Unusual Means

The manipulative boom and bust cycle

I believe that asset bubbles are the 21st century phenomenon of hiding the true cost of our inflationary monetary system and deceiving the working public.

In the past, we used to have a boom/bust cycle, where years of growth would precede some years of recession, over and over. Recently, the common sentiment seems to be that central banks are able to prevent recession altogether and instead can guarantee smooth, continuous growth. First I will argue that this is an impossible and self-contradictory goal. Second, I will argue that the current system that appears to do so is achieving it with deceptive means, hiding the true cost to the public at large.

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LVT Philosophy Part II

I ended the last post with the idea that society should be able to capture the scarcity value of land This has many economic benefits.

Taxing this value is non-distortionary. Taxing land does not reduce the supply of land. In fact, it paradoxically can increase the supply. In today’s system, the cost of holding a parcel of land empty is often well below the market rental rate. This leads to artificial scarcity and a corresponding increase in cost in acquiring land for use. Implementing a land tax would prevent speculators from holding land for profit, and instead encourages efficient land use.

To summarize some of the important benefits:

1. Once implemented, the cost of owning new land is the same as before.
2. Encourages efficient land use with the corresponding reduction in urban sprawl.
3. Reduction or elimination of other taxes.
4. Dampens the real estate speculation cycle.

What I’m reading:

• The Ultimate Tax Reform: Public Revenue from Land Rent (Foldvary 2006).

LVT Philosophy

In the previous post I mentioned one of the benefits of a land value tax and alluded to more. I will begin with an overview of why it makes sense to me.

Land falls into a special class of assets. Its value derives from physical scarcity. It is immobile, limited, and every piece of it on earth is owned. A sovereign entity with the threat of force has fundamental title, and very often that sovereign grants an entity the full and perpetual right to use and exclude others from its use. I have estimated that in the City of Mountain View, California, the present value of this right is worth on the tune of $4,000,000 per acre.

However, this right is purchased from the previous owner, who does not provide the property right guarantees. Do the people get anything in return for granting this right? Usually yes. In return, the entity pays property taxes. Should the taxes go unpaid, the sovereign has the right to use force to take ownership. But the property tax levied is very small, and applies to both land and improvements. An owner of land who decides to make his land useful by creating an apartment complex is charged much more than the owner who leaves his asset empty. Moreover, in dollar terms this amount is very small, generally around 1% of the land value. In California, thanks to Prop 13, it’s even less for long-time owners.

Does this make sense? I argue not. The value of land is derived from the surrounding community. An acre of Manhattan real estate is the same amount of space as an acre in the middle of Kentucky. The difference is, as they say in real estate, location location location. Doesn’t it make sense for society to capture some of this value, given that we as a people, renters or not, create it?

Land has a scarcity value when it is in desirable locations. That value is not down to individual effort but derives from the community, and often from schools, hospitals and parks provided by the public purse. Therefore, as the economist David Ricardo explained, land has a rental value that can be taxed. A land tax is 200 years overdue. (The Guardian, 2007).

To be continued.

Stopping the housing boom/bust cycle

For the past two years I have been watching the housing bubble. Upon graduating and starting work, the question about buying a place or “throwing your money away” renting came up. I surveyed prices in Silicon Valley, and compared PITI to rents. I concluded there was a bubble, and have been renting ever since. I am not surprised that the financial system today is suffering as a result of inflated housing prices, though I am surprised it took this long and came out so suddenly.

I find banking/credit/financial system to be largely parasitic, taking a very small fraction of a large amount of money and appropriating it their way. After all, as a consumer, is there really a difference between a 5.05% interest rate and a 5.06% rate? The financial system thrives on greater money flows, and in modern times they have been receiving them in spades. For example, at the beginning of 2007 there were a staggering $415 trillion worth of derivatives with a gross market value of almost $10 trillion.

I have to wonder what the purpose is in monetizing household debt in the form of real estate values. Why do ordinary homeowners have to rent money from investors in order live somewhere? Does the housing market have to suffer from boom/bust cycles?

No. Enter the land value tax. Instead of renting money from the financial system, the idea is to pay the fair market rent directly to government. I have seen proposals that would charge 75% or 100% of the fair market rent. At 100%, vacant land could be purchased for nothing at all. Net result? The financial system is largely removed from the picture, only financing the structures themselves instead of the land. Note that the land value is the only portion that increases in value over the long run.

In a future posts I will discuss more of the huge benefits of the system, discuss the minor drawbacks, then explain why, despite its overwhelming advantages to society, it will never be implemented on a large scale. The reason for its impossibility is beginning to reform my ideas about economics, society, and governance, and I hope I can influence yours too.

Something new?

So, it turns out that I didn’t have any time to write about law school.  What was I thinking?  I’m going to try something new.  Watch this space.

Quotation punctuation

In determining the punctuation for the last post, I remembered the debate about where punctuation should go near quotations. The traditional American rule is that punctuation goes inside the quote even when not included in the quotation. For instance: I attended “Criminal Law”. vs. I attended “Criminal Law.” The latter is correct American style.

Recently technology has introduced a bit of ambiguity. Let’s say I want to instruct you to type “www.google.com”. That’s incorrect American style, but the alternative is worse: “www.google.com.” That period could be part of the URL, or it might not.

I believe that these sorts of uses that require our language to be more exact are changing the acceptable uses of punctuation near quotations. We want to use quotes as containers for literal expressions. Taking punctuation relevant outside the quote and inserting it into the quote breaks that container. In computer science we can view a quotation as an expansion in a context-free grammar. I can illustrate this. Suppose you have a language that consists of words and quotations.

WORDS := ([word/phrase] | QUOTE)* (one or more English phrases and/or quotes)
QUOTE := “WORDS” (notice the symmetric left/right quotation marks)

This defines a context-free grammar. The context-free part means that any symbol can be expanded regardless of where it appears. It doesn’t matter if the QUOTE appears at the end of a sentence. The period will always fall outside of the quotes, and will be unambiguous.

It is a fine solution, though at times it would produce sentences that look quite wrong: He said, “Let’s go.”. I would prefer to drop the duplicated period. There is one more important point: some people claim that today’s language overuses the quotation marks. Apart from a few specialized uses, they say, quotation marks are for… direct quotations! I have some sympathy for that argument, but there are two problems. First, uses of quotation marks that do not demarcate direct quotations already exist, such as when referring to the title of an article. Second, we often need to quote literal expressions precisely to avoid ambiguity. Instead of conforming to existing language rules, I think it is better to make changes that enhance precision when the alternative no longer has anything to offer.

Draft briefs for orientation session

Next week I will begin orientation sessions at Santa Clara in preparation for starting classes. One of the sessions is called “Briefing Cases”, and this is written in preparation for it.

Morgan v. High Penn Oil Co.
Supreme Court of North Carolina, 1953
238 N.C. 185, 77 S.E. 2nd 682

Facts: Plaintiff Morgan owns dwelling, restaurant, and trailer residence approximately 1,000 feet from the High Penn Oil Company’s refinery. Other residences and business operate within one mile of the refinery. Plaintiff’s evidence tended showed that for some hours of the day nauseating gases invaded the plaintiff’s property, and that the oil refinery was the only source.

Procedural Context: Civil action to recover temporary damages for a private nuisance, and to abate such nuisance by injunction. Jury found against the refinery for $2,500 in damages and enjoined continuing the nuisance. Defendant appealed.

Issues: Was the evidence sufficient to establish either an actionable or an abatable private nuisance?

Holding: The evidence was sufficient to show that High Penn Oil Company’s noxious gas emissions were, and continue to be, an intentional nuisance.

Reasoning/Analysis: The private tort of nuisance is committed when:

1. The interest in the use and enjoyment of land is invaded …
2. … as a result of liability forming conduct.

If intentional, the conduct need only be unreasonable. If unintentional, the conduct must be negligent, reckless, or ultra-hazardous. It is intentional if the actor is aware of the certainty or substantial probability of harm. The intentional actor is liable regardless of the degree of care or skill to avoid the injury.

The evidence supports the plaintiff’s claim that the defendant was aware of the substantial likeliness of harm resulting from the operation of the refinery, constituting an actionable private nuisance. The evidence also supports the inference that it will continue into the future, causing irreparable harm, such that injunctive relief is proper.

Concurrences or Dissents: None.

Wernke v. Halas
600 N.E.2d 117 (Ind. App. 1992).

Facts: On appeal from summary judgment, the facts are taken in the light most favorable to the non-movant. Wernke’s property abutted both the Halases’ and the Peacocks’ lots. At some point Wernke built an unsightly privacy fence facing the Halases’, that was no more than six feet tall. Wernke later placed support posts in concrete, and at some point vandals scrawled offensive messages in the concrete. Wernke also mounted a toilet seat on a post overlooking the Halases’ land.

Procedural Context: The Halases filed a civil action against Wernke to recover damages from a private nuisance. The trial court granted summary judgment in favor of the plaintiffs, awarding compensatory damages, punitive damages, and attorney fees. Wernke appealed.

Issues: Did the display of Wernke’s toilet, graffiti, and fence have the requisite interference with enjoyment of property to constitute a private nuisance?

Holding: Wernke’s display of the toilet, graffiti, and fence, while an annoyance, did not rise to the level of a private nuisance.

Reasoning/Analysis: Each of the three displays is considered individually.

For the fence, Giller v. West, 162 Ind. 17 (1904) controls. “[A] landowner has no nuisance claim against an adjacent landowner for erection of a fence that [does] not encroach on the landowner’s property.” The appearance is irrelevant. Five years subsequent this was modified by statute to contain an exception for fences six feet in height or taller, but since the fence was indisputably shorter than six feet, Giller still controls.

For the toilet, an unsightly appearance or bad aesthetics alone does not constitute a private nuisance. The court will enforce homeowner’s association rules and contracts, but will not get into the business of judging aesthetics.

For the graffiti, it’s insignificant display is an annoyance but not a nuisance. The court found that it’s near invisibility from the yard, and the First Amendment freedom of expressing offensive ideas controlling.

Concurrences or Dissents: None.

Forms and deadlines

I mailed my Personal Health History and Immunization Record forms today. Both were due by July 31st, but no ill will come of my late delivery, as I confirmed by phone. I also confirmed that I successfully waived the health insurance fee. Working has its perks, namely a stable source of income and inexpensive, quality health insurance.

Santa Clara’s health center is called the Cowell Student Health Center. Stanford University used to have a Cowell health center as well, until it was renamed somewhat recently to Vaden.

This was the last deadline before activities pick up in mid-August in preparation for classes. I am very excited to be starting law classes. My experiences with law thus far have been limited to amateurish activities like reading opinions, law blogs, tracing through case law, and examining state and federal codes. I have read one or two textbooks on civil procedure, for which I blame my computer science background. After all, law is not so much theory as it is practice. The Supreme Court of the United States does not hesitate to avoid a difficult constitutional question by ruling on a procedural matter. “When hard questions of domestic relations are sure to affect the outcome, the prudent course is for the federal court to stay its hand rather than reach out to resolve a weighty question of federal constitutional law.” Elk Grove Unified School Dist. V. Newdow 542 U.S. 1, 17 (2004). Cases are won and lost in the courtroom.

I will try to mash in a computer science analogy here. Computers systems are ultimately about pushing bits around. At the lowest layer you have simple bit moving operations, with a little bit of logic, the assembly code. Computer scientists developed languages on top this simple language to express complex ideas in smaller amounts of space, and there are often multiple layers of abstraction between what the computer engineer writes and what actually happens in the machine. I think you can view the layers of law the same way. At the lowest layer you have the legal process. Without following a precise sequence of paper filings and procedure, you will be unable to prosecute your case. You must work within a system that is driven by constitutions and laws, defined more precisely by court precedent. With case law and history, bright legal minds elucidate legal theories to tie together series of cases to better predict how courts will respond to different circumstances.

But it always eventually comes back to the courtroom. Even the best legal theories fail when implemented poorly. Every programmer knows the experience of getting bitten by a bug caused by a misunderstanding of a lower layer of abstraction. It is no different than having your case go all the way to the Supreme Court of the United States but come crashing back down due to a procedural defect.

I hope that a familiarity with civil procedure will aid my understanding of the first year concepts. In a few weeks I will begin to experience contracts, torts, and criminal law.

Introductions

Hi. I am a software engineer and a Dean’s Fellow at Santa Clara University Law School. Classes start in three weeks, and I’m getting ready to start my first year of night school.