“I asked an economist for her phone number; she gave me an estimate.”
It’s a duty job, so somebody has to do it. Yet certainly not by an official obfuscater—one with a blindspot toward land and its value. Rather, whoever exposes what’s wrong with official statistics relevant to the worth of Earth in America must be a curious investigator—someone who has filled in that blindspot.
If you thought academic jargon (Ch 16) and official statistics (Ch 17) in general were tough-sledding, hang on to your hat. First of all, a total for the value of American land and resources does not exist. Not one public site, from local to federal, has a separate category for the total value of the nature we use. Second, the numbers for some parts of the natural world in use are misses, very distant misses.
Currently, too many people are hurt by this economy, no matter what phase it may be in. However, if we knew a total for how much we all together spend to occupy land, we’d have a good indicator for two crucial phenomena. We’d see how well the economy is doing, plus where the economy is headed. Economists could become scientists and issue accurate forecasts that people could plan by.
Thus economic actors—almost all of us—have a vested interest in learning this datum. Yet one learns something else. We discover statisticians and economists tabulate in ways that can never reveal this surplus—our spending on nature and privilege.
So our critiquing the relevant numbers out there is a duty—a service to society and a favor for economics.
The most telling fact is that there simply is no official figure for rents. Imagine that. An approximate stat for wages, yes—$6.3 trillion in 2015 (Number of Firms, Number of Establishments, Employment, and Annual Payroll by Enterprise Employment Size for the United States and States, Totals: 2015). An approximate stat for interests, yes—all US businesses grossed about $20 trillion in 2012 (total value of total sales, shipments, receipts, revenue, or business done). BTW, the tendency of economies based on the current definition of property to concentrate wealth continues apace. Now 30 US corporations—out of over three thousand—rake in half of all net (corporate profit).
But unlike capital and labor, officials give no approximate stat for the third factor, land, or Earth’s worth. Instead, a morass of surrogate numbers. Not only do those professionals lack a category for land alone, they bandy about many misleading labels for the profit from location. Further, the statistics that they do make public are woefully distorted.
These Numbers Count Something But What?
Our digging deep tells us the few economists who do try estimate the worth of Earth in America constitute a tiny, overlooked, inaudible minority. Two ambitious calculators were notable not for reaching a reliable total but for not being as far off as all the others. One public researcher—Larson—took a stab at the grand total and found $23 trillion; one private website—Lincoln—calculates land based on home sales and updates it on an ongoing basis. We turned up a third—Albouy—who turned up $30 trillion but that left out the trillions for non-metro land. While something is better than nothing, those three are the exceptions (Ch 13).
While grateful for the exceptions, the rule is another matter. Right off the bat, to get to the meaning of the numbers, one must decipher packaging. Official tables are not transparent, what with jargony labels and sometimes without any labels at all. Nor are they consistent across agencies.
Is the problem with amateur laypeople, not the official statisticians? Are all matters economic better left to the experts? Driving away us riffraff, is that the official rationale behind the present figures that are incompressible and irrelevant?
Eventually one finds and deciphers the tables, but why should one have to? The public pays for the gathering of the figures. The paid gatherers should present their findings in a format as accessible as possible.
Beyond appearance is content. The statistics you do find for the total value of land and resources …
• come based on assessments or appraisals of lump-sum sales, not ongoing leases;
• may combine commercial and residential and leave out agricultural;
• may include sylvan, mineral, spectral—or not;
• tally together private and public—or not;
* miss elements such as roadways, port districts, airport landings slots, the value of marina slips, etc.
* are not centralized or standardized but are scattered across many agencies, both public and private, and in language that is not only obtuse but contradictory from one agency to another; they don’t use the same meanings for the same terms; and
* worst of all, don’t give just land but the values of land and buildings combined.
Most tabulators of the total value of land—more precisely, of surface locations—based their attempts on the price of housing. Yet the worth of Earth is far greater than the value of just the land beneath a home. Downtown is where site values spike.
Some game economists try to ferret out the value of land from the combined value of property. These economists claim the value of buildings far outweighs the value of the location. How do they rationalize that? These economists don’t subtract the value of the house as is. Instead, they subtract the “replacement” value, the value of that house as if it were brand new.
Their method is like saying the value of a driveway with a junker resting on cinder blocks is not the value of the driveway by itself; instead, it equals the value of both combined minus the value of a brand new Camry parked on it. The remainder would be their value of the parking space. Those specialists could use a BlueBook for used houses.
Buildings age, need repairs; they’re not known as “money pits” for nothing. In a word, they depreciate. Locations, on the other hand, become popular and more densely settled. In a word, they appreciate. As when new people move into the area—like high-paid techies into San Francisco, or sold-out Californians into Oregon. The pushed-up property values are pure land value, nothing to do with aging buildings.
In the business press, one can read the occasional article reminding the lay public that location absorbs purchasing power. Hence land is vastly more valuable than buildings. One article found this obvious yet invisible fact in the 10 most popular US cities.
Want to know the actual worth of your home? Put it on a 30 foot wide trailer and drag it around town, see what offers you get. That’s built value. Subtract that from the combined value. Your remainder will the value of the location. Or, if insisting upon using the method of replacement cost, use the replacement cost of the land. Use a fraction of the $142+ trillions that Costanza tabulated for the world’s ecosystems.
From local tabulators to federal … The "incomparable John Rutledge" in his "Total Assets of the US Economy $188 Trillion, 13.4xGDP" notes that the Federal Reserve Board furnishes balance sheets for non-financial assets covering several sectors of the economy. Yet the Fed does not include the value of land and non-produced assets held by financial corporations and government. Moreover, owners do not directly report the value of their land. This gap between concept and measurement biases figures downward. The link to this article on his website no longer works but in a private email John estimates the 2017 total to exceed $300 trillion; a portion of that is land price.
All the above statistical noise makes a great hiding place for rent. And after a while, they can quit even pretending to tabulate it. Rather than calculate accurately, the Fed quit calculating rent at all, notes the OECD.
These Counters With Their New Math
Contact an authoritative voice: the Census Bureau (public) or the Federal Reserve (private).
At first, the “experts” are flattered that a lay person asks, takes their field seriously. But soon an investigator’s determination to pry an answer out of them begins to seem a fixation. Their recourse is never rudeness; instead, it’s stonewalling. “Nothing to see here, move along.”
One of the surprises among many is that authorities did not understand my question: How much do we spend for the nature we use each year, from land to oil, including water, etc? Such curiosity must be far off the beaten, conventional path.
And boy, is their path ever beaten. Mainstream officials are capable of thinking inside the box only, not outside. Inside, land is totally obscured, indelibly subsumed under capital. Conventional bureaucrats suggest, If you want to see something relevant, look at what stats we do trot out!
Most US assessment offices don’t separate the values of human-made improvements (which tend to depreciate) and the values of nature-made locations (which tend to appreciate). In Oregon, some county assessor offices toss into the circular file their original assessments that separated the values of land and buildings. And being officials, the way they do things is the way that becomes Standard Operating Procedure.
The public bureaucrat might have an excuse. The federal ones get their numbers from the local ones. And since localities do not tax locations separate from improvements, they do not need to know land value for fiscal reasons.
Outside of political pressure, what’s so hard about keeping track of the money that society spends on the nature it uses? Actually, not that much. As for any difficulty of separating the values of land and buildings, the difficult is not the impossible. And how hard is it, really? Redevelopers who buy property to tear down the extant building and erect a new one, they separate the value of the location from the value of the improvement upon it all the time. For them, the task is simple.
Some assessors offices do much better. British Columbia, whose office was set up by geonomists Mason Gaffney, emeritus UC-Riverside, and his protege Ted Gwartney, former assessor for several jurisdictions and Chief Appraiser for Bank of America, is so well-known for precise assessments that professionals come from all over the world to be trained or hone their skills in rainy BC. Americans could reach for the higher Canadian standard.
I look with longing at firepower of all those American public agencies cranking out reams of numbers that don’t draw a picture but muddy the waters. Imagine if all those staffs were directed to measure the essentials. It’d be so easy for them to calculate the worth of Earth.
There are tons of numbers to use. Each year in the US, there are hundreds of thousands of transactions for land, resources, electromagnetic spectrum, etc. There are sales, leases, sublets, auctions, plus taxes levied on those natural assets, not to mention interest paid on the land portion of mortgages.
With computers, the county assessor’s office could easily update all records of all parcels in an area every time one of them sells or leases. While accuracy would be great, at this point we can make do with a ballpark figure. Heck, none of their other stats are precise, yet they keep cranking them out and passing them off as “data”, as if they were milliseconds or parts per billion.
Casting Pearls Before Swains of Data
Those officials who collect the figures have neglected rent for as long as they have been collecting figures. Similarly, economists have mislaid land for so long, today’s cloistered practitioners fail to see the non-human factor’s relevance. If land does not count to economists, why would statisticians count its value?
Economists do not demand relevant and accurate data, and public servants do not supply them. Instead, both make excuses for each other. “Determining the value of land is difficult.” And, “Such a stat offers little utility anyway.”
It’s like economists go out of their way to issue under-sized values for land or locations. And hardly anyone cares. Yet if the local pub barkeep served residents shots so shaved, I bet then the public would be up in arms. Have we set the bar (no pun intended) too high? No, American official statisticians have set the bar way too low.
The official gap in data for land and rent blinds people. Anyone tackling official statistics logically concludes that the items that officials do not count don’t matter, and the items counted do. Due in part to this negligence, natural values and occupied land have become invisible to the normal, modern naked eye.
Official distortion of society’s spending for land and resources is a problem we can not ignore. Despite missing much rent, academics go ahead and publish “scholarly” underestimates. More than have guesstimates, we need specialists to know how economies operate, to make accurate predictions. Researchers need to know the size and fluctuations of that spending stream. How else can they do science?
By now, this official trivializing of rents has bred indifference among conventional economists. For them, society’s spending for one of the three factors in production—land—does not matter. The vast majority of economists simply do not care how much or how little is its value (locations, natural resources, EM spectrum, et al).
Professionals who should know better don’t see the difference between assets made by humans and those not. Established economists can not see how our spending for assets not created by labor drives the business cycle. Those guys stay the course of downplaying the role of land and payments for land. Or, if you can stand the pun, they stay the curse.
“A sketchy small number for rent is safe while a realistic large number is controversial.”
When bureaucrats and academics put forth a number, if they put forth one, it’s much lower than what’s logical, typically lower than how much private business calculates. For them, a sketchy small number for rent is safe while a realistic large number is controversial. However, less really is less. Society loses the measure of natural surplus and the indicator of economic swings.
Perhaps academics and bureaucrats don’t see how one spending stream rewards privilege and others do not. However, it’s more likely they do see the elite being benefited, and that’s the problem. Curiosity gives way to caution.
Appraisers—being in the employ of realtors—usually round estimates up, as jacked-up appraisals tend to inflame speculators. Furthermore, nearby sellers and buyers do not always convey the exact price to the assessor’s office. Sometimes they shave it to lower tax repercussions.
Statisticians operate under political pressure. When they exaggerate the value of the improvement, they do the property owner a favor, since buildings depreciate and the owner can depreciate the amount from their income tax liability. And when they understate the value of the location, they do land speculators a favor, since a negligible number hides this socially generated value. Such distortions do not go unnoticed by appreciative insiders. Conversely, accuracy brings attention of the unwanted kind, putting one’s career on the line.
Hence the prevailing political tide carries official figures away from accuracy, yet to a degree statisticians are innocent. The laws in some states put caps and limits on property taxes and thus force down the official estimates. Maybe someone's keeping the good data private somewhere for well-connected insiders.
And even the politicians are innocent, since they’re obeying the will of voters, and the most consistent bloc of voters are homeowners, most of whom are equal parts land speculators.
While both right and left economists do well keeping themselves out of poverty, how well have they performed lifting others out of poverty? Or prevented large swaths of the middle class from falling into poverty when economies shrink and no mainstream economist warned the trusting public? They’re not doing science but serving their masters, the few recipients of the vast flows of rents.
Whether intending to or not, without received orders being made explicit, both number-crunchers and academics have become guardians of the status quo. Or of the main rival ideology—any of the various leftisms which likewise overlook land, limiting themselves to the usual labor versus capital. Leftists reinforce the industrial paradigm and likewise miss the organic nature of economies.
Those statisticians who once may have had professional pride, their having to toe such a partial, biased line, it makes me feel a little sorry for them. Do they feel embarrassed to be dishing out such distortions rather than the best data? To be the butt of jokes? (e.g., somebody who rescues statistics that can’t lie for themselves).
Yet even if there is pressure, researchers in other fields do science even when opposed. Communist economists have happy careers in academia. Evolutionary biologists, harangued by religious myth makers, tell their truth. Why can’t mainstream economists and statisticians?
Lay Down the Gauntlet
Academics and bureaucrats fail to tally the worth of local Earth, to make the ever-changing number public, and keep quiet about what stage the business cycle is in. Controlling the flow of information is a way to censor and to marginalize those who seek answers. Doing that impoverishes culture, since knowing and understanding how one’s world works is a huge part of any culture.
Deep inside, economists probably want to become scientists, or they would not suffer from physics envy.
Perhaps it requires a controversy—an innocent proclaiming the emperor wears no clothes—to raise the bar, to motivate the discipline, to spur reform.
Most likely, number-crunchers won’t budge until economists working on forecasts ask for more relevant stats. Our job, the job of this book, is to raise the bar, to raise our expectations, and to remind them—no hard feelings—but science has always been a back and forth between old and new theories, and between researcher and skeptical public.
How will criticized gatekeepers react to an outsider laying down the gauntlet? Continue to cave? Or find the chutzpah to ferret out facts? We can’t answer for all gadflies. But we can relate our own experience.
This article is Part 18 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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