The Real State is Real Estate

One intractable and widespread blindspot is the popular belief that the state and the elite are separate entities. Only on the surface. And even there, the elite and state cell-divided only a few centuries ago. The slogan of “government for the people, by the people, of the people” is quite modern and true more in word than deed. Who gets laws passed? Who gets to violate them with impunity? Who gets bailed out? Who gets a foreign policy serving their interests? Who contributes the most to campaigns, besides the foundations and universities?

When subsidizing the Nobel committee or endowing an Ivy League university, how do the rich deliver that fat check? Electronically? Via a minion in an office? In person at a fancy dinner party? What are the intimate details of how the real world works? Rarely is it face to face. The truly aristocratic rich do not have jobs; they have people for that.

Funding academics is half of a two-prong approach. Funding politicians is the other. The two tactics together stack the deck against anyone uncovering the worth of Earth.

Who outranks whom? Whoever pays the most. Endowed with a torrential income of rents, the landed elite contribute mightily to lobbying and political campaigns. Those present recipients of rents have gone to great lengths to remain rentiers.

Between 2007 and 2012, 200 of America’s most politically active corporations spent a combined $5.8 billion on federal lobbying and campaign contributions.

Wealthy donors, comprising less than .01 percent of the population, accounted for 40% of all political contributions in 2012. All those donors could fit inside a baseball stadium. Over 93% of SuperPAC money came from just 3,318 donors; 59% of it came from just 159 people.

Policies supported by economic elites became law 60% to 70% of the time. Policies supported by business lobbies became law 60% to 70% of the time. (Often these were the same policies.) Policies favored by a majority became law only 30% of the time and only if the economic elite or business lobbies (or both) also supported them. “The opinions of the bottom 90% of income earners in America have a statistically non-significant impact.”

Of the 200 companies analyzed for Fixed Fortunes:

• ‍7 in transportation, which includes road-building and that takes valuable land;
• ‍11 are in oil and ores, etc, whose profits largely are rents;
• ‍13 do weaponry, used to control others’ resources and sea lanes;
• ‍13 do agribusinesses, obviously on farmland;
• ‍21 do healthcare, whose high cost is due in part to ruining land and environment;
• ‍28 do communications and electronics, which includes some utilities; and, ta-da,
• ‍48 are in finance, insurance and real estate. FIRE is consistently the largest source of campaign funds for federal politicians cycle after cycle. One payoff was the bailout of trillions and trillions of dollars.

For their contributions, the 200 corporations received 760 times as much subsidy—$4.4 trillion in federal business and support. That’s more than the $4.3 trillion the federal government paid the nation’s 50 million Social Security recipients over the same period. The $4.4 trillion total represents two-thirds of the $6.5 trillion that individual taxpayers paid into the federal treasury.

Over 85% of the 200 corporations won subsidies from state and local governments, too.

The industries who spent the most to milk the US over 10 years (not five) in billions:

• Agribusiness, which takes place on farmland—$1.21;
• Weapons, which defends rentiers—$1.26;
• Drug companies, whose customers often suffer from land abuse—$2.16;
• Fossil fuels, a kind of land—$2.93;
• Communications, utilizing utilities in land—$3.50;
• and the usual kingpin,
• Finance, or mortgages, basically—$4.29.

In the latest ranking, FIRE still comes in first, by a long shot. If you add natural resources and farmland, plus the rent components of all the other sectors, it’s no contest. Rentiers dominate overwhelmingly.

No other component of the ruling elite donates as much to electoral campaigns as do the recipients of ground rent. In local election campaigns, the real estate lobby contributes the most. In federal election campaigns, FIRE contribute the most.

Silence Is Gold-ridden—The Spoils of the Spoiled

The gentry contribute mightily and in exchange receive mighty favors worth beaucoup billions. Routine favors include subsidies. In bedroom communities, each new house costs the taxpayer $25,000 to finance the new roads, sewers, schools, etc. And downtown, the landowners there do not cover the cost of improvements to the infrastructure, or compensate neighbors for the loss of direct sunlight, etc.

Instead of pay taxes, the gentry win tax loopholes—deductions, depreciations, deferments, exemptions, etc. Such tax breaks not only enable the favored donors to keep rents rather than pay them to the public treasury. They also inflate the price of locations, further enriching sellers, developers, and lenders.

Some call those tax breaks “tax subsidies”. Over half of them go to FIRE, utilities, broadcast spectrum, and Big Oil. Agri-business gets huge actual subsidies plus is excused the cost of their toxic chemicals contaminating others downstream and downwind. Mining corporations, the same story. Loggers, same thing. 

When commerce slows and threatens big business with bankruptcy, politicians favor insiders with real subsidies, the best they can offer: bailouts. After the last recession, the bailout of banks et al by government—accepting the Federal Reserve at its word that it’s part of the government (not to mention that global banks are underwritten by governments, mainly the US)—was almost $30 trillion. Not just to banks but also other Big Business, not just to domestic firms but foreign ones as well got bailed out.

The holders of public office determine public budgets. Their legislation funds the bureaucracies who hire statisticians. Besides no one in economics requesting a measurement of rents from any bureaucrat, no one in authority is putting the tabulating of rents in a bureaucrat’s job description. So there is no official figure. The officials who collect statistics have neglected rent for as long as they have been collecting statistics—and likely will until economists feel the urge to become scientists.

Turning from the executive branch to the judicial, the first Chief Justice of the US Supreme Court, John Jay, said, “Those who own the country ought to govern it.” Some of the most famous decisions by the Supreme Court favored land speculators. Justices ruled …

• 1785, land contracts based on fraud were valid;
• 1880s, railroads did not have to return unused land to Congress;
• 1880s, railroad land tax-exempt from any jurisdiction;
• 1895, after progressives shifted taxes from tariffs to income—largely the rent for land held by the top 10%—tariffs may go but taxes on rents may not come;
• 1900s, tabled cases filed by the first Chief Forester Gifford Pinchot, since they could have set off enough litigation to throw the entire West into turmoil;
• 1987, Nollan v. California Coastal Commission, sided with a developer to block an ocean view;
• 1992, Nordlinger v. Hahn, upheld the constitutionality of California’s Proposition 13; and
• 1994, Dolan v. Tigard, sided with an owner to build on a riverbank;

Despite their hegemony, the gentry remain vigilant to any potential threats. When the Soviet Union collapsed, the cutting-edge Soviet economists invited some big name American economists to come over and tell them all about non-left, non-right, third-way economics, centered on a proper social role for the flow of rents. Fred Harrison wrote in Land & Liberty, the US State Department invited each professor to stay home instead; all of them acquiesced.

Imagine if Russia did not dissolve into cutthroat capitalism but adopted geonomics and showed the world how to thrive. I know, it looked scary to the 1%, too. By misguiding the new “democratic” government, the US elite dodged a bullet.

How is anyone supposed to hear about any of this? With all that money coming in, the current recipients of those rent streams can not operate in total obscurity. Yet you must learn of their shenanigans in pages such as these.

A small number of corporations (themselves owned in leveraging amounts by billionaires) own the biggest broadcast networks, both radio and TV, and get to use the airwaves—which are public property—for free. If ABC News and CNN ever agree to merge, they’d reduce the number of independently owned national television news outlets from five to four. A new network has little chance of getting off the ground without agreements from Comcast and AOL Time Warner to carry it. The two companies serve about half of all cable households. With a handful of companies deciding all programming, many points of view are underrepresented. And they own the biggest circulation newspapers. They own the media which frame mainstream worldview.

To paraphrase Lenny Bruce, “We, the media, don’t have to tell you, we’re a monopoly.” Just as a small number of banks dominate mortgages. And a small number of owners in general own most of all valuable assets. And the same 1% dominate government and academia, so do they master the media that keep land and rent invisible to the naive eye.

Lucky Gentry

Worried that a critical mass will put two and two together, and determined to keep that rental income coming in, rentiers exercise their power to keep society in the dark. They fund the entire sphere of respectable research, keep politicians in their hip pocket, and buy up the media. By setting the agenda, they consign unearned income to obscurity. 

By controlling so much, have wannabe masters of the universe (as some Wall Street speculators dubbed themselves) over-played their hand? Hardly. Despite needing to tighten their belts, the poor are not rioting. Despite needing to pop their pills, the middle class are not voting socialist. The gentry could just enjoy the irony—many people who could be inspired by the size of the worth of Earth are not curious to know the statistic.

Despite their strength and the public’s blindspots, rentiers are defensive. Even if the masses do not understand what’s happening to them, the elite do. They know “rent” is a stream of spending that, as Bloomberg's Noah Smith notes, drives a way wide wedge between those comfy and those struggling.

Since favoritism plays a large role in amassing wealth, hard work and wise investment must play a diminished role. And since the customary understanding of property plays a role, profit from merely owning land or lending to buy land is basically a windfall. Ergo, the very rich do not entirely earn their fortunes; they benefit from law and custom. Hence the wealthy do worry.

What might spell disaster for rent retainers is simple innate human curiosity, made itchy by hard times. People are aware of recessions, sensitive to losing their jobs, and a bit grouchy after being foreclosed from their homes. Eventually a few must put two and two together. That could only increase demand for measuring our spending on land, resources, and other assets never created by anyone. Anything worth hiding by the few must also be worth knowing by the many, eh?

Having read the articles in the popular press, let’s peel off that layer and look at the articles in academic journals. Then target the public agencies who should dish out answers for free and the private enterprises who could deliver stats that are precise. We‘ll uncover the rents that rentiers have covered up, and unearth (pardon the pun) the stories that they bury.

This article is Part 12 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.