Responding to the So-called Resource Curse

Harry Pollard

[Reprinted from an exchange on the Land-Theory discussion list, 3 January, 2009]

[Lindy Davies wrote] with regard to giving out Citizen's Dividends:

"As long as it remain profitable to hold locations in anticipation of their appreciation, then those increases in buying power will end up in the landowners' hands, won't they? As (I assume) any dividends paid would be in a Georgist economy, how can the expected appreciation end up in landowners' hands? The next assessment would handle the appreciation. (Such an assessment might be tomorrow given the use of modern computers.)"

We should separate the different "Rents" in our Georgist economy.

There are the location Rents to be found in towns and cities (including those of the electromagnetic spectrum). Then there are Ricardian Rents based on fertility and other intrinsic farming advantages (drainage?), to which should be added other similarly intrinsic Rents such as those of mineral and oil deposits. Also, there are "renewable" Rents such as might be found in forests and fishing grounds. These Rents have different characteristics which should be noted.

Mineral and oil would be excellent sources of revenue for higher levels of government, but it is local government revenue that is important.

The question is - how much would it be?

I have suggested that there would be plenty to pay for a city's infrastructure and perhaps a little more - but not enough for a dividend - unless you give the proceeds straight back to the citizens and then bill them for city costs.

Much is made of the very high Rents in the city center, but they could well be swallowed by the high expenses that come with heavy concentration of activity.

Also, I would expect (as a result of Rent collection pressure) the Rent curve to fall away rapidly to the city limit which should be reasonably close to the center - unlike our present sprawls stretching out to the horizon. I would also expect tens of thousands of suburban lots to come on to the market at the time of change. The suburban land market would collapse. If (say) there are now 100,000 lots at present monopoly prices with lots of them vacant or supporting blighted structures - these would come on the market at little or no value at all and consequently at little or no Rent. (I would expect their Rents to be enough to pay for roads, utilities, and similar expenses.)

These areas would become a good source of "affordable housing" for poorer members of our community as better off people would move closer to the amenities of the city.

While Georgists lick their lips at the very high Rents of central cities, they appear to forget that these extensive suburban monopoly Rents that would mostly disappear.

We are told that much of a country's land-value occurs in residential areas. Also, that some 50-70% of the price of a home is for land. What happens if cities compact and this enormous suburban "monopoly land-value" mostly disappears? I rather think that the high land-value base that we presently claim will disappear with it.

We can approach this from another direction. A Pace University study found that 79% of the Federal Budget was transfer payment. (This was something their research unexpectedly found and they held a press conference to announce it.) I'm sure there are other analyses available.

It is likely that all these transfers are privileges. As our principal objective is to get rid of privilege, maybe we would have a Federal Budget only 20% of the present monstrosity. (Perhaps we could build a few less tanks, planes, and warships, and cut it still more.) It makes funding from intrinsic Rents more easy to imagine.

In Summary:

The idea that a CD would provide more purchasing power and bid up land prices is manifestly in error.

There is more than one "Rent". We should treat them separately.

City Rents would pay for basic city costs and little more.

Huge 'Rent' calculations based on present land value figures do not presage a possible total Rent collection in a Georgist economy.

However, check out Mason [Gaffney's] "Adequacy of Land as a Tax Base" for a comprehensive look at rents. It's a good read. We are now told that land-value is from 50-70% of the total building value. Way back then (I forget how long ago) Mase noted that land value was higher than building value in the US.

In the above I have avoided how taxes and privilege may cut into Rents. Again, Mase has covered this well and often.