Tuesday, April 11, 2017

Land is the subtext in the fight over American internet access

I just finished reading a fascinating article on the Evonomics.com website, a website dedicated to rethinking economics. Economist Josh Ryan-Collins' article, "How Land Disappeared from Economic Theory" uncovers a giant hole in economics. Collins shows how economic theory taught in classrooms for decades has been shaped to teach us to ignore land values in economic planning and public policy. What Collins shows us is that it is nearly impossible to have a coherent discussion of economic policy without talking about land ownership and rents:
"But there has always been a third ‘factor’: Land. Neglected, obfuscated but never quite completely forgotten, the story of Land’s marginalization from mainstream economic theory is little known. But it has important implications. Putting it back in to economics, we argue in a new book, ‘Rethinking the Economics of Land and Housing’, could help us better understand many of today’s most pressing social and economic problems, including excessive property prices, rising wealth inequality and stagnant productivity. Land was initially a key part of classical economic theory, so why did it get pushed aside?"
Collins goes on to show in his article (a long but very worthy read), how the wealthy interests who own most of the land influenced how economics is taught to take land out of the equations, why would wealthy interests seek to do that? People who have used their wealth to amass ownership of land, may well want to keep the greatest of all monopolies hidden from Economics 101. For who would want to admit that their share of all wealth is mostly unearned due to the happy circumstance of mere land ownership? From the article, but not necessarily in original sequence from article:
“In such a case …[land rent]… it would be no violation of the principles on which private property is grounded, if the state should appropriate this increase of wealth, or part of it, as it arises. This would not properly be taking anything from anybody; it would merely be applying an accession of wealth, created by circumstances, to the benefit of society, instead of allowing it to become an unearned appendage to the riches of a particular class.” 
The reasons for this may well be political. Mason Gaffney, an American land economist and scholar of Henry George, has argued that Bates Clark and his followers received substantial financial support from corporate and landed interests who were determined to prevent George’s theories gaining credibility out of concerns that their wealth would be wittled away via a land tax. In contrast, theories of land rent and taxation never found an academic home. In addition, George, primarily a campaigner and journalist, never managed to forge an allegiance with American socialists who were more focused on taxing the profits of the captains of industry and the financial sector. (emphasis mine)
If most economic theories have buried land values as a factor in how an economy works, that would explain this meme:

Credit for meme: By Stephen Ewen - Own work, CC BY-SA 3.0, https://commons.wikimedia.org/w/index.php?curid=27391254

Take a close look at that image. The top 10% own more than half of the land value in the country. The top 40 percent own almost all of it. The bottom 60% own a tiny fraction of the United States. And then there is that little red dot, owned by 40% of the American people.

Now follow the dots. Very wealthy interests comprising of a small minority of the population, intent on preserving their wealth for generations to come, use their influence to change how economics is taught. By exerting their influence on how economics is taught, they influence economists who graduate American colleges teaching the wealthy man's version of economics, the one that hides the value of land from the rest of us. Those same economists, particularly if they follow the party line, become sources of information for people who write public policy regarding economics and journalists who write about economics. The people who write the laws regarding economic policy turn to experts who were trained to ignore land ownership as a matter of economics. All this effort is just so that the biggest land owners can avoid paying some taxes on the rents they receive from the land they own.

The tax on the land (we call them real estate taxes) is to put the wealth generated by the land back into the economy as government spending for all to enjoy. That is the tax that the wealthy land owners wish to avoid. Such patriotism.

Now some of you may have read my earlier works on this blog and may well be aware that I'm a big fan of community broadband. I live in an area where there is only one wired internet access provider. That's what FCC Chairman Ajit Pai calls "competition". Ars Technica reports that, "Ajit Pai says broadband market too competitive for strict privacy rules". I guess that's what we can expect from a captured regulator.

I have long wondered why there is so much resistance from the top of the economy for making broadband markets work. I get it that we have telecom monopolies like Comcast, Time-Warner, ATT, Verizon and Centurylink all working through a local franchise agreement with the cities and states they operate in. Those franchise agreements allow a defacto monopoly to take shape. That defacto monopoly receives enormous protection from state and federal governments that few are willing to acknowledge. There must be a reason why the biggest telecoms get so much protection. Do they really lack the skills to compete against municipal governments in the market for internet access?

I believe that I understand now why the fight is so difficult. It is not just the incumbent providers protecting their cash cows. It is the land owners protecting their monopolies (from the same Evonomics article):
Ricardo and Smith were mainly writing about an agrarian economy. But the law of rent applies equally in developed urban areas as the famous Land Value Tax campaigner Henry George argued in his best-selling text ‘Progress and Poverty’. Once all the un-owned land is occupied, economic rent then becomes determined by locational value. Thus the rise of communications technology and globalisation has not meant ‘the end of distance’ as some predicted. Instead, it has driven the economic pre-eminence of a few cities that are best connected to the global economy and offer the best amenities for the knowledge workers and entrepreneurs of the digital economy. The scarcity of these locations has fed a long boom in the value of land in those cities. (emphasis mine)
The fight over internet access is a fight to protect land values in large cities, to protect the land monopolies held by the wealthy elite. If internet access were made easy, cheap, fast and ubiquitous, anyone with good clerical or technical skills could live and work anywhere. For the wealthy landed class, it isn't enough to discourage and restrain social and economic mobility. Geographic mobility must be restrained as well.

Since at least 2001, there has been a very intense fight in the statehouses across the country over internet access. The major ISPs are just proxies in this fight, but effective proxies they are. One of the first community broadband networks is UTOPIA, built right here in Utah, formally known as the Utah Open Infrastructure Agency. When incumbent ISPs received word of UTOPIA around the year 2000, they worked with The American Legislative Exchange Council (ALEC) to draft model legislation to kill off UTOPIA or at least seriously hobble it. Since then, ALEC has participated in a largely successful effort to restrain or eliminate municipal efforts to build public internet access networks in more than 20 states (Utah was the first state to pass that model legislation) across the country.

The primary argument used against municipal broadband systems is that municipal governments should not be taking the risk of building internet access infrastructure, a function best left to private enterprise and savvy investors who really know what they are doing. At least, that's the narrative most of the public is fed. But a funny thing happened in Utah. A natural experiment occurred where the municipal network of Spanish Fork was spared the most onerous requirement of that model ALEC legislation: that the network must rely upon a third party to sell access. While the city of Spanish Fork could sell directly to customers, UTOPIA was required to rely upon third party sellers.

The results are plainly obvious in this article, "How Lobbyists in Utah Put Taxpayer Dollars at Risk to Protect Cable Monopolies", by Chris Mitchell, director of Community Networks, at the Institute for Local Self Reliance. UTOPIA is buried in debt because they could not sell service directly to residents in their service area. The Spanish Fork municipal network was allowed to sell directly to residents, paid off its debts early, used their profits to add capacity, increase speeds and improve service. I know, it sounds absurd, but there are ISPs that actually do that, but they're not private ISPs. More than 450 cities around the country have created public networks to get around private ISPs who will not build at all, or refuse to increase capacity and speed for the cities they serve. I guess the risk that opponents of community broadband refuse to talk about is the risk of legislative opposition to the public option for internet access.

Close observers of the struggle for internet access may also be familiar with the fight in Chattanooga, Tennessee, where the Electric Power Board provides a gigabit connection for $70 a month, mopping the floor with their competition. The Electric Power Board is a public utility that set up fiber connections to every home for meter readings and discovered that they could also provide internet access. When incumbent service providers discovered what the EPB was doing, it was too late to stop them. So incumbents moved to restrict the EPB from providing such offensive service outside of their original service area. Neighboring communities stuck with inferior service from Comcast and ATT clamored for service from EPB and took their fight to the FCC.

You might also recall how the FCC ruled that the EPB could provide service to their neighbors in adjacent areas, but the state of Tennessee sued for injunctive relief and won on behalf of the incumbent service providers to set aside the FCC ruling permitting EPB to service their neighbors. To put it differently, the fight over geographic mobility is so serious that wealthy interests are willing to do whatever it takes to maintain their monopolies, first by wire and then by land.

It's a subtle fight and it is rarely mentioned in the news if at all, and you'll never see mainstream media framing the story this way. Mainstream media teaches us that when property values go up we all prosper, what they don't tell us is just how much of a drain on the economy rent seeking is. The biggest land owners want steady and stable renters, not people who think they can move to a small town, buy a house and still make a living because they can do their work online or run an online business. The last thing they need is policy makers figuring out how to properly tax and regulate the absentee land owners, the land owners who rent their land rather than occupy it.

This silent struggle over land is only silent to the extent that the press is willing to discuss it. Some of you still read newspapers. I used to do that, too. But since then, I've learned that when I put a quarter into a newspaper vending machine, I didn't pay for the contents of the paper, the advertisers did. The content we call news, is called the "newshole" by the newspaper editors for a reason. The advertisers pay for influence on what's fit to print and what is not. Those advertisers are paying for a narrative that is flattering to their enterprise, which on the surface is anything but extracting rents. Advertisers in mainstream media are paying for a narrative that would have us all believe that rent seeking passes for capitalism. And so far, it seems to be working.
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