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FW: [architect_planners] The Town Planner and the Economist

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  • Lakshmi Guruvayurappan
    ... From: architect_planners@yahoogroups.com [mailto:architect_planners@yahoogroups.com] On Behalf Of Patrikios Sent: Wednesday, May 04, 2005 5:14 AM To:
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      -----Original Message-----
      From: architect_planners@yahoogroups.com
      [mailto:architect_planners@yahoogroups.com] On Behalf Of Patrikios
      Sent: Wednesday, May 04, 2005 5:14 AM
      To: midwesturbanplanningsocialsciencesociety@yahoogroups.com
      Subject: [architect_planners] The Town Planner and the Economist

      A Comedy in One Scene
      by Gavin R. Putland


      The NARRATOR
      The KING
      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
      be done.

      [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
      their cars.

      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,
      and why.

      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
      the property?

      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
      unearned windfalls?

      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
      as well?

      ECONOMIST: Because...

      KING: Yes?!

      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
      public expense?

      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
      first place.

      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
      existing roads.

      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.]

      The End.

      Copyright (c) 2004 Prosper Australia
      (http://prosper.org.au, http://earthsharing.org.au).
      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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