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 tax was the
mechanism for "coordinating expectations." Each landowner
felt the pressure to use his land, knowing his neighbors
felt the same pressure at the same time. (There were also
pioneering religious and ethnic groups that fostered
mutual faith, as the Greek Orthodox community is doing
now in its 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 extra-modular
[i.e., 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. Actually, there can be no stasis, as Bill
Clinton has said: buildings depreciate every year, and
need constant upkeep, operation, adaptation to markets,
and often replacement.
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 out 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; swaths 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
Valley 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 Hitler. 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 heights and 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 plans, but are waiting for other people's
plans. Coordinating expectations like those adds up to
nothing. Tragically, the tax system in New Orleans
— as nearly everywhere else — penalizes
builders and doers, and spares free riders.
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 Henry George, 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 go along
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 razed 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 county 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 words, 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
that was 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 Civic Center.
Good fiscal policy did not turn all the knaves into
saints: Rolph eventually fell into bad company with venal
bankers and imperialist engineers. But San 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 high.
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 economists) see a "tragedy of the commons"
and prescribe privatization. Levees, however, are there
to protect lands already private, and call for different
thinking.
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 elite of New Orleans, who ran Louisiana, from
dynamiting the levee protecting St. Bernard and
Plaquemines Parishes, saving the city by flooding the
rednecks. These responded by electing Huey Long governor
in 1928, breaking New Orleans' hegemony for good.
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