“First enjoy, last do what works.” “What are priorities?”
Culling All Solutions
Serious issues confront humanity: loss of farmland, loss of drinking water, fouled air, cancer epidemic, obesity, unaffordable healthcare, unaffordable housing, exhaustion of the employed, low self-worth for the under-employed, disappearing jobs, income lagging behind inflation, indebted governments and college grads, endless wars for resources—not to mention awful daytime television (still). You can easily add to the list. Many scientists say these issues will reach their tipping points within our lifetimes.
Seeing these challenges as crises has kicked millions of people into gear. They want to save the world and save it now. However, how they’re going about it is like a wild goose chase, with little recognition of any underlying cause. Focused on their surface solution to their chosen problem, they’ve not peeled the onion. Their vision has not penetrated to the fundamental flaw.
Yet when many things go wrong, they typically have one root cause, noted Henry George long ago. As problems proliferate, solutions pare down to just one—money for nothing. Thanks to locations acting like geysers, a few lucky owners, lenders, and investors reap extra profit without adding extra value. How they go about capturing that rent, that’s what creates the problems downstream that the concerned are familiar with.
There is one issue that is totally indifferent to anyone’s political beliefs—our economies’ assault on Earth’s ecosystems. Lately climate change gets the publicity and may merit it, but global baking is actually one assault among many. Consider the background noise teaching children to tune out, making adults in constant denial the norm.
Then every breath taken, every drink gulped, every morsel eaten is to some degree toxic—unless we buy bottled water and organic produce. Yet it’s hard to avoid the sluggish traffic jam, escape the smudged horizon, and breathe cleanly, deeply.
Machines’ exhausts cause allergies, asthma, and autism. Farm runoffs and discarded medicines poison the water table. The toxins intentionally lathered upon cultivated food, the acid rain, plastic, and garbage choke the oceans, devastating fisheries and the production of oxygen. Some power plants and weapons tests add to background radiation which mutates living cells.
Modern economies pollute merely as a byproduct but pollute profusely; already two of five will catch caner and the rate keeps rising. Modern economies deplete in step with population growth; of course development gobbles farmland, construction destroys forests, factory farming erodes topsoil and expands deserts; those three developments together endanger species and drive essential links in the food chain into extinction. Future hunger looms over the shoulder of modern obesity.
Environmental pollution—from filthy air to contaminated water—is killing more people every year than all war and violence in the world. More than smoking, hunger or natural disasters. More than AIDS, tuberculosis and malaria combined. The number of people killed by pollution is undoubtedly higher and will be better quantified once more research is done (same story for the worth of Earth).
If you think you can live with a dying planet and feel that only money matters, the financial cost from pollution-related death, sickness, and welfare is some $4.6 trillion in annual losses—or about 6.2% of the global economy.
It’s not that humans want to foul their nest. A fouled nest is just a byproduct of humans grasping for some of the worth of Earth. Because payments for land total so much, they attract lots of rational investors. A few of those investors and owners make money by putting nature to good use—selective logging, organic gardening, etc. Most make money by putting nature to bad use—clear-cutting, aquifer-draining, etc.
So long as humans profit whether using or abusing land, the health of the planet must worsen. Singly or together, these environmental issues are closing in on their tipping points, putting civilization on the brink of e-collapse. Afterwards, you would not want to be anywhere near the surface of the earth.
Just in time, governments may make polluters and depleters pay. Having to pay, businesses and residents would pollute and deplete less to avoid charges. Government could collect Ecology Security Deposits, require Restoration Insurance, auction off Emission Permits, mulct violators of standards with Realistic Fines, etc. To do any of these, government must first know the market value of locations in use. That’s our cue.
Housing Out of Reach
Some people, even rich ones, spend 40% or 50% or more of their income for a home (the kind sitting on land, unlike dirigibles). Some lower income workers double up yet still sacrifice too much on shelter. Meanwhile, zero-wage beggars do without lodging.
While they call it a “housing crisis”, that’s superficial observation. It’s actually a location, location, location crisis. Housing ages and wears out; it depreciates. It’s the land underneath that appreciates. What newcomers to enticing areas are willing to pay dearly for is less the building, more the climate (California) and/or culture (Portland).
You can blame progress at the cutting-edge, giving raises to its workers, endowing them with the wherewithal to bestow upon the land beneath desirable homes. In other words, words of a pair of academics writing for the Federal Reserve’s New England Public Policy Center, “inelastic land supply in some attractive locations, combined with the growing number of high-income families nationally, can partially explain the growing differences in house prices and incomes among cities."
Those who flee spendy sites create a ripple effect, making other places unaffordable for residents there. People who can’t afford to live in San Francisco and Boston, etc, settle in Portland and Buffalo. There location values rise, displacing people to Boise and Harrisburg. When people move out, they take their “effective demand” (jargon) with them. That is, they relocate their land values from their old locales to their new ones, padding values there. Hot spots like the coastal cities radiate rent that warms up formerly cool spots.
Not just beyond hot cities but also within a city do newcomers raise the rent. For instance, the artistic element turns a warehouse district into a hip, cool district. Their caché attracts new residents with deeper pockets. Artists can’t afford higher rents so they resettle elsewhere. It’s like bees swarming from an old nest to a new, buildable site. (Was the trigger also speculator bees bidding up site values in the old hives?)
Those who move out leave behind old friends, neighbors, nearby family, and coworkers, stretching—even severing—those ties. Those who stay put then deal with not just higher housing expenses and property taxes but new neighbors and an altered character of their neighborhood, too. Yet citizens and cities both are better off when communities are stable.
The McKinsey Global Institute found that, by spending so much of their incomes on the rent or mortgage, households spend not enough on consumer goods. Besides not stimulating others to produce, add in shortage of affordable housing, inflating its price. Mal-housing costs the economy between $143 billion and $233 billion annually, not taking into account second-order costs to health, education and the environment.
When land is exorbitant, of course it’s not profitable to put affordable housing on it. Nor is it affordable for many to pay the higher property taxes. Remaining residents respond with tax caps, requirements to build affordable housing, tax breaks for developers, etc. Ironically, the effort to pay less to government means paying more to sellers. Speculators simply raise prices, absorbing any tax savings. Look at California after Prop 13 and the states that followed suit—site costs are out of sight.
While capping the property tax does not work, shifting the property tax does. Places that have shifted the tax’s target from building to land have more affordable housing. During the two decades that Pittsburgh did this, they were named America’s Most Livable City twice, in part for their outstandingly affordable housing. To solve the housing crunch, policymakers must correct the tax that penalizes improvers and rewards speculators.
A handful of housing advocates have learned that neighborhoods drawing an influx is a good problem to have—swelling land values is a windfall. Take a page from the playbook of Aspen CO. In that ritzy, mountain-high ski resort, where vacant lots sell for well over $10 million dollars, the waiters, merchants, and even realtors could no longer afford to live. And the wealthy were not too pleased by the loss of workers to wait on them. So, without encountering too much opposition, the local government treated the largesse as common wealth; they sliced off a tiny sliver of that spending on land—the greatest portion of the price tag for housing—and used the revenue to help working families stay in town. Even doctors earning six figures qualified for housing assistance.
If other jurisdictions had a solid figure for the value of their locations, residents would know how much revenue might be available for housing help.
With automation performing more jobs each day, many humans are worried. Most of them qualify for income only by performing a job. When jobs disappear, so does their income. So they propose to conjure jobs, even if they’re not productive but merely conformist, like bureaucratic desk work. What a way to waste a human life!
Ironically, at the same time the desperate beg for jobs, their politicians tax them. Taxing wages makes hiring workers more expensive, so firms don’t. Conversely, de-taxing jobs increases job opportunity—albeit by itself not enough for everyone wanting one.
With taxes, another job-block is speculation in land. Some investors and owners make money by not using their land but by waiting to sell (or lease) it at a higher value. Even in Manhattan, where a parcel can make one a fabulous fortune, you see vacant lots, abandoned buildings, and under-utilized locations. What happens on a vacant lot? Nothing, at least in the way of work. Take a bird’s eye view. Where the city is pock-marked by vacant lots—slums—that’s where unemployment is endemic.
Those eyesores, when located downtown, displace businesses and residents to less central, less desirable locations. There companies make less money, hire fewer workers, and pay lower wages. And wherever they are, vacant lots attract crime but do not foot their share of the bill for police and fire. These unwanted results of vacant lots—along with the argument that society generates land value—are more reasons to tap rent to benefit society.
The IMF (International Monetary Fund) notes that having to pay some sort of land dues, owners put their vacant lots to good use, which requires hiring people. Afterwards, using the new structures requires hiring people, too. Further, where employment rises, so do wages. Furthermore, where wages rise, so does location value. Were it measured, policymakers would know its potential to do good.
People called the last major downturn a crisis, forgot about it, yet will call the next one a catastrophe, a true depression. The Kondratieff Wave could be a factor, but definitely the bailout. Last recession, the Treasury and the Federal Reserve created vaults of money by issuing it—$29 trillion—to big banks and big business, domestic and foreign. Those elite insiders used it to buy assets—stocks, bonds, and real estate—which bids up their price, putting them out of reach of most people.
As long as speculators bid up the price of land beyond what most can afford, the US economy must recede on a regular basis. As people spend more for never-produced land, they spend less for the goods and services their neighbors produce. As producers sell less, they hire less. After a while they must fire people. In the words of three academics writing for the Federal Reserve, “in the Great Recession … the collapse in the housing market was followed by a sharp rise of unemployment.” And the unemployed don’t make the best of consumers. Nearly the entire economy recedes. The recession lasts until loan defaults knock land costs back down again (for a while).
You could see it coming—as did the geonomists—if you tracked the fluctuations in the flow of money that society spends for the nature it uses (Ch 28).
With land et al being out of reach, with nothing to fall back on, the next recession will crush more people.
Many people accept hard times as natural events, like droughts, that human ingenuity can not deter. OTOH, various thinkers propose various solutions, mainly focused on banks. However, for a solution to succeed it must address the two kinds of spending, the one that rewards production versus the one that rewards rent-seeking. Attend to that sine qua non, then the business cycle will no longer boom and bust but climb and glide.
Uncle Sam Bankrupt
The US debarks the fourth most tourists (70m), unloading dollars abroad. Further, nations with high inflation hold many dollars in reserve; places like Ecuador even use it for their national currency. With those two escape valves, the Federal Reserve’s over-issuing of new dollars inflates domestic prices by about 3% (officially). That still doubles prices in 25-30 years. However, it’s too slow for most people to notice.
Meanwhile, the private debt of citizens is also enormous. Most of that debt is mortgage, and a good half of mortgage is land value. Credit cards were second. Now it’s student debt—$1.5t; while the laws lets governments declare bankruptcy, it prevents students from doing the same. Facing few well-paying jobs, future generations could stay in debt their entire lifetimes. Lifelong debts must make it look like older generations pulled up the ladder.
The third big bookkeeping category—corporations—are also in debt—$29t (coincidentally, the same amount as the bailouts). Often they borrow to grow, pay it back, and write off the interest payments. (Did bankers have a hand in lobbying for that loophole, too?) Without that money-saving write-off, businesses would borrow less, and the overall economy would not be saddled with so much debt.
But tax deductions don’t do much good when there’s not much income to deduct from, and there’s not much during recessions.
During recessions, people demand help from government, but can not pay as many taxes. So governments sink even deeper into debt. At some point, just as Detroit did, the US must go bankrupt. To pay its debt it will devalue the dollar relative to other currencies, just as the UK did with the pound. Then others will abandon the dollar, flooding the US with its own money, driving inflation out of sight.
If the US is to skirt that scenario, it must peel the onion down to its core. Become bold enough to confront speculation in land, which inflates the cost of borrowing. If we knew the value of land, that would put a spotlight on speculation.
1%—Out of Control
While economies can not help but create a surplus society wide, enclosing that abundance creates a dearth in some pockets. The few who get rent use it in ways that constrict supply and exacerbate demand. They buy up (thus bid up) assets and under-utilize prime sites. With higher prices and lower wages, many people can not afford to own assets, such as a home. Homeownership has fallen and stock ownership never was a majority past time. Both behaviors drain away the wealth of the majority, making them more vulnerable. It widens the wealth and income gaps which slows economic growth, and increases poverty.
Inequality—it’s unimaginable. A few get so much that they could not spend it all in several lifetimes of ultra luxurious living. Meanwhile, others barely scrape by. Beyond the purely material dimension, concentrating so much wealth and income in the hands of so few is bad for everyone in many ways. Even people who’re not poor feel like losers. Unequal societies are less happy than equal ones.
The more disconnected from others one feels, the less they care about others, and feel comfortable committing all sorts of anti-social behaviors. The current occupant of the White House may be an outlier but most of the 1% share his aloofness. The insensitivity of the privileged crosses party lines. While conservatives might oppose safety for employees at work, liberals might not hear the poor oppose public housing because they, the poor, don’t want their offspring trapped in it generation after generation.
Expect the next recession to create more losers and winners, further shrinking the anxious middle class, expanding the lower class, while making more aloof the upper class. Perhaps it’s the nature of democracies to devolve back into aristocracies in a feudal society. Then America stops being a predominantly middle class society. That means losing its democracy. Losing its environmental movement. Losing its rapprochement between the classes. How many recessions away is America from morphing into something like George Orwell’s 1984?
It’s ironic, happening now, as other big nations are growing their middle class—China, India, Russia, Brazil. Just give those trends enough time—ours shrinking, theirs expanding. Then no way America can remain the flagship nation among global powers.
While another world war is not pending, all the smaller wars that the US has confined itself to are troublesome. So are the black budget and the armed planet. The more a nation knows inequality, the more belligerent it behaves. OTOH, the smaller the gap between nations and between classes, the more peaceful the nation. And rent, once counted, could become a bigger pie for society, better divided.
Crisis = Opportunity? At All?
Nowadays, even middle-class residents spend over half their income on the housing (that sits on desirable sites). In most US cities, downtowns are pockmarked by vacant lots that, if developed, could hire hundreds of workers. And in Louisiana and other cancer alleys, pollution greatly suppresses land value.
How much worse can it get? How much more can the tattered social contract tolerate? How much more can the ravaged global ecosystem endure? While such trends seem to move at a glacial pace from the perspective of the individual, when they reach their tipping point, the collapse comes quick—as did the USSR. By then it will be way too late to take the relatively easier steps of prevention versus the arduous steps of cure.
Wannabe reformers have much bigger fish to fry than tallying rent. And boy, are those fish ever getting fried! Like generals believing they know how to win the last war, the left tries to rein in business, the right tries to rein in government. “The definition of insanity is doing the same thing over and over again and expecting a different result.” — supposedly Einstein--an admirer of proto-genomics--but more likely from a 12 Step Program.
Environmental organizations, trying to stave off ecollapse, are not necessarily stuck in that old industrial era conflict of boss versus worker. Yet most are like economists in keeping “neutral”. Property is so controversial that they don’t touch it. Further, many environmentalists are already homeowners, which is to say beneficiaries of site values going bonkers. Overlooking the linkage between Earth’s worth and Earth’s health is in their self-interest, too. They, too, turn a blind eye to the link of reward-to-ruin—the role of rent in driving eco-ploitation—and confine themselves to “just say no” to despoilation.
People interested in new ideas and old problems try to solve these problems without addressing the basic motive—possessing rents. You can see how that’s worked out. So who’s really rearranging deck chairs on the Titanic? We gadflies or wannabe saviors who studiously ignore the worth of Earth in America? If our business-as-usual is to be altered in planet-saving ways—and in time—a critical mass must become cognizant of the role of rent.
This article is Part 29 of a series highlighting the forthcoming book, “Bounty Hunter: a gadfly’s quest to know the worth of Earth,” by Jeffery J. Smith. To date, the experts have not risen to meet the challenge. Indeed, some have even stood in the way. Yet the payoff for knowing this datum is huge.
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