Why Georgists Should Be Paineists

Speech to the Council of Georgist Organizations

Los Angeles, July 11, 2014

I WANT TO make the case that the remedy proposed by followers of Henry George should shift from taxing rent to recycling it.  To put it another way, I will argue that Georgists should be Paineists.

I think the Georgist focus on rent is entirely correct.  Forty years ago, when I reviewed Progress and Poverty for The New Republic, I quoted George’s depiction of land rent as “an immense wedge being forced, not underneath society,but through society.  Those who are above the point of separation are elevated, but those who are below are crushed down.”  I have never forgotten that image.

George’s image of rent as a wedge between rich and poor accurately de­scribed reality in 1880, and still does today if we expand the scope of rent beyond land.  Of course, rent isn’t talked about much in polite society; it’s the eight-hundred-pound gorilla that everyone pretends isn’t there.  Economists in particular rarely mention it, not out of ignorance but because they find it awkward to offend those who collect it dispropor­tion­ately.  The time has come, though, to bring rent out of the closet, for in my view, it holds the key to saving both our middle class and planet.

But how should we deal with rent?  I believe George’s remedy — a single tax on land — is insufficient.  It would recapture some unearned rent from landowners, but channel that money to government rather than to those crushed by the immense wedge.  The problem is that money sent to government doesn’t necessarily improve the lot of those being crushed.  (Or if it does, it does so indirectly and inefficiently.)  There’s a piece missing, the piece that recycles the rent.

Fortunately, another approach to rent was proposed by Thomas Paine in his 1797 essay, Agrarian Justice.  Paine’s approach is to recycle recaptured rent to every member of society, one person, one share.  He argues quite persuasively that natural property, such as the earth, air and water, comes to us from the creator, and hence belongs to everyone equally.

What’s more, he invented a practical way to distribute income from shared owner­ship of natural property rights.  He proposed a ‘National Fund’ that would pay every man and woman about $17,000 in today’s dollars at age twenty-one, and $12,000 a year after age fifty-five.  Revenue for the Fund would come from “ground rent” paid by landowners, and Paine showed mathema­tic­ally how this could work.  This was a remarkable feat of analysis and ima­gin­ing.  If that’s Paineism, then call me a Paineist.


TO BE SURE,
 that was 1797, but here’s why I think the Paineist model — with a few tweaks — is just what we need today.

Step back for a moment and consider the two biggest flaws of capitalism today: destruction of nature and widening of inequality.  We need to fix these tragic flaws before they destroy our planet and what’s left of our middle class.  And what I want to suggest is that Paine’s model — if applied at a large enough scale — would fix both these flaws simul­ta­neously.  Here’s how.

Destruction of nature.  The problem, as everyone knows, is that the price of nature is zero; hence, despoliation rolls on.  The solution, as everyone also knows, is to “internalize externalities” — to make polluters pay.  The question is how to do that effectively and economy-wide.  The Paineist answer is: No externalization without compensation.  Make users of nature pay rent.

Widening of inequality.  Everybody sees this happening, but no one knows what to do about it.  The Paineist solution would be: share rent from nature equally.

We need look no further than Alaska to see how this could work.  The Alaska Permanent Fund is capitalized by income from North Slope oil.  Every year it sends dividends to all Alaska residents.  These dividends have ranged from about $1,000 to $3,200 a year.  The highest year was when Sarah Palin was governor, and boy, was she proud of it.

To apply the model on a national level, we’d need to look beyond land and oil as sources of revenue.  Rent in its broadest sense — the extraction of excess profit through market and political power — is now pervasive in our economy, and accounts in large part for the riches of the 1 percent and the decline of everyone else.  Wouldn’t it be nice to take a percentage of that rent and distribute it equally to all?

Actually, that’s not what I’m proposing.  I propose to focus on rent that’s not charged now, but should be: rent on wealth that belongs to all.  Some of this would be natural wealth, and some would be socially created.  Thus, we don’t now charge polluters rent for fouling our atmosphere, but we should.  Nor do we charge banks rent for free-riding on our national monetary system.  But we should.  And the reasons we should are to internalize externalities and reduce inequality.

This sort of rent — the kind that should be charged now but isn’t, and would reduce inequality if distributed equally is what I call virtuous rent.  It’s the obverse of vicious rent, the extracted rent we pay too much of whose distribution is grotesquely unequal.  Our goal in the twenty-first century should be to reduce vicious rent and increase the virtuous kind.  And if we did that to sufficient scale, we would fix capitalism’s two biggest flaws simultaneously.


LET’S LEAP
now from the world of economic theory to the grittier world of politics.  Let’s imagine a National Fund that gets income from selling carbon emission rights, spectrum usage rights, patent protection rights, and financial transaction rights.  It would be like a giant mutual fund owned by all legal US residents, one person, one share.

In my latest book, With Liberty and Dividends For All, I show how, over time, such a fund could pay as much as $5,000 per year to everyone.  That’s not enough to live on, but consider what it could do.  If a child’s dividends were saved and invested starting from birth, they’d yield enough to pay for a debt-free college education at a public university.  In midlife, $5,000 per person would add 25 percent to the income of a family of four earning $80,000 a year.  In late life, it would boost the average retiree’s Social Security benefit by about 30 percent.

Could such a fund ever be established in the United States?  Probably not without a major economic crisis.  But it would make good political sense to start campaigning for such a fund now.

Here’s what’s appealing about such a fund (besides the fact that it would achieve desired results).  It would be:

• Really simple
• Really fair
• Inclusive and unifying rather than exclusive and divisive
• Direct (no trickle down)
• Based on ownership, not need
• Easy to administer (a medium-sized computer could do it)
• Appealing to libertarians and progressives
• Likely to grow over time.

Perhaps best of all — at least to free-market economists — is that, once installed, it would be entirely market-based.  That means it would achieve its beneficent results automatically, as if by an invisible hand.

ON TOP OF all this, the Paineist solution aligns our middle class with nature.  This is really important, because if our middle class is asked to sacrifice on behalf of nature — that is, to pay more for less — it understandably will refuse to do so.

In sum, there’s an historic convergence between the needs of our middle class and those of nature — and an historic opportunity to save them both.  I hope Georgists — and everyone else — will seize the opportunity.  

And while we’re at it, let’s put Thomas Paine on our $20 bill.