"The 'machine'—incredibly complex, inscrutably intertwined—does something absolutely mundane, like making a piece of toast. As it turns out, that’s how the world works." ―Adam Felber, Schrödinger's Ball
Economics As If Answers Really Mattered
If rent counts, then how economies actually work differs from how currently explained. And count the worth of Earth in America must. Land is one of the three basic factors in production, along with labor and capital. How much we spend on the nature we use could equal, even exceed, our spending to hire labor or to borrow capital. If rent’s sizable, it’s also influential.
Since nobody’s effort ever produced land (duh), our spending for land and resources can never reward anyone for providing any labor or capital (duh-duh); payments to landowners are money for nothing. Not needed to motivate producers, rent’s also a surplus. Being unearned and an extra together make rent invisible.
Not seeing this surplus, we don’t know its role in production and distribution and remain foggy on the entire inner workings of economies. Not aware of the surplus, we don’t measure it. The flow of rent becomes the missing link in economics.
Lacking that stat, economists do what they can; they delve into minutiae, not into the paramount—spending for the never produced. Economists miss how economies work, why they sometimes don’t, and what to do it about. Meanwhile, people needlessly do without.
Josh Ryan-Collins, Toby Lloyd, and Laurie Macfarlane co-authored Rethinking the Economics of Land and Housing. They ask:
- Why isn’t location taught in modern economics?
- What is the relationship between land and the financial system?
- Why are “house” prices rising faster than incomes?
Those authors reveal how many major challenges facing us—including housing crises, financial instability, and growing inequality—are intimately tied to the land economy.
To clarify “housing”, note we say a home is spendy. Yet that price tag reflects less the building, more the location. It depends on the inherent, surrounding advantages, some natural, some social.
Where land is fertile, views breathtaking, mineral deposits thicker, harbors deeper …
Where society has infrastructure, honest citizens, user-friendly government, clean environment …
There people can earn more, not by working harder, nor by investing smarter (although those two can pay off, too), but merely by operating on a location with such advantages. Residents and businesses pay more for these advantages due not to owners but to nature and society.
Since 2009, Times Square—the heart of Manhattan, which is the heart of New York City, which is the heart of urban America (see the map gracing the cover of The New Yorker)—has gone car-free, setting up sidewalk cafes like other world-class cities. With more shoppers (especially in the summer), the already sky-high retail site values there have gone higher.
Throughout much of the Big Apple, site values are in the stratosphere. Where most people want to be—in city centers—that’s where people pay the most to live and work. New York, London, Tokyo, et al, all have the spendiest real estate on earth. The supply of prime locations can not be increased, so as population grows denser, their increased demand bids up what one must pay.
Someone must plug the gap with the missing stat—know that flow, and make economies transparent. By measuring rent, one makes it real, and once real, useful.
Tracking spending on land and resources enables one to forecast coming booms and busts reliably. Already some companies base accurate predictions on land prices. Yet despite their profiting, business lacks the authority of academia, despite their not being able to predict. Go figure.
Rent-trackers could delight society with news on the size of its surplus. Society could see the world differently—not one of scarcity but one of plenty. Residents might mull over what’s best to do with it. Would people redefine work and play? Feel more worthy of justice? See something so worthy—Earth—as deserving of being kept healthy?
Understanding economies, economists could forecast, report surpluses, plus offer corrective policies that are both rational and successful. Making sense, they could have grounds for being considered authorities. Economists could finally benefit society.
Authors Ryan-Collins, Lloyd, and Macfarlane urge politicians and economists to rethink rent. If they don’t, no worries; it’s outsiders who shift paradigms. Someone else could measure rent. Who are these renegades? Who seeks the missing link? Whoever does measure all natural assets, they could be in the running for the “alternative Nobel”, the Right Livelihood Prize.
Once the worth of Earth gains a footing, then mainstream economists’ll recognize it. Measuring surplus will become the new normal, and enjoy all the benefits conferred by normalcy bias. Once someone heeds the call.
This article is Part 7 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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