Thursday, September 17, 2020

"San Francisco’s Future Should Begin with a Land Value Tax"

Most of the problems of the City and County of San Francisco, from human feces on the sidewalks to crime to world-beating housing costs (#2 after Hong Kong according to DB) stem from the fact the same political machine has been in control for 60 years.

I mention this not because I care much about the politics but because, as with corporate restructurings or rescues, you don't want the people who got you into the mess to be the ones trying to get you out.
Meaning until the politicians change nothing will change.
Which brings us to a subject near and dear.*

From Palladium Magazine:
San Francisco and Silicon Valley pride themselves on being on the cutting edge of new trends—the area’s famed ‘move fast and break things’ ethos extends to everyday conversations from barstools to brunch tables. Many San Franciscans are indeed proud of their part in ushering in the future. But in an ironic way, this yearning for the future is an old trait for the city. Henry George, a 19th century American economist, described the excitement San Franciscans felt as they anticipated the completion of the transcontinental railroad in the way modern audiences might anticipate a major AI announcement from Google or Apple:
I remember, after having come down from the country, sitting on Christmas eve in the gallery of the old American Theatre, among the gods, when a new drop-curtain fell, and we all sprang to our feet, for on that curtain was painted what was then a dream of the far future, the overland train coming into San Francisco.
The completion of the railroad was poised to connect the city to the rest of the country, promising to stimulate even greater development. Many believed correctly that it would transform San Francisco from a gold rush outpost to one of the top metropolises of the country. However, even in the midst of this excitement, George foresaw the limits on who would benefit:
[A]nd after we had shouted ourselves hoarse, I began to think what good is it going to be to men like me? those who have nothing but their labour? I saw that thought grow and grow; we were all—all of us, rich and poor—hoping for the development of California, proud of her future greatness, looking forward to the time when San Francisco was to be one of the great capitals of the world; looking forward to the time when this great empire of the West was to count her population by millions, and underneath it all came to me…What about the masses of the people?
What about them? They are members of the community, and their work and social value is what makes the value of the city. But they don’t get a larger slice of the pie when it grows; they don’t own any share of the common venture of the city. In fact, they have to pay rent for their share, so when the city grows, any gain in quality of life or economic position comes right out of their paycheck and into the landlord’s pocket. Even a small business like a restaurant sees much of their gain slurped up into competition for space. Most of the gain goes to passive landowners, who didn’t even have to do any work for it. There’s an incentive problem here, and a misallocation of everyone’s resources.

The growth of the digital economy centered in San Francisco is an event to match the scale of the arrival of the railroad. In the world of technology, the city is one of the great capitals of the world; the population just of the Bay is in the millions, and the Bay’s hinterland reaches to tens of millions. But activists, analysts, and residents are still asking George’s question: what about the masses of people? While median incomes may be higher in San Francisco than elsewhere in the country, housing costs eat up much of the difference—while household income is 65% higher than the median in the U.S., rents are 78% higher. The city and the counties around it are running up against an old problem, one which has not been alleviated by the dramatic economic changes—that of land, and the hard limits on its availability within traveling distance. This scarcity has expressed itself as astronomical rents and a seemingly intractable homelessness problem, even in the midst of some of the fastest economic growth in the world. And as much as the city prides itself on bringing about the future, the truth is that it’s been wrestling with this same problem for over a hundred years.

George himself predicted that increased economic prosperity alone would never fix San Francisco’s socioeconomic ills. In 1879, when the city was still much less developed than the Eastern seaboard, he wrote: “When San Francisco reaches the point where New York now is, who can doubt that there will also be ragged and barefooted children on her streets?” The Bay Area today bears out this prediction. The only missing part is the children, ragged or otherwise. Given the persistence of the problem, and its consistent nature, it is worth examining the explanation George offered, and the solution he proposed.

This brings us to the more immediately practical element of governance: policy.

Policy discussion is usually terrible for a simple reason. For the average person, policy discussions represent bloodless statistics, disembodied proposals, and an infinite scroll of historical trends and qualitative analysis. In other words, they seem disconnected from the actual experience of life. Daily work, families and houses, and the flowing currents of warm bodies that make up a city in which a person actually lives, seem to exist in a different universe.

This disparity did not exist for Henry George when he was living in San Francisco as it began its ascent. His discussions of land, tax, and resources were inseparable from a vision of cities as engines of wealth, shared in by the same people who created it. By the very dint of its focus on land, George’s proposals demand the perspective of building up a city, or even a country. It restores policy as real decision-making, which animates the life of families, workers, communities, and cities. As San Francisco and many other cities endure the barriers foreseen by George, the same discussion offers the chance to re-center the life of the city as the object of policy.

George began his work by identifying a flaw in the dominant economic models—classical and Marxist—and by extension, in the decisions of those governing the development taking place around him. Building on work by David Ricardo and John Stuart Mill, these paradigms treated land like any other form of capital. However, unlike factories or railroads or any other physical capital, no matter how high the rental price of land rises, no more can be brought to market. As Mark Twain put it, “Buy land, they aren’t making any more.”

Since land doesn’t respond to the normal incentives that encourage the creation of more capital or labor, it requires more careful stewardship than capital or labor to achieve efficient use. The results of the lack of this attention to land are visible everywhere, but are most critical where land is in the highest demand. Valuable land is used inefficiently or not at all, sunk costs and landowner resistance make it difficult to change that use even when the inefficiency has become obvious, and physical restrictions make it nearly impossible to bring new land to market to replace it. For a city to develop, land must be put to denser and more intensive use, or it will be stuck with sprawl, high rents, and limited growth. Achieving that development, given the constraints of limited supply, sometimes requires a more deliberate approach to growth.

This is exactly the struggle facing San Francisco today....
....MUCH MORE
*See for example:
February 2016
Forgetting History: "Nothing Like This Has Ever Happened Before"
Back in 2012 there occurred one of those eruptions of comment* that seem to happen for no discernible reason other than some combination of network effects and echo chambers.

The eruptions peak and die away as the crowd moves on leaving almost imperceptible ripples where there had been much thunder and fury.

This is a reflection on one of them, Henry George and the land tax, updated for current values and valuations.....
Or:
February 2020 
So Claire Jones, Henry George and Adam Smith Walk Into A Bar...
....and the barkeep says "What is this, some kind of a joke?"

Nah, its economics.

"Every increase in the real wealth of the society, 
every increase in the quantity of useful labour employed within it, 
tends indirectly to raise the real rent of land."
-Adam Smith, "The Wealth Of Nations"
Book I, XI. Of the Rent of Land, Conclusion

That was one of the first things I thought of when I started reading Ms Jones' post at FT Alphaville on Thursday:....