Up to My Own Best Guess, by Jeffery J. Smith

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

Going For It

We have enough data to try to make sense of them. Let’s take a shot at tallying the worth of Earth in America—all the money we spend for the nature we use, both land and resources. Official stats must at least be ballpark, right?

A statistician being fuzzy or a stat fudged doesn’t help matters. The signal that the business cycle sends out gets blurred. And the size of the surplus the economy generates gets totally buried. We who want to know enough to make our lives and our neighbors’ better off now have a much harder row to hoe.

Conversely, if we can measure it, you can see it, and “rents” become real.

Caveats

All the data below came for free. I didn’t buy a one. So, if there is a difference between statistics freely available and those kept in a lockbox somewhere, perhaps we’ll have the funds to find out later.

The interpretation of jargon, definitions, tables, and data is mine. While a goodly number of bureaucrats, economists, and statisticians were helpful, I didn’t pay any specialist for any guidance. Any errors will be mine alone—for now.

One of the surprises among many is that some of the authorities did not understand my question: how much do we spend for nature each year, from land to oil, including water, etc? What’s so hard about that? My question must be really far off the beaten path. And boy, is that path ever beaten. I assume that certain officials are capable of thinking inside the box only, not out. Inside, land is indelibly subsumed under capital.

Stats Gathered So Far

The land most people know is their yard. Land for housing totals much more than land put to any other use. Because everybody is so used to buying and selling everything—Earth, too—we assume that price is value. Even though actually, value is greater, including all a new owner must pay— interest, insurance, taxes. But since price is handier at the websites...

Houses

The public sector puts a price tag on the housing stock at $23.3t at the end of 2014 (Census), a year later at $25.3 t at 2015 Q4 (Federal Reserve). The private sector (Zillow) pegged it at $27.3 trillion at the end of 2014. By now, the Zillow total could easily be $28t (see Lincoln below). So who do you trust?

Using Census’ total for property tax receipts (which was over twice their figure for two years later; go figure) and property tax rate, the assessed price total for homes plus other structures was $34.2t in 2013. Well above Zillow and other public sector guess so it must include all buildings, not just homes.

The BEA puts Residences and Structures—presumably non-home buildings for commerce and industry (shops, stores, offices, factories)—at $42 trillion—a whopping $8t greater than the previous figure using Census numbers.

What’s Under Them

Of the combined property price for building and land, how much is land? It seems our work has been done for us, if you like the answer you get. The Lincoln Institute, using data from data sellers who get it from God knows where put the price tag for land under houses at $9t in 2015 Q3. That’s well under the 2006 total of $11.6t. They claim land’s share of overall property price declined from one half to one third. Well, at least three times nine yields $27t, quite close to extrapolating the Zillow figure above.

Officials and academics say that the price of a property is mainly for the structure, not for the location. But how can that be so?

Buildings age, need repairs (not known as “money pits” for nothing), and depreciate. Want to know the 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.

It’s the location that appreciates. 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.

Yet, for some reason, the so-called experts in the field say buildings dominate. That they’re worth what it would cost to replace them. Like your 1984 Toyota is worth a 2016 Toyota. Have the specialists never heard of BlueBook?

Most Americans live in cities, with more coming. And cities have magnitudes higher location values than the countryside. So almost all the increase in property value, except for the small portion of new buildings, is land value. Not a third. Not a half. Try 80%+ in really upscale areas. But high ratios give brains vertigo, so let’s use one half.

Compromise is nowhere near doing real science. A real scientist says the world is round, that space is flexible, time relative, and things too small for you to see make you sick and die. So I beg your indulgence. Fifty fifty is what here the ratio will be.

How Much is Land’s Share?

Lincoln at 2015 (a third), $9t

Dividing by half:

The Census at 2014, $23.t > $11.5t

Lincoln at 2006, $116t

The Fed at 2015, $25.3 > $12.65t

Zillow at 2014, $27.3 > $13.65t

The Census at 2013, $34.2t > $17.1t

The BEA at 2015, $42t > $21t

From Urban to Rural

The USDA lump sum for farmland was $2.6t in 2014. Most of that, of course, is fields and pastures, not buildings.

Moving from the big gorilla of private land to the little monkey of public land … A private researcher (and intern) put the price for all federal land at $5.5t in 2015.

A BEA researcher added public and private and got $23t in 2009. Yet he admits it was a best guess with gaps needing filling. Were any of the following left out?

From its one third of America, the BLM collected for us citizens $0.344t in 2014—not much. The Treasury tally is woefully less, only $0.1t in 2015. But they all add up. Hopefully, these streams were added in.

Did he include land owned by states, counties, cities, nonprofits? The roadways? They were over a third a trillion way back in 2002, and urban land abutting streets was over $7t. And what about water, another fraction of a trillion; was it included? And oil, ores, forests.

Further, his $23t was a year or so before the bottom. Home sites fell 40%, sites for other uses fell, too, albeit less. If the overall drop off was only 25%, then in 2016, when it’s said property has recovered, land alone should at least be $30t, probably higher.

From Lump Sums to Rents

For land, what we need to know is not lump sum price but our annual spending for locations and resources.

What’s the ratio between the two? HUD says the rent for all apartments (multi-family housing) is one tenth the price for all apartments. Quora figured we spend at least $2.72t on land. If the totals from Zillow, Lincoln, and the BEA come to $27t-$28t when Quora rounded up its data, the 10 to 1 ratio holds. And we can forget about calculating the tenth of the other, smaller lump sum prices above.

Quora said the data they found had gaps. Let’s try to plug them.

The BEA says that real estate captured $2.2t of our spending in 2014. Elsewhere, the BEA says for a roof over our heads and the utilities to service it we spent $2.2t in 2015. Go figure. The BLS says for housing we spent $2.3t in 2014. Whatever the amount, it’d have to be halved for land, down to 1/6th of household spending.

While we spend most of our household budget on housing by far, we also spend hefty amounts on food (eating in and out), utilities, and transportation. Paying for those things we indirectly pay for farmland, water, and fossil fuel. Those items would move the needle from 1/6th of consumer spending to 1/5th.

To corroborate that 1/5th figure, look at the GDP. The BEA has separate categories for FIRE (Finance, including mortgage interest, Insurance, and Real Estate), and Agriculture, and Energy, with FIRE being the biggest of all. Those sectors contain major amounts of rent. Those three sectors may easily be 40% of GDP, and rents 1/5th.

Indeed, no matter what we buy, there’s a rent component to it. Buy a new home and pay for logging a forest. Buy a new car and pay for mining a vein of iron. Pay taxes and get a park out of it. And we have yet to include other expenses like the airwaves. The rent component in all purchases likely moves the needle from 1/5th to 1/4th of spending in general, whether by consumers, business or government—overall a lot of money.

National spending is a bit over $16t, so one quarter is $4+t. That could be $1t more than one extrapolation of the BEA 2009 figure, but that figure had huge holes. Officials low-ball, leave out public land that’s not federal, private land that’s nonprofit, the full market value of water, of the EM spectrum, the amounts spent on dealing with environmental damage, etc.

So, spending over $4 trillion for land and resources is feasible. But it’s way, way off from the official figure. A trillion dollars may be small change for bureaucrats but it’s like Mt Everest for me.

Way Out of Sync

Did I succeed? Did I fail? Did something go wrong with the calculations?

The official figures were all over the place. If the so-called experts could make mistakes (calculated or not), I could be wrong, too. Right?

Officials provided figures for:

housing only as a combination of land and building;
that combination plus utilities, but not separate.
Official agencies in the same department defined
housing to be single family, or
that plus apartments, sometimes with public housing;
land could include mines or not;
private vs. public could be together or separate.
Some numbers come based on assessments, some on appraisals, some on sales, some on leases.
Some stats are current, some are years old, even decades old.
Some combine commercial and residential and leave out agricultural.
Sylvan, mineral, spectral come and go.

It’s a morass and this is just the tip of the iceberg; it gets worse.

What you can conclude is that, for the academics and bureaucrats compiling them, that jumble of tables is what’s important. Whether they have any accuracy or utility or insight does not matter. Doing a job that pays well and gets paid attention by the curious—since officials have a monopoly on both data and status—that’s what matters. The datum for Earth’s worth be damned.

It’s a pity, really. Not just because it frustrates anyone curious to know. But also because we lose key information.

Is Good News Knowledge?

After spending so much time down the rabbit hole of officialdom, I feel like I’m performing alchemy. Despite my insouciance, finding a sum that’s so much bigger than the best official guesstimate does make me feel a little insecure. Foolish, even.

Well, in for a penny, in for a pound. Check out what a big number for rents really means. Because it’s impossible for the brain to sense a trillion, look at it this way. $4.5 trillion is what the US Federal Reserve is worth, supposedly. Per capita—your share of $4+t as a registered voter in America—is about $2000 … every month. Or, about $25k per year … until land value rises again, pulling the per capita amount up with it.

If something seems too good to be true … can this be a mirage?

Trying to figure all this out is really not for the faint of heart. Some critics will pick it apart. But their critiques can’t rest on solid data, because they don’t exist.

Or do they? To whom else can we turn? As they say, follow the money. Who makes the most money off the Earth? Whoever those aristocrats may be—or may be represented by—let’s ask them.