A Biopsy on an Economy
It's not just that economies cannot help but create a surplus. It's also that that abundance creates a lack—if not properly treated.
January 5, 2016
Jeffery J. Smith
Activist

This article is part of a series by Jeffery J. Smith on the surplus—also known as “economic rent”—that exists in the economy. Currently, this surplus is hoarded; yet once shared, this surplus could generate undreamed of possibilities for the entire human population. To see the entire series, visit Progress.org/Counting-Surplus

The Feeling You Get When Paying the Rent

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 become more like any other world-class city, going car-free, setting up sidewalk cafes. Now with more shoppers (especially in the summer), the already sky-high values there have gone ballistic. Indeed, throughout much of the Big Apple, site values are in the stratosphere. Because where the most people want to live and work—in city centers—that’s where people pay the most to live and work. Densely populated New York, London, Tokyo, et al, all have the priceiest real estate on earth.

The astronomical sums some people pay to own or occupy prime locations dramatize a fundamental human blindspot—the money we spend for the nature we use. As a blindspot, it’s a mind-boggler. How do we not see trillions of dollars in the US economy? That’s by far the biggest stream in the GDP, bigger than either the payments to labor (mostly wages) or the payments to capital (to lenders and investors).

The astronomical sums some people pay to own or occupy prime locations dramatize a fundamental human blindspot—the money we spend for the nature we use. As a blindspot, it’s a mind-boggler. How do we not see trillions of dollars in the US economy? That’s by far the biggest stream in the GDP, bigger than either the payments to labor (mostly wages) or the payments to capital (to lenders and investors). (Labor and capital are the other two factors in production.)

We feel the same way paying for land as we do paying for anything else. I bet when slavery was customary, people felt no differently paying for a slave than they did paying for a stave (to whack the slave with). Yet we should feel differently. The two types of payments differ immensely in their consequences.

But we don’t. We feel the same way paying for land as we do paying for anything else. I bet when slavery was customary, people felt no differently paying for a slave than they did paying for a stave (to whack the slave with). Yet we should feel differently. The two types of payments differ immensely in their consequences.

Two Differing Payment Types

There are plenty of good reasons to feel something different when paying for land than when paying for, say, a car. When you buy or hire a car, part of that payment rewards labor (people who made it, delivered it, sold it, etc). When you pay for land, you never reward labor (nobody you know made the land unless you’re really, really old or very well connected). So as land grows more valuable, and your income does not keep up, then you have less money to spend on cars and other things that reward the labor of your neighbors. Over time, the imbalance becomes great enough that some of your neighbors declare bankruptcy and recession follows, with depressing regularity—and that regularity is yet another blindspot!

People make money by not using their land, etc, at all, while waiting for its value to rise. Even in Manhattan, where a parcel can make one a fabulous fortune, you see vacant lots, abandoned buildings, and under-utilized locations. Such waste of good urban land costs everyone else in the city in many ways.

Here’s another reason to feel differently about paying cold cash for earth. Because that payment stream is so immense, it attracts a lot of rational investors. Some of those investors and owners make money by putting nature to good use. Others make money by not using their land, etc, at all, while waiting for its value to rise. Even in Manhattan, where a parcel can make one a fabulous fortune, you see vacant lots, abandoned buildings, and under-utilized locations.

Such waste of good urban land costs everyone else in the city in many ways. Those eyesores do not foot their share of the bill for police and they displace businesses and residents to less central, less desirable locations, where fewer workers can be hired and smaller profits can be made. Indeed, vacant lots are so harmful to commerce that most are found pockmarking the poorest parts of town.

Green Leisure

Further, because we humans can not live without land and other resources (don’t even try), we pay a lot for these necessities of bare life and of civilized living. To be at the receiving end of that payment flow, some owners will do just about anything to Mother Earth in order to deliver natural goodies to needing humans. Anything. Including deplete and pollute. The more money to be made by wasting and leaving behind waste, the more some producers and consumers chew Earth at one end of the economy and spew toxins into the environment at the other. Although paying for land never rewards labor, it often rewards exploiting nature.

We should welcome more valuable land as a resource for us all, that could shorten our workweek, that could make the economy work for us instead of we for it. Some day.

Actually, we should feel good about paying for land. We should feel like we’re investing in a more comfortable lifestyle. We should welcome more valuable land as a resource for us all, that could shorten our workweek, that could make the economy work for us instead of we for it. Some day.

Let There Be Light

For now, remember that other blindspot? About the regularity of recessions and of other phases of the business cycle? It’s why economics is not a science. It’s a social study. Like sociology. Like history. Like mythology. It’s even less scientific than astrology, John Kenneth Galbraith joked.

For a field to belong to the noble endeavor of science, its practitioners must be able to predict. Economists can not predict. Ergo … one needs to turn to non-economists for reliable predictions, to researchers like Homer Hoyt, Fred Harrison, and Phil J. Anderson. They’re far more accurate than the Farmer’s Almanac is forecasting the weather, which in turn is far more accurate than mainstream economists (who, as the joke goes, have called eleven out of the last nine recessions).

Our esteemed Progress.org Senior Editor Fred Foldvary, when teaching at Santa Clara University, predicted the most recent recession about a decade in advance.

There are exceptions. Our esteemed Progress.org Senior Editor Fred Foldvary, when teaching at Santa Clara University, predicted the most recent recession about a decade in advance. Did he receive the ersatz “Nobel”? No, but two guys who did back in the 1990s nearly brought the financial house down by persuading the rich and powerful to invest in their hedge fund that went belly up. Sort of funny, isn’t it?

Geonomics

Let’s enjoy the irony and go where economists fear to tread. We’ll wade into the torrential flow of payments for locations like those in Manhattan and into the crawling creek of payments for land in the countryside. We’ll measure and watch as these payments create the rest of the economy in their turbulent fashion. Measuring makes rent real to the unaware. Knowing its size and nature may reveal its purpose.

We’ll go on an intellectual quest on par with the search for the Holy Grail, the Fountain of Youth, and the Lost City of Zanzibar (pick your favorite exotic location)—but better. This goal does exist—it’s"rent", or the money we spend for the nature we use.

“Somewhere, something incredible is waiting to be known.”
—Carl Sagan

As Carl Sagan said, “Somewhere, something incredible is waiting to be known.”

This article is part of a series by Jeffery J. Smith on the surplus—also known as “economic rent”—that exists in the economy. Currently, this surplus is hoarded; yet once shared, this surplus could generate undreamed of possibilities for the entire human population. To see the entire series, visit Progress.org/Counting-Surplus

Find Out More.
Inside information on economics, society, nature, and technology.
Jeffery J. Smith
Activist

JEFFERY J. SMITH published The Geonomist, which won a California GreenLight Award, has appeared in both the popular press (e.g.,TruthOut) and academic journals (e.g., USC's “Planning and Markets”), been interviewed on radio and TV, lobbied officials, testified before the Russian Duma, conducted research (e.g., for Portland's mass transit agency), and recruited activists and academics to Progress.org. A member of the International Society for Ecological Economics and of Mensa, he lives in Mexico. Jeffery formerly was Chief Editor at Progress.org.