] On Behalf Of Patrikios
Sent: Wednesday, May 04, 2005 5:14 AM
Subject: [architect_planners] The Town Planner and the Economist
THE TOWN PLANNER AND THE ECONOMIST
A Comedy in One Scene
by Gavin R. Putland
The TOWN PLANNER
Other Wise Men (non-speaking).
[There is no action. On radio, the Other Wise Men are not
needed. On stage, the actors playing the Other Wise Men
need not know the script.]
Scene: A throne room.
The king, the town planner, the economist, other wise men.
[Enter NARRATOR to one side, in front of closed curtain.]
NARRATOR: Once upon a time, in a land far away, there was a
city so beautiful and so prosperous that all who heard
of it wanted to dwell therein. So people came to the
city from all over that land and from many other lands,
bringing their cars with them. Thus the city grew and
grew, till the roads of that city were choked, and the
people thereof spent almost as much time driving as
working. Moreover, the multitude of cars filled the air
with smog, which made the people ill.
When the king of that land looked upon the city and
heard from the people thereof, he was grieved. So he
summoned his wise men, and took counsel on what should
[Curtain begins to open.]
KING: Speak freely...
NARRATOR: ...said the king.
KING: I shall listen and decide.
[Curtain continues to open.]
NARRATOR: The first to answer was a town planner. [Exit.]
TOWN PLANNER: We need buses, my liege. A small bus
replaces ten or fifteen cars; a large one replaces
twenty or forty cars. Wherefore, let large buses carry
passengers on the most-used roads, and let smaller buses
carry passengers on the more numerous, less-used roads
that branch off the most-used roads. As the most
popular destinations would be connected by the large
buses, a typical journey within the city would involve
only two buses, and none would involve more than four.
The delays caused by stopping and changing of buses
would be much less than those now caused by congested
roads. Furthermore, when commuting by bus, Your
Majesty's subjects could use their travel time for
reading, which they cannot do when commuting by car.
KING: It is good that the buses would use the existing
roads. But, how would my subjects pay for the buses and
bus stops, and the maintenance thereof, and the wages of
the drivers? [Pause.] What says my economist?
ECONOMIST: User pays, Your Majesty! Let the city be
divided into zones, and let each passenger pay a fare
depending on the number of zones traversed by the
journey, but not on the number of buses used.
TOWN PLANNER: Sire, I beg to differ on two counts. First,
if the cost be defrayed solely by fares, the fares will
high, so patronage will be low, so bus services will be
infrequent, which will further discourage patronage. So
the people will scorn the buses and keep using their
cars. Second, the benefit of the bus service, as
measured by the market, will be the total price that
people are willing pay for access to the service, net of
fares; that is, it will be the increase in property
values in areas serviced by the buses, and in areas
serviced by alternative routes from which traffic is
drawn away by the buses. The fortunate property owners
will be beneficiaries even if they are not users, while
users who are not property owners will pay twice -- once
through their fares and once through their rents. So
"user pays", as Your Majesty's economist puts it, is
unjust in that some beneficiaries escape payment,
wherefore the users must pay too much; hence the low
patronage to which I have already referred. Therefore,
I counsel, let the buses be free of fares -- except
perhaps during times of peak demand, in order to
encourage travel at other times -- and let the cost of
the bus service be defrayed by an annual tax on the
uplift in property values, so that Your Majesty's
subjects will contribute in proportion to the benefits
received. Not "user pays", but "beneficiary pays".
ECONOMIST: That's an outrage, Sire! It would compel Your
Majesty's subjects to pay for the bus service whether
they use it or not!
TOWN PLANNER: Only if they be beneficiaries, my liege.
Besides, if they pay for the service whether they use it
or not, they might as well use it! That is the choice
that they must be given in order to coax them out of
ECONOMIST: But property owners will be ruined, Sire!
Widows will be forced out of their homes because they
will be unable to pay the taxes!
KING: Property owners "ruined" because their properties
increase in value? Interesting concept! [Pause.]
Surely much depends on how the tax is related to the
uplift in value.
TOWN PLANNER [bowing his head]: Indeed, my liege. If the
annual tax on each property be proportional to the
increase in the market value of the property since the
tax was introduced, then the tax does not rise unless
the market value rises, and the market value does not
rise unless, in the judgment of the market, the owner is
better off in spite of the additional tax. Moreover,
the tax pays for public services which contribute to the
uplift in the property value, and which would not
otherwise be provided. In short, the owner cannot lose.
The specter of the widow being forced out of her home is
conjured up because some home owners allegedly cannot
pay the tax, due to insufficient cash flow. I note in
passing that cash flow has never deterred home owners
from borrowing against rising property values in order
to purchase cars, yachts, plasma television sets,
overseas vacations, et cetera. But, if the owners find
it utterly unacceptable to pay for a bus service in the
same manner, I counsel that they may defer their tax
until their homes are sold or bequeathed.
ECONOMIST: Iniquitous, Your Majesty! Then the heirs will
inherit a tax debt!
TOWN PLANNER: Sire, the tax debt could easily be limited to
the uplift in the property value, or to the value of the
bare land, thus ensuring that the heirs are still
fortunate by comparison with those who never inherit any
property. That said, I am sure that Your Majesty now
knows who first conjured up the image of the poor widow,
KING: Indeed. Even so, I fear that there is no purpose,
other than war, that will persuade the people to look
kindly on yet another tax.
TOWN PLANNER [bowing again]: And with that, my liege raises
another advantage of a tax on uplifts in property
values, namely that such a tax need not be "yet another
tax", but can replace any number of existing taxes.
Under the simplest implementation of this kind of
property tax, the taxable value is subject to a
threshold equal to the value of the property at the time
when the tax was first applied. This threshold is
personalized in the sense that it varies from one
property to another; but the various thresholds remain
attached to their respective properties as those
properties are traded. So, to replace a set of existing
taxes, one simply reduces the threshold for each
property until the increase in property tax compensates
for the abolition of other taxes paid by the present
owner. As usual, the property is subsequently sold or
bequeathed with the threshold attached.
KING [contemplating]: I see that reducing the number of
taxes would be popular, because it would mean less
paperwork for all my subjects. And I see that no one
would pay more tax than before, unless he received a
greater benefit through increases in property values.
In short, I perceive that all of my subjects would be
winners, and none would be losers.
ECONOMIST: Unfortunately, Sire, the town planner's scheme
is full of holes. For one thing, there is no guarantee
that the tax receipts from rising property values will
cover the cost of the bus service.
TOWN PLANNER: Your Majesty, I readily concede that no
public utility, whether it is a bus service or anything
else, should proceed unless it passes a cost-benefit
test. The benefit, net of fares and other "user-pays"
charges, is the increase in property values in the
serviced areas. This must exceed the cost, again net of
"user-pays" charges. In other words, the "uplift
factor" -- that is, the ratio of the increase in
property values to the cost of the project -- must be
greater than one. Now there is a simple equation
relating the uplift factor, the real interest rate, and
the minimum tax rate required to pay for the project out
of the increase in property values. The equation shows
that a project cannot be funded in this manner if its
uplift factor be less than or equal to one, but can
always be funded in this manner if its uplift factor be
greater than one. The implication is that any project
that passes a cost-benefit test can be funded by taxing
the increase in property values.
ECONOMIST: But, my liege, the tax receipts will be an
annuity, while much of the cost will be a lump-sum.
TOWN PLANNER: As Your Majesty's economist will undoubtedly
confirm, a lump-sum cost can be converted to an annuity
by borrowing, and the equation to which I referred
already accounts for the interest. In summary, if a
project cannot be funded by the mechanism that I
propose, it should not proceed at all.
ECONOMIST: But the mechanism is outrageous, my liege! It
forces property owners to pay for benefits to which they
have not agreed. Would your Majesty's law of contracts
ever recognize such an obligation?
TOWN PLANNER: Sire, the two defining features of taxation
are that the obligation to pay is imposed unilaterally,
not contractually, and that the payer does not decide
the purpose for which the revenue is spent.
ECONOMIST: But when Your Majesty imposes taxes on items of
everyday consumption, at least the people can avoid the
taxes by not consuming those items.
KING: I was not aware that I imposed taxes in order that
the people might avoid them! [Pause.] Besides, can one
not more easily avoid the tax on a property by selling
TOWN PLANNER: Yes, Your Majesty, but with one important
difference. When a site subject to taxation is sold,
someone else pays the tax. The revenue is not lost.
KING [wide-eyed]: A wonderfully simple insight! [Pause.]
Nevertheless, my economist apparently thinks it were
better to subsidize the bus service by increasing
consumption taxes than by taxing uplifts in property
ECONOMIST: If indeed the bus service must be subsidized:
yes, my liege.
KING: So those of my subjects whose homes are least favored
by the bus service must still pay the full increase in
consumption taxes. For what do they pay?
ECONOMIST: For a fair chance that their homes would have
been well favored by the bus service, Sire.
KING: And those whose homes are most favored will get
ECONOMIST: Not exactly "unearned", Sire. Given perfect
competition, zero transaction costs, zero information
costs, rational expectations, and efficient capital
markets, the chance of getting the windfall will have
been fairly compensated in the historical cost of
acquisition of each property.
KING: And if the windfall does not eventuate?
ECONOMIST: Then, my liege, the chance of not getting the
windfall will have been fairly compensated in the
historical cost of acquisition of each property.
KING: But how can it be said that the winners and the
losers are both treated fairly? Should we not rather
say that the winners have an unfair advantage, or the
losers have an unfair disadvantage, or both?
ECONOMIST [importunately]: Not if they are winners and
losers in a fair gamble, Sire.
KING: [Pause.] I see. And what of those who rent their
homes? As they own no property whose value can be
enhanced by the bus service, and as they will pay higher
rents if the locations in which they live be favored by
the service, why must they pay higher consumption taxes
ECONOMIST: ...They may be owners some day, my liege.
TOWN PLANNER: In which case, Your Majesty, the bus service
will increase the prices of their new homes, so they
will pay for the service yet again. Subsidizing the
service by raising consumption taxes would also be
inconsistent with the economist's professed reluctance
to make the people pay for a service whether they use it
or not, or whether they agree to it or not. But in his
defense, I must concede that he never actually agreed
that the service should be subsidized.
ECONOMIST: Indeed I did not and do not, Sire.
KING [placated]: Very well: how would my economist
encourage patronage of the bus service -- without
subsidizing it, and without taxing anyone who does not
use it or professes not to desire it?
ECONOMIST: By a PPP, Sire -- that is, a Public-Private
KING: The name suggests that the public sector provides the
service while the private sector receives the benefit
through the uplift in property values and covers the
cost by giving back part of the uplift through the tax
system. Presumably that is not what you had in mind.
ECONOMIST: Er... no, my liege. Rather, I envisage that a
private principal contractor will BOOT the project,
where BOOT is an acronym for Build, Own, Operate and
Transfer -- that is, build the system, own it and
operate it for a period of, say, 40 years, and then
transfer it to the State without compensation. At the
end of the period, the State gets the system at no cost
to the Royal Treasury.
KING: That scheme is certainly enticing for the Royal
Treasury. But how does the engagement of a "private
principal contractor" encourage the people to use the
ECONOMIST: With lower fares, my liege.
KING: And why would fares be lower?
ECONOMIST: Private employers absolve Your Majesty of any
responsibility for the wages and conditions of workers,
so the workers can be paid less. Private contractors
also dissociate Your Majesty from the quality of
equipment and service, allowing the quality to be merely
adequate -- not, as we say, "gold-plated".
TOWN PLANNER: To the contrary, Sire, the public sector can
borrow at lower interest than the private sector, and
does not need to make a profit -- let alone pay
dividends or tax therefrom. But the private sector's
savings on wages and gold-plating are apparently so
great that they prevail. Moreover, while it may seem
that a private contractor must charge higher fares in
order to recover its investment within the limited term
of ownership, this is compensated because the contractor
can neglect maintenance during the last few years of
that term, then transfer the system in a run-down
condition. Thus the economist may be right. But even
if he is, it does not follow that the fares would be so
low as to coax the people out of their cars.
ECONOMIST: Sire, I take issue with the assertion that the
public sector can borrow at lower interest. The private
sector can borrow at equally low interest with the
benefit of a public guarantee. That is the public part
of the public-private partnership.
KING: But did you not say that the BOOT arrangement avoids
ECONOMIST: A guarantee is not in itself an expense, my
liege, but merely the risk of an expense. And the risk
can be reduced virtually to zero by protecting the
principal contractor from competition during the term of
private ownership. For example, in the case of a bus
service, there would be no permitted competition from
new railways or tramways.
KING: Ah, yes -- another public contribution to the
partnership for the benefit of the private partner!
Then perhaps my economist can explain this: If public
ownership of an asset were bad during the proposed term
of a BOOT contract, why is it good after the term
ECONOMIST: Because... uh...
KING: Speak, varlet!
ECONOMIST: Because by then the asset may have become a
liability, my liege.
TOWN PLANNER: Sire, if I may intercede for the learned
economist, his opinions have necessarily concerned the
funding of a bus service, because he has never been
asked whether he would recommend a bus service in the
KING: And would he?
ECONOMIST: No, my liege, indeed I would not.
KING: Then what would you recommend?
ECONOMIST: Tollways, Your Majesty: multi-laned motorways
with minimal bends and fast speed limits, passing over
or under existing streets, linked thereto by entry and
exit ramps, and funded by tolls. Of course the tolls
would be recorded electronically in order not to impede
traffic flow. The tollways would handle huge volumes of
traffic and would divert long-distance traffic from
KING: Why would not the tolls discourage use of the new
motorways, thus defeating their purpose?
ECONOMIST: The tolls would be minimized... uh...
KING: By BOOT contracts?
ECONOMIST [hesitant]: Yes, my liege.
KING: And in order to protect the principal contractor's
investment, the State would be prevented from
constructing alternative routes for the duration of the
ECONOMIST: Precisely, Sire.
KING: Changing the subject, I fear that the motorways would
encourage more use of cars, hence more smog. How would
you avoid that?
ECONOMIST [relieved]: Oh! With tradeable emission rights,
Your Majesty. Let each existing car owner be issued
with a license to emit smog, and let the licenses be
tradeable but fixed in number. As the demand for
transport rises, the licenses will rise in price and
will be held by those to whom the transport is worth the
most. That is the most efficient allocation.
KING: So those who emitted smog in the past are rewarded
with a license to keep doing it, while those who
refrained are punished by denying them a license? Why,
this is a marvel! I have sat in judgment on so many
robbers, and not one of them ever argued in his defense
that having lived by robbery in the past, he had thereby
acquired a license to keep robbing. I sentenced another
of those worthies only yesterday. He would have engaged
you instead instead of his lawyer, had he kept his head
while all about him were losing theirs!
ECONOMIST [smiling and bowing]: Moreover, Sire, emission
rights can be purchased in order to suppress emissions.
KING: A pretty paradox! Who would buy a right to emit, in
order not to emit?
ECONOMIST: The emission rights market is rather like the
land market, my liege. Just as the ownership of a piece
of land does not oblige one to use the land, so the
ownership of an emission right does not oblige one to
emit. Just as the people can stop the opening of a
bawdy-house in their suburb by purchasing the site of
the proposed bawdy-house, so they can stop other people
from emitting by purchasing their rights to emit.
KING: And thereby purchase their own rights to breathe
clean air. Ingenious! But what befalls them if they
cannot afford to purchase the emission rights?
ECONOMIST: Then they can rent the rights, my liege. Or
they can breathe smog. The choice is theirs. That is
the democracy of the market!
KING: The what?
[Curtain begins to close.]
ECONOMIST [with a long crescendo]: Democracy, Sire. One
dollar: one vote. Compare this with the dictatorial,
paternalistic approach of the town planner, who would
impose clean air, uncluttered streets and efficient
transport on all Your Majesty's subjects whether they
want it or not, and then pay for it by snatching back
some of the alleged benefit thereof!
[Enter NARRATOR in front of curtain.]
NARRATOR: The king had the economist beheaded, and they all
lived happily ever after. [Exit.]
Copyright (c) 2004 Prosper Australia
Author: Gavin R. Putland (http://grputland.com)
Permission is given to forward, copy, publish and perform
this work for non-commercial purposes, provided that the
work remains intact and includes this copyright notice.
All other rights reserved.
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