers can cross borders without visas or quotas. However, few people would emigrate if poverty and oppression did not push them out. Developed nations can help others prosper at home not with aid or loans (debt) but by ending subsidies to agri-business (see LA Times excerpt above) and by ending exports of weapons, allowing people to organize and win the same political rights that most Americans enjoy.
3c. News: Government favors cowboys, cheats citizens
By the Center for Biological Diversity,
February 05, 2007
via Paul Metz, [email protected] integer-consult.com
The Forest Service and Bureau of Land Management announced the new fee of $1.35 per cow/calf pair, per month, down from $1.56 last year. The new fee is as low as it can legally be. A small number of Western livestock operators, producing less than three percent of the beef we eat, pay less per month to feed their cows than it costs to feed a hamster. Meanwhile those cows are befouling our rivers, accelerating erosion, and driving rare species toward extinction on lands that belong to the American people. The federal grazing program operates at a deficit of at least $123 million annually. Independent economists have estimated that the costs may be closer to $500 million annually. It estimated that in order to cover costs, the Bureau of Land Management would have to charge $7.64 per animal-unit-month and the Forest Service would have to charge $12.26.
3d. News: Katrina aid often went to waste
By Frank Bass and Michelle Roberts of The
Associated Press The Seattle Times,
Feb. 7 2007
"After Hurricane Katrina, the government gave out nearly $5.3 billion in aid to rebuild New Orleans. Besides purchase food and construction materials, it was used to pay for guns, strippers, and tattoos. The Federal Emergency Management Administration has determined nearly 70,000 Louisiana households improperly received $309.1 million in grants, and officials acknowledge those numbers are likely to grow. At least 162,750 homes that didn't exist before the storms may have received a total of more than $1 billion in illegal payments. Conversely, some deserving people were improperly denied aid. The Justice Department so far has prosecuted more than 400 people for storm-related fraud, and $18 million has been returned to FEMA or the American Red Cross. A block-by-block survey of flooded areas completed last month also shows that about 10,000 properties in New Orleans remain in a state of withering neglect."
Editor's query: Dr. Mason Gaffney noted in his article in Dollars & Sense that after its destruction by fire, San Francisco rebuilt sans federal aid, using a tax on land, not on the a-building improvements. If New Orleans were not to receive federal aid, and its homeowners were to buy private insurance, would the result be as wasteful? Federal insurance lets homeowners rebuild in the same place in the same way, flat on the ground which in many places is below sea level. No longer able to rake in that misguiding subsidy, a homeowner could lower private premiums by re-building on stilts, as in other hurricane-prone areas.
3e. News: Slow justice in back-dating scandal
Associated Press, February 16, 2007
SEC Chairman Christopher said the scandal over suspect timing of stock option awards to executives at scores of U.S. public companies, "appears to be a pandemic of crooked accounting." In its wake, more than $5 billion in company earnings has been erased by restatements and more than 60 senior officers and directors -- including 18 chief executives -- have been swept from their jobs. The founder of the company that brought the graphic "Grand Theft Auto" video games into popular currency became the first CEO to succumb to prosecution. Ryan A. Brant, the former chief executive of Take-Two Interactive Software Inc., pleaded guilty; then a former top executive of the company that runs another popular feature of American culture, the Monster job search Web site, admitted that he illegally backdated millions of dollars in stock option grants. They were the sixth and seventh executives to be criminally charged in the wave of government investigations. The inquiries appear to be accelerating as prosecutors home in on cases at companies culled from the 130 or so under investigation by the Justice Department and the Securities and Exchange Commission. Yet the pace of enforcement actions in corporate America's biggest fraud of 2006 still is lagging, in the view of some critics and observers.
Editor's note: Along with back-dating, there's trading ahead. The Financial Times, Feb 15, 2007, highlights several examples of the length some stock traders go to, to disguise their knowledge and then trading of non-public information. Which will still affect price, of course, diluting returns to those not in the know. Thanks to Phil Anderson for sending along the article.
3f. News: Prime English land kept idle
Labour Land Campaign press release, February 22, 2007 Via Dave Wetzel, [email protected]
The Campaign for the Protection of Rural England (CPRE) published a report November 22 showing that in London alone landowners waste enough brownfield land for 60,000 new homes. Landowners always complain that they are hindered by the planning system, but the Royal Town Planning Institute (RTPI) reported that there is enough land lying unused and with planning permission to deliver 30,500 houses in London each year until 2016. The RTPI further reported that in the South East of England there is a six-year supply of land with planning permission.
3g. News: A decent home for $20 a month
By Ana Marνa Ortiz. Translated by Manuel Talens and Revised by Mary Rizzo, Feb 2, 2007, from Town of Marinaleda's official website; Via Caspar Davis, [email protected]
The average price of a second-hand house is $282,000 equal to nine years' salary. The City Council of Marinaleda, a small town on the Spanish province of Seville gives away the land to anyone who needs a house, together with a grant, and in exchange requires that the new owner help work on its construction or pay for someone to do so. The attached cottages have 880 square feet distributed in two floors with three rooms, living room, bedroom, bathroom, kitchen and a small terrace plus 980 square feet of courtyard. Each costs the same price as two movie tickets with its corresponding serving of popcorn. The same house, but with a courtyard half the size in Villaverde, the cheapest neighbourhood in Madrid, would cost $557,000 and would take a monthly mortgage of about $2,688 lasting 30 years. Marinaleda buys or expropriates land. The mayor states, "The land to build is a necessity, a right, and it should be a common good as water or air. "Land is about 60% of the final value of a house so by giving it away, its final price is already reduced by more than half." Mayor Juan Manuel Sαnchez Gordillo has won all seven municipal elections in Marinaleda since the reinstitution of democracy in 1979.
Editor notes: Yes, Henry, there is a margin of production.
A couple years ago, small towns in mid-America did the same. Reader Ed Dodson sent us this blurb from CNN/Money of 2004 December 23: Ellsworth, population of 2,900, is one of many communities throughout the Great Plains looking to reverse decades of population decline by offering free parcels of land. Not only that, they're also giving down payment assistance, tax rebates, breaks for small business and even the promise of high-speed Internet access. Although the federal government stopped giving away free land when it repealed the Homestead Act in 1976, cities, school districts, economic development groups and individuals in rural communities have been donating land for the cause. Some rural communities in North Dakota have similar incentives. New residents of Crosby, N.D., for example, are eligible for free land and a welcome package that includes free memberships to the golf club, hockey club and curling club, as well as $500 worth of gift certificates redeemable at local businesses.
4a. Numbers for '06: Wages in sine wave behind productivity
By Martin Crutsinger, Associated Press in USA Today, Feb. 7 2007
Productivity, the amount of output per hour of work, increased in 2006 at the slowest rate in nine years in 1997 the gain was 1.6% while labor's wages shot up at the fastest rate in six years. Since hitting a gain of 4.1% in 2002, productivity has been slowly declining. In 2005 it was 2.3%. Last year it was 2.1%. But the rise was still nearly a full percentage point above average annual gains from 1973 through 1993. Then the country struggled to cope with a series of oil price shocks until high-tech tools such as computers began to boost worker efficiency. Last year ended on a brighter note, with productivity growing at an annual rate of 3% in the fourth quarter, a big improvement from the 0.1% drop in the third quarter. Labor's wages for each unit of output rose 3.2% for all 2006, up from a 2% increase in 2005 and the fastest rise in worker wages and benefits since a 4.2% increase in 2000. For the fourth quarter, wages fell back a bit, rising just 1.7%, following a 3.2% rate of increase in the third quarter.
Editor's note: Most productivity gains that labor pockets go to rent. The rest swells the already swollen pay for CEOs.
4b. Numbers for '06: Oil rent breaks profit record
USA Today, Feb 2 (2007)
In 2006, the world's largest oil company netted $39.5 billion, making it the most profitable year for any company. It tops the last record, also set by Exxon, in 2005 by 9.3%. Exxon's annual net income soared despite fourth-quarter earnings falling 4.3% from last year's record quarter. Exxon's profit equals roughly $132 for every U.S. resident, more money generated per minute, $75,150, than 90% of the U.S. population earned all year. Exxon raked in record profits even though the price of a barrel of oil ended 2006 at $61.05 where it started: $61.04 a barrel at the end of 2005. It benefited over the summer when oil prices spiked to a high of $77.03 a barrel.
4c. Numbers for '06, Q4: Housing market
The Christian Science Monitor, Feb. 7, 2007: By last year, a median-priced American home cost nearly eight times average annual earnings, up from about five times earnings in 1980, according to research by Merrill Lynch. The number of unoccupied homes for sale has reached a record 2.7% of all homes that are normally owner occupied.
CBS MarketWatch, Feb. 27, 2007: Home prices in the top 10 metro areas fell 0.8% in December, the largest monthly drop since 1991. Nominal prices in 18 of 20 cities fell in the fourth quarter compared with the third. Only Seattle (up 12.1%) and Portland (up 9.9%) managed gains. Nine of the 20 cities showed lower prices at the end of the year than at the beginning. The biggest losses in the past year were recorded in Detroit (down 5.9%), Boston (down 5.1%) and San Diego (down 4.2%). Prices had been rising at unprecedented double-digit rates during the housing boom in 2003 to early 2006.
USA Today, Feb. 16, 2007: Nationwide in the final three months of 2006, the median sales price for an existing single-family home rose in 71 metro areas and fell in 73 areas. The overall average fell to $219,300, down 2.7% from the fourth quarter in 2005. What goes up, must come down. In Riverside-San Bernardino-Ontario, Calif., for example, prices have soared 155.3% in the past five years. Several once-sizzling markets in Florida continued to see price declines. In Sarasota-Bradenton-Venice, prices fell 18% in the fourth quarter.
CBS MarketWatch, Feb. 27, 2007: While sales of existing U.S. homes rose 3% in January, the highest sales pace in seven months and the largest percentage gain in two years, sales were down 4.3% year-on-year, the biggest drop since last March. In a separate report, Standard & Poor's said national home prices fell 0.7% in the fourth quarter, the fastest decline in 14 years.
4e. Numbers for '07: As houses cool, apartments heat up
USA Today, Feb. 5, 2007
"From 2000 to 2004, most landlords couldn't raise rents because so many tenants were leaving to buy houses or condos. To feed that buying frenzy, about 300,000 apartments were converted to condos for sale in the past three years. Now, even with 92,000 new rental units this year, the stock is still too little to meet rising demand. Even with this year's increase, the national median rent will be $943 a month, only 60% of the median mortgage payment of $1,566. Renters will get a bit of a break in places such as Miami, Las Vegas and San Diego, where investors bought thousands of condos, hoping to flip them for a quick profit. Since the market faltered in late 2005, many of those condos have been empty, and investors are seeking tenants to help pay the mortgage."
Dr. Mason Gaffney, UC-Riverside Prof, echoed Bernanke's explanation of inflation (February 4): "As for inflation, though, the main cause of it is the failure of governments to collect enough taxes, so they resort to deficits, financed by central banks issuing new money. So LVT, properly used, should put an end to inflation." Meanwhile ...
Inflation in January
USA Today, Feb. 21, 2007
In January consumer prices rose 0.2%, while core prices, which exclude food and energy costs, climbed 0.3%, largest gain in seven months. Energy costs slid 1.5% in January, partly reversing a 4.2% gain in December. But medical costs -- thanks to prescription drugs and doctor services rising at the fastest clip in 25 years rose 0.8%, steepest increase since a matching 0.8% gain in 1991 August. And food costs grew 0.7% in January, biggest increase since 2005 April. Consumer prices rose 2.1% from January a year ago, while core prices rose 2.7% over the same 12-month period. The Federal Reserve said it will raise interest rates to tamp down price pressures, rather than refuse to lend new money to the US Government that never existed before.
Editor's note: Because the prices for copper and zinc have inflated, some clever people melt down pennies and sell the metal. The US Mint, late last year, made melting down pennies and nickels illegal. No one has yet made it illegal for the US itself to over-issue new money, making possible the inflation in the first place.
4h. Numbers for '06: Inverted bond yield, bye-gone signal?
USA Today, Feb. 21, 2007
The bond market is telling you they have a pessimistic view of the next 12 months. Bond traders push down long-term yields if they smell a slowdown, and the Federal Reserve pushes up short-term rates to slow the economy. And though the Fed has pushed the fed funds rate higher 16 times since 2004, current short-term rates still aren't very high historically. By comparison, the fed funds rate was 19% in July 1981. Even when their basic rate is not raised nearly so much, the yields of short and long-term bonds "invert". Normally, long-term yields should exceed short-term ones. The inverted yield curve occurs when the yields on long-term Treasuries fall below short-term yields. Every recession since 1960 has been preceded by an inverted yield curve. The indicator's only wrong signal was in 1966, when the curve inverted but no recession followed. The 30-year bond is typically 1.5 percentage points higher than the fed funds rate. The 30-year bond yield was 4.89% Monday -- 0.36 below the fed funds rate. Yields on the 10-year Treasury note, often used as a benchmark for 30-year fixed-rate mortgages, have fallen below yields on six-month Treasury bills for eight-straight months, the longest such period since 1981. The curve has been inverted 11 of the past 13 months. Yet does the inversion still signal recession? As demand for long-term bonds rises, their yields fall. China's holdings of Treasury notes have swelled to $347 billion, up from $303.9 billion a year before. Oil exporters held $97.1 billion in Treasuries at the end of November, up from $79.3 billion a year earlier. Further, when the Fed raises its basic rate, the interbank overnight loan rate, that may not slow growth as much as it has in the past. Heretofore it has meant that banks must pay more for deposits; consumers pay more for loans. Now U.S. companies can often borrow overseas at lower rates. The funds rate, for instance, is 5.25%; the European Central Bank rate is 3.5%.
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