As we think about what America is trying to do in Iraq, it is worth thinking about who it is that is going to reap the benefits of the oil under Iraqi sand. Should it be a few Iraqis? Should it be a few American corporations and their shareholders? Should it be all the people who live in the districts where the oil is pumped? Should it be all the people of Iraq? Who should decide?

Similarly, when America invests in rebuilding Iraq's infrastructure, who benefits? Is it accurate to say that everyone who lives in the areas served benefits, or is there another, more precise, answer to that question? Does the answer to that question depend on whether the homeownership rate is 10%, 50% or 90%? Does the answer to that question depend on whether 10% of businesses are conducted on properties owned by those who operate them, 50% or 90%?

In America, urban land is a very valuable resource, often more valuable than land that can be mined for its natural resources. Who should benefit from increases in its value? Who should be able to privatize the rent on urban land, be it Iraq's or America's? Is is acceptable for individuals to pocket the land value if they are local residents? Is it acceptable for individuals to pocket the land value if they are foreigners? Is it acceptable for corporations to pocket the land value? Does it matter whether those corporations' shareholders are locals or foreigners?

Is there a handy alternative to the value of land or natural resources being privatized? Absolutely! Shift taxes off work, off trade (sales), and off buildings, and instead place the tax burden on land and on natural resources. We won't use any less of either one, but instead of a few individuals pocketing something they didn't create, all of us will benefit — equally. And we'll all benefit from a healthier economy.

Alaska's approach, to invest a portion of the oil proceeds for the future for the people of Alaska, is a sound one. Alaska already has low taxes, because much of the cost of state government is coming from oil revenues. And with powerful representatives in the Senate who see that Federal money is spent in ways that benefit Alaska's property owners, Alaskans tend to be in a good situation.

Alanna Hartzok: Earth Rights Democracy: Public Finance based on Early Christian Teachings

• Are citizen dividends from oil rent funds currently or potentially a source of substantial basic income?
• Are oil rent funds the best source for citizen dividends or should CDs be based on other types of resource rents?

Nic Tideman: Improving Efficiency and Preventing Exploitation in Taxing and Spending Decisions

The efficiency of the competitive equilibrium requires that the sharing of the pre-development rental value of land (that part of the rental value of land that is not accounted for by local public goods) and the value of other natural opportunities be unaffected by migration or political competition. If the distribution of the returns to natural opportunities depends on where people live or on political competition, then efficiency will fall because of inefficient location decisions and rent seeking losses. For example, if the returns to oil in Alaska are divided among the people who live in Alaska, then people will move to Alaska inefficiently to share in the bounty. If the distribution of the returns to natural opportunities depends on political competition, then there will be rent-seeking losses from such competition. A non-exploitive and reasonably efficient local public sector is thus possible through competition among communities. ... read the whole article

James Kiefer: James Huntington and the ideas of Henry George

Henry George, author of Progress and Poverty, argued that, while some forms of wealth are produced by human activity, and are rightly the property of the producers (or those who have obtained them from the previous owners by voluntary gift or exchange), land and natural resources are bestowed by God on the human race, and that every one of the N inhabitants of the earth has a claim to 1/Nth of the coal beds, 1/Nth of the oil wells, 1/Nth of the mines, and 1/Nth of the fertile soil. God wills a society where everyone may sit in peace under his own vine and his own fig tree.

The Law of Moses undertook to implement this by making the ownership of land hereditary, with a man's land divided among his sons (or, in the absence of sons, his daughters), and prohibiting the permanent sale of land. (See Leviticus 25:13-17,23.) The most a man might do with his land is sell the use of it until the next Jubilee year, an amnesty declared once every fifty years, when all debts were cancelled and all land returned to its hereditary owner.

Henry George's proposed implementation is to tax all land at about 99.99% of its rental value, leaving the owner of record enough to cover his bookkeeping expenses. The resulting revenues would be divided equally among the natural owners of the land, viz. the people of the country, with everyone receiving a dividend check regularly for the use of his share of the earth (here I am anticipating what I think George would have suggested if he had written in the 1990's rather than the 1870's).

This procedure would have the effect of making the sale price of a piece of land, not including the price of buildings and other improvements on it, practically zero. The cost of being a landholder would be, not the original sale price, but the tax, equivalent to rent. A man who chose to hold his "fair share," or 1/Nth of all the land, would pay a land tax about equal to his dividend check, and so would break even. By 1/Nth of the land is meant land with a value equal to 1/Nth of the value of all the land in the country.

Naturally, an acre in the business district of a great city would be worth as much as many square miles in the open country. Some would prefer to hold more than one N'th of the land and pay for the privilege. Some would prefer to hold less land, or no land at all, and get a small annual check representing the dividend on their inheritance from their father Adam.

Note that, at least for the able-bodied, this solves the problem of poverty at a stroke. If the total land and total labor of the world are enough to feed and clothe the existing population, then 1/Nth of the land and 1/Nth of the labor are enough to feed and clothe 1/Nth of the population. A family of 4 occupying 4/Nths of the land (which is what their dividend checks will enable them to pay the tax on) will find that their labor applied to that land is enough to enable them to feed and clothe themselves. Of course, they may prefer to apply their labor elsewhere more profitably, but the situation from which we start is one in which everyone has his own plot of ground from which to wrest a living by the strength of his own back, and any deviation from this is the result of voluntary exchanges agreed to by the parties directly involved, who judge themselves to be better off as the result of the exchanges.

Some readers may think this a very radical proposal. In fact, it is extremely conservative, in the sense of being in agreement with historic ideas about land ownership as opposed to ownership of, say, tools or vehicles or gold or domestic animals or other movables. The laws of English-speaking countries uniformly distinguish between real property (land) and personal property (everything else). In this context, "real" is not the opposite of "imaginary." It is a form of the word "royal," and means that the ultimate owner of the land is the king, as symbol of the people. Note that English-derived law does not recognize "landowners." The term is "landholders." The concept of eminent domain is that the landholder may be forced to surrender his landholdings to the government for a public purpose. Historically, eminent domain does not apply to property other than land, although complications arise when there are buildings on the land that is being seized.

I will mention in passing that the proposals of Henry George have attracted support from persons as diverse as Felix Morley, Aldous Huxley, Woodrow Wilson, Helen Keller, Winston Churchill, Leo Tolstoy, William F Buckley Jr, and Sun Yat-sen. To the Five Nobel Prizes authorized by Alfred Nobel himself there has been added a sixth, in Economics, and the Henry George Foundation claims eight of the Economics Laureates as supporters, in whole or in part, of the proposals of Henry George (Paul Samuelson, 1970; Milton Friedman, 1976; Herbert A Simon, 1978; James Tobin, 1981; Franco Modigliani, 1985; James M Buchanan, 1986; Robert M Solow, 1987; William S Vickrey, 1996).

The immediate concrete proposal favored by most Georgists today is that cities shall tax land within their boundaries at a higher rate than they tax buildings and other improvements on the land. (In case anyone is about to ask, "How can we possibly distinguish between the value of the land and the value of the buildings on it?" let me assure you that real estate assessors do it all the time. It is standard practice to make the two assessments separately, and a parcel of land in the business district of a large city very often has a different owner from the building on it.) Many cities have moved to a system of taxing land more heavily than improvements, and most have been pleased with the results, finding that landholders are more likely to use their land productively -- to their own benefit and that of the public -- if their taxes do not automatically go up when they improve their land by constructing or maintaining buildings on it.

An advantage of this proposal in the eyes of many is that it is a Fabian proposal, "evolution, not revolution," that it is incremental and reversible. If a city or other jurisdiction does not like the results of a two-level tax system, it can repeal the arrangement or reduce the difference in levels with no great upheaval. It is not like some other proposals of the form, "Distribute all wealth justly, and make me absolute dictator of the world so that I can supervise the distribution, and if it doesn't work, I promise to resign." The problem is that absolute dictators seldom resign. ... read the whole article

Peter Barnes: Capitalism 3.0 — Chapter 3: The Limits of Government (pages 33-48)

Limits of Public Ownership

Because of historical circumstances, America has a long tradition of public land ownership. When Europeans first arrived, North America was held in common by an assortment of tribes. As these tribes were dispossessed, the federal government acquired their territories. Some of the federal holdings were given to states as they entered the union. Though most of what the federal and state governments owned was then sold cheaply, much was retained. Today, nearly a third of the land in the United States is government-owned.

To say that land — or any asset — is “government-owned,” however, isn’t to say it’s managed on behalf of future generations, nonhuman species, or ordinary citizens. Consider what the federal and state governments have done with the lands they own.

Outside of Alaska, about 5 percent of government-owned lands have been designated as wilderness. In such areas, humans may enter on foot but not use motorized vehicles. Mining, logging, and hunting are also prohibited. On the other 95 percent of government-owned land, private and commercial use is regulated by various agencies. National forests are managed by the U.S. Forest Service, grazing and mineral lands by the Bureau of Land Management, hunting and fishing by the U.S. Fish and Wildlife Service.

As a general rule, politics — not fiduciary duty — determines what uses are permitted and what prices are charged. A classic example is the Mining Act of 1872, under which private companies can stake claims to mineral-bearing lands for $5 an acre, and pay no royalties on the minerals they extract. Every attempt to reform this antiquated law has failed because of the mining companies’ political clout.

In the same vein, the U.S. Forest Service has for decades been selling trees to timber companies for below-market prices. On top of that, it spends billions of tax dollars building roads in virgin forests so timber firms can harvest the people’s trees. This is, of course, economically irrational and a huge subsidy to private corporations. It also addicts Americans to cheap forest products and destructive logging methods. These practices occur because the Forest Service is not a trust committed to ecosystem preservation, but a politically influenced agency dedicated to “multiple use” of government-owned forests.

There are exceptions to this dismal pattern. One involves trust lands given by the federal government to states. Such gifts began with the Land Ordinance of 1785, which reserved one square mile per township for the support of public schools. Later, the Morrill Land Grant College Act of 1862 gave more land to states to support colleges of agriculture and mechanics. And in 1954, Congress gave Texas title to oil-rich coastal lands, providing that all revenue from them be placed in an endowment, or permanent fund, that generates income for public schools forever.

Today, twenty-two states hold about 155 million acres in trust for public schools and colleges — which is to say, for future generations. Like the federal government, the state trusts lease much of their land for oil drilling, timber cutting, and cattle grazing. The trusts’ duty is to preserve not the land itself but the income streams it generates. This creates beneficiaries (educators, students, parents) who monitor the land managers closely. One result, according to University of California professor Sally Fairfax, is that state trust lands are better managed than federally owned lands. Whereas the U.S. Forest Service “has been hiding the ball on cash flows and returns to investments for most of this century . . . the state trust land managers know how to keep books and make them public.” Further, even though the state trusts aren’t bound to protect ecosystems per se, they tend to do so because they have a long-term calculus.

An interesting variant of the typical state land trust is the Alaska Permanent Fund, created in 1976 to absorb some of the windfall from leasing state land to oil companies. The aim was to create an endowment that would benefit Alaskans even after the oil is gone. To this end, the Permanent Fund invests in stocks, bonds, and similar assets, and off the earnings pays yearly dividends to every resident. Originally, the dividends were to be allocated in proportion to the recipients’ length of residence in Alaska, with old-timers getting more than newcomers. But the U.S. Supreme Court ruled that, because of the Equal Protection clause of the Fourteenth Amendment, Alaska couldn’t discriminate against newcomers that way. The dividend formula was then changed to one person, one share.

THE ALASKA PERMANENT FUND
Under Alaska’s constitution, the state’s natural resources belong to its people. Jay Hammond, Republican governor of Alaska in the 1970s, took this provision seriously.When oil began flowing from the North Slope, he pushed for royalties to be shared among Alaska’s citizens. Many battles later, the legislature agreed to a deal: 75 percent of the state’s oil revenue would go to the government as a replacement for taxes.The remaining 25 percent would flow into the Alaska Permanent Fund, and would be invested on behalf of all Alaskans equally.

Since 1982, the Fund has grown to over $30 billion and paid equal yearly dividends to all Alaskans, including children (see figure 3.1). In effect, it is a giant mutual fund managed on behalf of all Alaskan citizens, present and future. Even after the oil runs dry, it will continue to benefit everyone. Economist Vernon Smith, a Nobel laureate and libertarian scholar at the Cato Institute, has called it “a model [that] governments all over the world would be well-advised to copy.” ... read the whole chapter

Peter Barnes: Capitalism 3.0 — Chapter 5: Reinventing the Commons (pages 65-78)

There’s nothing about property rights, however, that requires them to be concentrated in profit-maximizing hands. You could, for example, set up a trust to own a forest, or certain forest rights, on behalf of future generations. These property rights would talk as loudly as shares of Pacific Lumber stock, but their purpose would be very different: to preserve the forest rather than to exploit it. If the Lorax had owned some of these rights, Dr. Seuss’s tale (and Pacific Lumber’s) would have ended more happily.

Imagine a whole set of property rights like this. Let’s call them, generically, common property rights. If such property rights didn’t exist, there’d be a strong case for inventing them. Fortunately, they do exist in a variety of forms — for example, land or easements held in perpetual trust, as by the Nature Conservancy, and corporate assets managed on behalf of a broad community, as by the Alaska Permanent Fund.

Some forms of common property include individual shares — again, the Alaska Permanent Fund is an example. These individual shares, however, differ from shares in private corporations. They’re not securities you can trade in a market; rather, they depend on your membership in the community. If you emigrate or die, you lose your share. Conversely, when you’re born into the community, your share is a birthright.

I recognize that, for some, turning common wealth into any kind of property is a sacrilege. As Chief Seattle of the Suquamish tribe put it, “How can you buy or sell the sky, the warmth of the land?” I empathize deeply with this sentiment. However, I’ve come to believe that it’s more disrespectful of the sky to pollute it without limit or payment than to turn it into common property held in trust for future generations. Hence, I favor propertization, but not privatization. ... read the whole chapter

Peter Barnes: Capitalism 3.0 — Chapter 7: Universal Birthrights (pages 101-116)

Dividends from Common Assets

A cushion of reliable income is a wonderful thing. It can be saved for rainy days or used to pursue happiness on sunny days. It can encourage people to take risks, care for friends and relatives, or volunteer for community service. For low-income families, it can pay for basic necessities.

Conversely, the absence of reliable income is a terrible thing. It heightens anxiety and fear. It diminishes our ability to cope with crises and transitions. It traps many families on the knife’s edge of poverty, and makes it harder for the poor to rise.

So why don’t we, as Monopoly does, pay everyone some regular income — not through redistribution of income, but through predistribution of common property? One state — Alaska — already does this. As noted earlier, the Alaska Permanent Fund uses revenue from state oil leases to invest in stocks, bonds, and similar assets, and from those investments pays yearly dividends to every resident. Alaska’s model can be extended to any state or nation, whether or not they have oil. We could, for instance, have an American Permanent Fund that pays equal dividends to long-term residents of all 50 states. The reason is, we jointly own many valuable assets.

Recall our discussion about common property trusts. These trusts could crank down pollution and earn money from selling ever-scarcer pollution permits. The scarcer the permits get, the higher their prices would go. Less pollution would equal more revenue. Over time, trillions of dollars could flow into an American Permanent Fund.

What could we do with that common income? In Alaska the deal with oil revenue is 75 percent to government and 25 percent to citizens. For an American Permanent Fund, I’d favor a 50/50 split, because paying dividends to citizens is so important. Also, when scarce ecosystems are priced above zero, the cost of living will go up and people will need compensation; this wasn’t, and isn’t, the case in Alaska. I’d also favor earmarking the government’s dollars for specific public goods, rather than tossing them into the general treasury. This not only ensures identifiable public benefits; it also creates constituencies who’ll defend the revenue sharing system.

Waste absorption isn’t the only common resource an American Permanent Fund could tap. Consider also, the substantial contribution society makes to stock market values. As noted earlier, private corporations can inflate their value dramatically by selling shares on a regulated stock exchange. The extra value derives from the enlarged market of investors who can now buy the corporation’s shares. Given a total stock market valuation of about $15 trillion, this socially created liquidity premium is worth roughly $5 trillion.

At the moment, this $5 trillion gift flows mostly to the 5 percent of the population that own more than half the private wealth. But if we wanted to, we could spread it around. We could do that by charging corporations for using the public trading system, just as investment bankers do. (For those of you who haven’t been involved in a public stock offering, investment bankers are like fancy doormen to a free palace. While the public charges almost nothing to use the capital markets, investment bankers exact hefty fees.)

The public’s fee could be in cash or stock. Let’s say we required publicly traded companies to deposit 1 percent of their shares each year in the American Permanent Fund for ten years — reaching a total of 10 percent of their shares. This would be our price not just for using a regulated stock exchange, but also for all the other privileges (limited liability, perpetual life, copyrights and patents, and so on) that we currently bestow on private corporations for free.

In due time, the American Permanent Fund would have a diversified portfolio worth several trillion dollars. Like its Alaskan counterpart, it would pay equal yearly dividends to everyone. As the stock market rose and fell, so would everyone’s dividend checks. A rising tide would lift all boats. America would truly be an “ownership society.” ... read the whole chapter

Peter Barnes: Capitalism 3.0 — Chapter 10: What You Can Do (pages 155-166)

To build Capitalism 3.0, we each have unique roles to play. I therefore address the final pages of this book to a variety of people whose participation is critical. ...
POLITICIANS

Everyone wants your attention. Channel 5 is on line 3 and a powerful lobbyist is at your door. It’s hard for you to see the forest for the trees. What can I possibly tell you?

What I want to tell you is, there’s a fork in the road. On one side lies capitalism as we know it; on the other, an upgrade. You must decide which branch to take. Your choice has vast ramifications. Very possibly, the fate of the planet is in your hands. Trillions of dollars are also at stake. I want you to be courageous. I want you to choose the upgrade.

But that isn’t what one says to a politician. What one says is, we need to reduce our dependence on foreign oil, create jobs in America, and protect the environment. All those things cost money, and government doesn’t have enough. But here’s what government can do.

• First, delegate to an independent authority — something like the Fed — the power to cap U.S. carbon consumption. That way, when energy prices go up (which they inevitably will), you won’t get blamed. Also, make sure the carbon authority pays dividends, like the Alaska Permanent Fund. Then, when checks are mailed to your constituents, you can take credit.
• Second, talk about jobs and energy independence in your speeches. And push for an American Permanent Fund financed by sales of pollution permits. Within a few years, thousands of people in your district will be installing new energy systems and cashing dividend checks. You’ll be a hero.
• Finally, tell your donors not to worry. You’re a low-tax, small-government, pay-as-we-go kind of person. You think the environment should be protected through market mechanisms. You favor an ownership society in which every American has a tax-deferred savings account and no child is left behind. ...

What’s particularly nice about Capitalism 3.0 is that we can install it one piece at a time. We needn’t shut the machine down, or delete the old operating system, before installing the new one. Indeed, we’re not even replacing most of the old operating system, which is fine as it is. Rather, we’re attaching add-ons, or plug-ins, that allow for a gradual and safe transition. A formula for describing this is:

Corporations + Commons = Capitalism 3.0

Like the governor of James Watt’s steam engine, these add-ons will curb our current engine’s unchecked excesses. When illth of one sort gets too great, the new bits of code will turn the illth valve down, or give authority to trustworthy humans to do so. If money circulates too unequally, the new code will alter the circulation, not by re distributing income but by pre distributing property. It will make similar adjustments when there’s too much corporate distortion of culture, communities, or democracy itself.

What’s also nice about the new operating system is that, once installed, it can’t be easily removed. That’s because it relies on property rights rather than government programs that are subject to political ebb and flow. If you have any doubt about this, consider the staying power of Social Security and the Alaska Permanent Fund, both of which distribute periodic payments that have attained the status of property rights. Social Security is over seventy years old and has never been cut once; in 2005, it survived a privatization campaign led by President Bush. Similarly, the Alaska Permanent Fund, now more than twenty-five years old, repelled an attempt in 1999 to divert part of its income to the state treasury. ...

And, for businesspeople, here’s the best part: Capitalism 3.0 will preserve the driving force of American capitalism, the profit-maximizing algorithm. It will do this not only by leaving the algorithm alone, but also by giving all Americans, via the American Permanent Fund, a financial stake in its success. All Americans will benefit both from nature’s health and from the health of corporations. ... read the whole chapter