Bounty: There’s a New Indicator in Town — It's Ground
A number for rent so big explains so much and prepares us for much more.
December 23, 2018
"If all economists were laid end to end they would not reach a conclusion." - George Bernard Shaw, quasi-geonomist
You heard it here first. The worth of Earth in America is immense—far bigger than any economist or statistician previously suggested—plus supremely useful. Tell a friend.
The doubting Thomases in the economic arena may not now be believing Thomases, but at least some doubt has been sown into their doubt. It is possible to tabulate how much society spends for the nature it uses and the privileges it grants. How, exactly?
Forget land price and look at natural rents. Forget owners’ rental income and look at consumer and corporate spending. The figure we derived reached half of GDP (currently $20 trillion) annually: $5 t spent on land plus $5 t spent to reward privilege (Ch 37). Admittedly, there’re still gaps in the rent data. And the data, while official, are still ballpark figures. But the total does have shock value.
Many observers appreciate the effort to measure the value of nature and privilege—our readers here and those who helped along the way:
Others will welcome the news re the size:
Yet those pleased with the progress are still a minority, outnumbered by the unimpressed. Those who prefer that all matters rent be overlooked are vastly more powerful than the cozy niche who want the matter looked in to. The social class whom the efforts of gadflies annoy is shielded by its entourage of critics (Ch 12).
Some specialists and members of the lay public may be satisfied with official figures for other economic trends yet criticize our unofficial figure for the worth of non-labor / non-capital. They exercise a double standard. What statistic is above reproof? The rate of inflation is widely regarded as flawed, the percentage unemployed is highly politicized, GDP is exaggerated. Every quarter the BEA revises its releases, painting a less rosy picture, one that most miss, having missed the revision and seen only the original release.
When government releases its stats for GDP, inflation, and unemployment, officeholders don’t rush around rewriting their taxes and subsidies. At the peak of the business cycle, businesses whip up a feeding frenzy, ignoring warning signs. Yet those official stats need not run the gauntlet.
It’s hardly fair that more is asked of the measure of the surplus value that society generates. But what is fair when it comes to money? Our tabulated figure is as reliable as any other grand aggregate and better than most. However, as happy as we may be to have reached our original goal, we can not rest on our laurels. Let’s address the issues of realistic size and relevance.
Can rent really be so big? The critics who claim rent is insignificant deprive themselves of the answer to why humans foul their nest, inequality yawns cavernously, government grows obese, and the business cycle topples. As one wise man said, when a few things go wrong, look for individual causes but when many things go wrong, look for an underlying cause (Henry George). Here, the cause is the concentration of socially generated values. The size of rent does fit reality. Rent must be immense to explain so much.
Naturally, humans need to alter the environment, as do elephants and termites and many other species. Yet must that alteration be so ruinous to the health of humans and other species? Actually, no, neither pollution nor depletion is necessary. However, because humans spend so much to own or use land and resources, owners and investors do just about anything to steer that massive spending their way. And because rent, being generated by society, is something for nothing, it, to use the jargon, creates moral hazard.
The biggest sector in the GDP is FIRE, the biggest in that is housing, and half of housing is land. To capture that rent stream, business wins favors for sprawl. Another large sector is energy; again business wins favors for combustible fuels like oil that burn dirty over incessant power sources like sunlight that operate cleanly. Further, consumers buy a lot of food, including meat; ranchers win more favors than do organic gardeners while cattle trample stream banks and emit enough methane to alter the atmosphere. At the bottom of the eco-crisis is the insider’s relentless grasping for the vast flow of rent.
Counterbalancing all that, knowing Earth’s worth might make environmentalists into economic realists. It’s not rational of them to let land remain such a fat profit-maker and expect a law that “just-says-no” to development to succeed. To defend an ecosystem, your planet needs profit on its side.
Of course, some people, whether more talented or just lucky, earn more than others. Yet is the enormous gap a product of talent or luck or of successful rent seeking? Is it earned by applying labor or capital or by lobbying and donating? That the rich get richer and the poor poorer is not news. What is news is the nature of those swelling and accumulated riches.
What do the wealthy get? It’s not wages. Many of the truly rich don’t work while no group of jobs pays enough to account for the growing gap. It’s not interests, as Piketty became famous for claiming. Capital depreciates, as Piketty’s critics showed.
What does appreciate and account for inequality in both income and wealth is land as location and privileges, especially patents and copyrights dished out at way below market value. Land and privilege—created by neither labor nor capital—inflate in value faster than do any goods or services offered to consumers and investors.
People opposed to government—yet who manage to lobby or win office and control much of it—once promised to shrink government so much they could drown it in a bathtub. Since then, even with them at the helm, government has outgrown even a mammoth-sized hot tub. How can that be explained?
It stands to reason that as the economy grows so must government. Air traffic requires air traffic controllers, and so on. Yet such useful public services are not the functions of government that are expanding malignantly.
Presently, recipients of oil rent define much of US foreign policy, and the military is a huge and growing expense. Recipients of patent rent such as Bill Gates has his foundation redo teaching and ignore teachers’ benefits, a huge cost of schooling. And since progress increases the flow of rent, and since the present rules regarding the divvying up of rent increases inequality, and since inequality worsens health and crime, government spends ever greater amounts on addressing those two major symptoms of inequality. In sum, as grows rent, so grows government.
It’s expected that economies expand and recede with the seasons, with the sunspot cycle, and other natural periods. Yet should economies boom then bust, as now, or should they climb and glide, like an average rate of respiration?
What do postmortems on economic peaks reveal? What causes the fall in consumption and the rise in firings, bankruptcies, and foreclosures? It’s not that goods or services have become unaffordable but locations have. As their prices rise, buyers spend more on that asset that nobody created and less on the goods and services that their neighbors and compatriots produce, while owners burn through equity to keep abreast.
The heady climb of site values into the stratosphere finally reaches a point where a critical mass can not afford them. By then, gleeful developers and lenders will have overextended themselves. Then with debt too massive and customers too few, recession results—the booby prize terminating the mad dash for rents.
“Homebuyers will borrow the loans that we foreclose them with” is reminiscent of, “Capitalists will sell us the rope we hang them with,” by Lenin. While nooses have gone out of fashion, contract traps have not.
Like a Grand Unified Theory, fervent and relentless rent-grabbing explains what many disparate theories can not: e-collapse, inequality, gross government, and regular recessions. As the shiny lure which eggs on so many major economic behaviors, flowing rent must be immense, and is. Measuring it is immensely useful.
By tracking rent, forecasters can tell when society’s spending on assets never produced reaches a tipping point. That’s when spending on produced goods and services becomes too little to maintain sufficient exchange among economics actors. Then recession follows, regularly.
And recur recessions must as more people bid more money for the most desirable sites. During the upswing of the business cycle—the first 14 years of this 18-year cycle—land value mostly rises. Noting the rise, investors go all in. Not knowing this cycle, many lose fortunes. If they’re not a major player, government does not bail them out.
Already, some savvy firms sell accurate forecasts based on this land-price cycle—Hoyt in Florida and a couple in Australia are the ones I’ve found. Why don’t they all? Does it have something to do with rocking the economic boat?
Our top dogs have been king of the mountain for so long, it has gone to their heads. Recall, their hirelings referred to themselves as “masters of the universe”. How can owners of major assets not feel indestructible, their banks being too big to fail, getting bailed out with trillions of public dollars?
Whatever. With a reliable figure in hand, at least we nonspecialists can take advantage. Knowing what’s coming lets us safeguard our savings.
The point of an economy, of course, is output for people to dip into. The more goods and services flow, the more comfortably people can live. Surplus proves the perfection of production, making it a good indicator of economic health.
One definition of surplus is excess, an amount greater than necessity. Another way of looking at surplus is not so much as a quantity as a quality; that is, output due not to labor or capital but due to land or location (harkening back a couple centuries to David Ricardo, economist and winner at stocks). Hence how much people pay for land—created not by anyone’s labor or capital—is a surplus and the more rent flows, the more successful the economy has been.
Rent indicates economic health, better than GDP, which hones in on growth but ignores surplus. An even better indicator is leisure, society’s rational use of rent. The greater the leisure, the more equitable the sharing of the surplus.
As a visit to any city shows, many landowners keep highly valued parcels vacant. What happens on vacant lots? Nothing. Other than tossing trash and occasionally shooting up. But no one works on vacant lots. No one has invested in vacant lots.
The parts of cities where the poor go through their daily lives, that’s the parts where you see the most vacant lots. See vacant lot, see unemployment. See vacant lot, see unrealized profit. See vacant lot, see displaced development (sprawl). And sadness.
The greater the vacant lot’s value, the greater the loss to society. Compare the value of vacant lots to the value of absent improvements (zero). That difference is an indicator of sad tidings. Oceans have their dead zones due to pollution. So do economies have their dead zones due to a peculiar sort of social pollution—land speculation.
An indicator for wasted land, for economic bounty, and for coming conditions is knowledge society can put to good use. Everyone who helped this quest or got cited earlier gets these findings. That’s all readers, volunteers, helpful professionals, co-op sources, relayers/reporters, magazines, websites, foundations, politicians, activists, and businesses. Beyond them, the agencies who should be doing this. Beyond them, despite further concentrated media, all outlets—old print and e-media, using the most searched relevant words and visual memes for a press release. Finish with a TED talk.
Discovering this datum useful, users will want it updated, more precise. Gauging rent is not like measuring the speed of light (or of dark, Steven Wright notes) or the weight of the earth or anything fixed. As long as human populations keep growing, the worth of Earth continues to grow. Thus the figure for Earth’s worth is out-of-date one second after being calculated. To have an accurate number, one must constantly update it. Measuring economic phenomena means, like Sisyphus, you’re never finished.
The New York Stock Exchange, not far from the Fed, updates the prices of stocks every second, and somebody does bonds. The technology and correctible rough statistics exist to do nature and privilege. Society could have the stat for all rents every day.
With more investigative resources, one could hone in more exactly. To continually refresh the statistic, one could DIY. Could we be the caretakers of the mission forever? Follow in the footsteps of NBER, Lincoln, and Zillow? The latter two calculate land value, albeit for only home sites. Or, having blazed a trail, leave the responsibility for tracking all rents in as good hands as possible? Those who’d keep the effort alive until academia and officialdom take over.
Although now, as usual, “experts” lag behind the curious public, eventually they’ll come around, as they always do when out-numbered and out-enthused. Sensitive to popular pressure (number-crunchers are people too), and wishing to mollify the serious amateur, academics will both refine the methodology and update the ongoing measure.
Then the busywork of bureaucrats would become useful tabulation. Official statisticians constantly redefine their terms, and parse the numbers they collect in different ways. Since they make changes to suit other constituencies, why not accommodate geonomists? Some of the reports they issued in the past estimated a portion of rent. Those public agencies have what it takes to collect, collate, update, and publicize the size of our spending, en masse, for the parts of nature we use.
These agencies could make that datum a permanent part of their regular reports. That would institutionalize rent as an indicator, hopefully in a user-friendly form. Whenever the mood struck, you could find out how much your society spends on the nature it uses. You’d know your economy’s bounty, and what to expect next.
Better than preparing for the next recession, of course, is resisting them. Similarly, better than seeing underused land’s role in creating poverty is eliminating poverty. Some societies, with their eyes on this prize, redirected rents (Ch 39) and took strides toward both goals.
Now that we have calculated a total for how much we spend for the nature we use, the genie is out of the bottle. Obviously, this new statistic must threaten absentee owners and speculators. Gadflies, having met resistance from experts who toe the line drawn by the elite, wonder if there’s another shoe to drop. Are the elite down for the count? Or have we awakened a sleeping giant? Can their response shred our calculation?
This article is Part 38 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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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.