There’s No Going Back, We Can Only Go Forward

Posted on April 28, 2020 by Reid Mukai

Photo by by Adam Brummett

By Charles Hugh Smith

What I see is a global collapse of intangible capital that is invisible to most people.

It’s only natural that the conventional expectation is a return to the pre-pandemic world is just a matter of time. Whether it’s three months or six months or 18 months, “the good old days” will return just as if we turned back the clock.

I think the situation is much more akin to being injured. Since I worked for decades in construction, I’ve had numerous potentially serious injuries, including slipping off roofs, being perched on ladders that fell, my finger sliced open by a steel stud, high winds peeling a heavy sheet of plywood off a stack and sending it flying into me, etc.

Immediately after impact, your first instinct is to assess how badly you’re injured. Of course we all hope we’re not seriously hurt, but the initial adrenaline-fueled relief can be misleading: we might have suffered internal injuries that we can’t feel.

That’s the global situation: we want to assure ourselves the injury is minor and we’ll be back on our feet in no time, but I think the financial-economic injuries are severe and to some branches of global capital and labor, fatal.

Those in power around the world crave one thing above all else: control. If you can’t control the situation and key assets, then what good is your supposed power? If you can’t control the situation and key assets, your power is illusory.

Those in power cannot completely control the forces unleashed by the pandemic. The tide has turned, and everyone trying to return their corner of the world to its pre-pandemic conditions is swimming against the tide–or shoveling sand against the tide, if you prefer that analogy. In either case, they will exhaust themselves and the tide will continue on, regardless of their titanic efforts to print money and maintain control of their populaces.

In my recent book, Will You Be Richer or Poorer?: Profit, Power, and AI in a Traumatized World, I focused on intangible capital, which includes all the forms of capital that cannot be commoditized and purchased for cash like goods and services. Intangible capital includes social capital, social stability, a diverse, resilient local economy and control of one’s own capital.

What I see is a global collapse of intangible capital that is invisible to most people. This includes confidence, trust in institutions and a complacent sense that the tide is carrying us all to greater prosperity.

The tide has reversed, and the key dynamics are income, net worth and costs. As I explained in The New (Forced) Frugality (March 28, 2020), incomes are falling and will continue to fall. Since income is the foundation of asset valuations, asset values will also fall. This will reverse the “wealth effect” that supported the enormous increases in spending and borrowing globally.

When our net worth is rising, we feel wealthier and are more likely to borrow and spend more, confident that our rising wealth will support the debt and higher expenditures. When our assets are declining in value, we feel poorer and are less likely to borrow and spend.

Income is fragile and prone to instant decay, while costs are extremely resistant to declines.

Consider stock valuations: the core driver is profit, which is revenues minus costs. As revenues drop and costs rise, profits vanish literally overnight. That sudden erosion of profits is global, and it will affect companies previously perceived as bulletproof. Facebook and Google depend on advertising, and with the global economy in free-fall, what’s the point in wasting scarce cash on marketing? Essentially no one needs a $1,000 iPhone or a $40,000 Tesla. Aspirational spending is as fragile as income.

Consider real estate: commercial real estate is based on the income generated by enterprises renting space. If businesses fold or stop paying rent, the value of the property falls accordingly.

Even residential real estate is intimately connected to income: as household incomes plummet, the number of potential buyers plummets, too. Institutional buyers of houses base the value on rental income, just like commercial property. As household income plummets, fewer people can afford sky-high rents, and so supply exceeds demand and rents will fall accordingly.

Consider bonds: the value of any bond, government or corporate, is based on the yield paid to the owner. While the general expectation is that yields will fall to zero because central banks are buying bonds, this may be less of a guarantee than generally assumed. The volume of bonds being issued may well exceed central bank buying, and yields (and interest rates) will rise despite central bank intervention.

The world depends on expanding debt to pay for government services and private-sector spending. Debt is also dependent on income; lenders who issue loans to households and enterprises with faltering income are very likely to lose money as these marginal borrowers default.

As income falls, lending dries up, as lenders cannot afford to risk making loans to people and businesses that are practically guaranteed to default. This is especially true for borrowers who are already burdened by existing debts.

As incomes decline, asset values decline and borrowing dries up. Once borrowing dries up, spending dries up, and enterprises and governments must cut payrolls by any means available: don’t replace retiring employees, cut wages and benefits, and eliminate overtime and bonuses.

As stock values fall, so do the value of employee stock options–another example of the reverse wealth effect.

Meanwhile, costs will continue rising as cash-strapped governments eventually seek more tax revenues and supply-chain shocks lead to higher prices.

We cannot go back to the pre-pandemic side of the river of time, and it’s dangerous to focus on returning to a time that has already been lost. We cannot go back, we can only go forward.

The Wealth Hiding in Your Neighborhood

Posted on November 21, 2018 by Reid Mukai

From country farmland to big city skyscrapers, absentee billionaires may be hiding wealth in your town — and driving up your cost of living.

By Chuck Collins

Source: OtherWords

The rich are hiding trillions in wealth.

You’ve probably heard about their offshore bank accounts, shell corporations, and fancy trusts. But this wealth isn’t all sitting in the Cayman Islands or Panama. Much of it’s hiding in plain view: maybe even in your town.

America’s big cities are increasingly dotted with luxury skyscrapers and mansions. These multi-million dollar condos are wealth storage lockers, with the ownership often obscured by shell companies.

In Boston, where I live, there’s a luxury building boom. According to a study I just co-authored, out of 1,805 luxury units — with an average price of over $3 million — more than two-thirds are owned by people who don’t live here.

One-third are owned by shell companies and trusts that mask their ownership. And of these units, 40 percent are limited liability companies (LLCs) organized in Delaware.

Why Delaware?

Criminals around the world set up their shell companies in Delaware, the premiere secrecy jurisdiction in the United States — where you don’t have to disclose who the real owners are. As a result, human traffickers, drug smugglers, and tax evaders all enjoy the anonymous cover of a Delaware company.

Many of these companies use illicit funds to purchase real estate in North American cities to launder their ill-gotten money.

In New York City, dozens of luxury towers have been connected to global money laundering. In Vancouver, Chinese investors disrupted the city’s housing market so badly that the province of British Columbia established a foreign investor tax and a tax on vacant properties.

With European countries now insisting on more transparency, illicit cash is now cascading into the United States. In fact, the U.S. is now the world’s second-biggest tax haven and secrecy jurisdiction, after Switzerland.

The U.S. Treasury Department’s Financial Crimes Enforcement Network (FinCEN) has increased its scrutiny over real estate markets in Miami, New York, and parts of California, Texas, and Hawaii.

But that just makes the rest of the country more attractive for secret cash — even far from big cities. In a small Vermont town, I met a Russian investor who lives in Dubai. He was buying up thousands of acres of Green Mountain farmland.

Our communities are being fundamentally transformed by land grabs and luxury building booms. These drive up the cost of land in central neighborhoods, with ripple impacts throughout a community. And this worsens the already grotesque inequalities of income, wealth, and opportunity.

Our communities should defend themselves.

Property ownership should have to pass the “fishing license” or “library card” test. In most communities, to get a library card or a fishing license, you need to prove who you are and where you actually live.

In Boston, they’re pretty strict — you need to show a utility bill with your name on it. Cities should require the same for real estate purchases.

At a national level, bi-partisan legislation from Senators Marco Rubio and Sheldon Whitehouse would require real estate owners to be disclosed when buyers use shell corporations and pay millions in cash. That would be a welcome development.

Better still, cities should tax luxury real estate transactions on properties selling for over $2 million to fund local services. Such a tax in San Francisco generated $44 million last year that’s been used to fund free community college and help the city’s neglected trees.

Communities could discourage high-end vacant properties by taxing buildings that sit empty for more than six months a year. Cities like Vancouver have created incentives to house people, not wealth.

We need to defend our communities for the people who live in them, not just store their wealth there.

Putting an End to the Rent Economy

Posted on January 16, 2018 by Reid Mukai

By Michael Hudson and Vlado Plaga

Source: Unz Review

Interview with Vlado Plaga in the German magazine FAIRCONOMY, September 2017.

Originally, you didn’t want to become an economist. How did it come that you changed your plans and digged so deep into economics?

I found economics aesthetic, as beautiful as astronomy. I came to New York expecting to become an orchestra conductor, but I met one of the leading Wall Street economists, who convinced me that economics and finance was beautiful.

I was intrigued by the concept of compound interest and by the autumnal drain of money from the banking system to move the crops at harvest time. That is when most crashes occurred. The flow of funds was the key.

I saw that these economic cycles were mainly financial: the build-up of debt and its cancellation or wipe-out and bankruptcy occurring again and again throughout history. I wanted to study the rise and fall of financial economies.

But when you studied at the New York University you were not taught the things that really interested you, were you?

I got a PhD as a union card. In order to work on Wall Street, I needed a PhD. But what I found in the textbooks was the opposite of everything that I experienced on Wall Street in the real world. Academic textbooks describe a parallel universe. When I tried to be helpful and pointed out to my professors that the textbooks had little to do with how the economy and Wall Street actually work, that did not help me get good grades. I think I got a C+ in money and banking.

So I scraped by, got a PhD and lived happily ever after in the real world.

So you had to find out on your own… Your first job was at the Savings Banks Trust Company, a trust established by the 127 savings banks that still existed in New York in the 1960s. And you somehow hit the bull’s eye and were set on the right track, right from the start: you’ve been exploring the relationship between money and land. You had an interesting job there. What was it?

Savings banks were much like Germany’s Landesbanks. They take local deposits and lend them out to home buyers. Savings and Loan Associations (S&Ls) did the same thing. They were restricted to lending to real estate, not personal loans or for corporate business loans. (Today, they have all been turned into commercial banks.)

I noticed two dynamics. One is that savings grew exponentially, almost entirely by depositors getting dividends every 3 months. So every three months I found a sudden jump in savings. This savings growth consisted mainly of the interest that accrued. So there was an exponential growth of savings simply by inertia.

The second dynamic was that all this exponential growth in savings was recycled into the real estate market. What has pushed up housing prices in the US is the availability of mortgage credit. In charting the growth of mortgage lending and savings in New York State, I found a recycling of savings into mortgages. That meant an exponential growth in savings to lend to buyers of real estate. So the cause of rising real estate prices wasn’t population or infrastructure. It was simply that properties are worth whatever banks are able and willing to lend against them.

As the banks have more and more money, they have lowered their lending standards.

It’s kind of automatic, it’s just a mathematical law…

Yes, a mathematical law that is independent of the economy. In other words, savings grow whether or not the economy is growing. The interest paid to bondholders, savers and other creditors continues to accrue. That turns out to be the key to understanding why today’s economy is polarizing between creditors and debtors.

You wrote in “Killing the Host” that your graphs looked like Hokusai’s “Great Wave off Konagawa” or even more like a cardiogram. Why?

Any rate of interest has a doubling time. One way or another any interest-bearing debt grows and grows. It usually grows whenever interest is paid. That’s why it looks like a cardiogram: Every three months there’s a jump. So it’s like the Hokusai wave with a zigzag to reflect the timing of interest payments every three months.

The exponential growth of finance capital and interest-bearing debt grows much faster then the rest oft he economy, which tends to taper off in an S-curve. That’s what causes the business cycle to turn down. It’s not really a cycle, it’s more like a slow buildup like a wave and then a sudden vertical crash downward.

This has been going on for a century. Repeated financial waves build up until the economy becomes so top-heavy with debt that it crashes. A crash used to occur every 11 years in the 19th century. But in the United States from 1945 to 2008, the exponential upswing was kept artificially long by creating more and more debt financing. So the crash was postponed until 2008.

Most crashes since the 19th century had a silver lining: They wiped out the bad debts. But this time the debts were left in place, leading to a massive wave of foreclosures. We are now suffering from debt deflation. Instead of a recovery, there’s just a flat line for 99% of the economy.

The only layer of the economy that is growing is the wealthiest 5% layer – mainly the Finance, Insurance and Real Estate (FIRE) sector. That is, creditors living of interest and economic rent: monopoly rent, land rent and financial interest. The rest of the economy is slowly but steadily shrinking.

And the compound interest that was accumulated was issued by the banks as new mortgages. Isn’t this only logical for the banks to do?

Savings banks and S&Ls were only allowed to lend for mortgages. Commercial banks now look for the largest parts of the economy as their customers. Despite the fact that most economic textbooks describe industry and manufacturing as being the main part of economy, real estate actually is the largest sector. So most bank lending is against real estate and, after that, oil, gas and mining.

That explains why the banking and financial interests have become the main lobbyists urging that real estate, mining and oil and gas be untaxed – so that there’ll be more economic rent left to pay the banks. Most land rent and natural resource rent is paid out as interest to the banks instead of as taxes to the government.

So instead of housing becoming cheaper and cheaper it turns out to be much less affordable in our days than in the 1960s?

Credit creation has inflated asset prices. The resulting asset-price inflation is the distinguishing financial feature of our time. In a race tot he bottom, banks have steadily lowered the terms on which they make loans. This has made the economy more risky.

In the 1960s, banks required a 25-30% down payment by the buyer, and limited the burden of mortgage debt service to only 25% of the borrower’s income. But interest is now federally guaranteed up to 43% of the home buyer’s income. And by 2008, banks were making loans no down payment at all. Finally, loans in the 1960s were self-amortizing over 30 years. Today we have interest-only loans that are never paid off.

So banks loan much more of the property’s market price. That is why most of the rental value of land isn’t paid to the homeowner or commercial landlord any more. It’s paid to the banks as interest.

Was this the reason for the savings and loan crisis that hit the US in 1986 and that was responsible for the failure of 1,043 out of the 3,234 savings and loan associations in the United States from 1986 to 1995?

The problem with the savings and loan crisis was mainly fraud! The large California S&L’s were run by crooks, topped by Charles Keating. Many were prosecuted for fraud and sent to jail. By the 1980s the financial sector as a whole had become basically a criminalized sector. My colleague Bill Black has documented most of that. He was a prosecutor of the S&L frauds in the 1980s, and wrote a book “The best way to rob a bank is to own one”.

That’s a famous quotation, I also heard that.

Fraud was the main financial problem, and remains so.

Since 2007 Americans were strangled by their mortgages in the sub-prime crisis…

These were essentially junk mortgages, and once again it was fraud. Already in 2004 the FBI said that the American economy was suffering the worst wave of bank fraud in history. Yet there was no prosecution. Essentially in the United States today, financial fraud is de-criminalized. No banker has been sent to jail, despite banks paying hundreds of billions of dollars of fines for financial fraud. These fines are a small portion of what they took illegally. Such payments are merely a cost of doing business. The English language was expanded to recognize junk loans. Before the financial crash the popular press was using the word “junk mortgages” and “Ninjas”: “No Income, No Jobs, no Assets”. So everybody knew that there was fraud, and the bankers knew they would not go to jail, because Wall Street had become the main campaign contributor to the leading politicians, especially in the Democratic party. The Obama Administration came in basically as representatives of the bank fraudsters. And the fraud continues today. The crooks have taken over the banking system. It is hard for Europeans to realize that that this really has happened in America. The banks have turned into gangsters, which is why already in the 1930s President Roosevelt coined the word “banksters”.

I also heard the nice English sayings “Too big to fail” or “Too big to jail”…
But what has become of those 10 million households that ended up losing their homes to foreclosure? How are their economic and living conditions today? What has become of their houses? The economy has recovered…

Most of the houses that were foreclosed on have been bought out by hedge funds for all cash. In the wake of 2008, by 2009 and 2010 hedge funds were saying “If you have $5,000,000 to invest, we’re going to buy these houses that are being sold at distress prices. We’re going to buy foreclosed properties for all cash, because we can make a larger rate of return simply by renting them out.” So there has been a transfer of property from homeowners to the financial sector. The rate of home-ownership in America is dropping.

The economy itself has not recovered. All economic growth since 2008 has accrued only to the top 5% of the economy. 95% of the economy has been shrinking by about 3% per year… and continues to shrink, because the debts were kept in place. President Obama saved the banks and Wall Street instead of saving the economy.

That’s why we live in an “age of deception” as the sub-title of your latest book suggests, I guess?

“People have the idea that when house prices go up, somehow everybody’s getting richer. And it’s true that the entry to the middle class for the last hundred years has been to be able to own your own home…”

What is deceptive is the fact that attention is distracted away from how the real world works, and how unfair it is. Economics textbooks teach that the economy is in equilibrium and is balanced. But every economy in the world is polarizing between creditors and debtors. Wealth is being sucked up to the top of the economic pyramid mainly by bondholders and bankers. The textbooks act as if the economy operates on barter. Nobel prices for Paul Samuelson and his followers treat the economy as what they call the “real economy,” which is a fictitious economy that in theory would work without money or debt. But that isn’t the real economy at all. It is a parallel universe. So the textbooks talk about a parallel universe that might exist logically, but has very little to do with how the real economy works in today’s world.

If you had a picture you’d see me nodding all the time, because that’s what I also found out: if you look at the mathematics, it is polarizing all the time, it is de-stabilizing. Without government interference we’d have crash after crash… It is not under control anymore.

But you also suggest that there’s another factor that makes housing prices go up – and that’s property tax cuts. Why?

“Taxes were shifted off the Donald Trumps of the world and onto homeowners….”

Whatever the tax collector relinquishes leaves more rental income available to be paid to the banks. Commercial real estate investors have a motto: “Rent is for paying interest.” When buyers bid for an office building or a house, the buyer who wins is the one who is able to get the largest bank loan. And that person is the one who pays all the rent to the bank. The reason why commercial investors were willing to do this for so many decades is that they wanted to get the capital gain – which really was the inflation of real estate prices as a result of easier credit. But now that the economy is “loan up,” prospects for further capital gains are gone. So the prices are not rising much anymore. There is no reason to be borrowing. So the system is imploding.

So, how could we change the situation and make land a public utility?

There are two ways to do this. One way is to fully tax the land’s rental value. Public investment in infrastructure – roads, schools, parks, water and sewer systems – make a location more desirable. A subway line, like the Jubilee tube line in London, increases real estate prices all along the line. The resulting rise in rents increases prices for housing. This rental value could be taxed back by the community to pay for this infrastructure. Roads and subways, water and sewer systems could be financed by re-capturing the rental value of the land that this public investment creates. But that is not done. A free lunch is left in private hands.

The alternative is direct public ownership of the land, which would be leased out to whatever is deemed to be most socially desirable, keeping down the rental cost. In New York City, for instance, restaurants and small businesses are being forced out. They’re closing down because of the rising rents. The character of the economy is changing. It is getting rid of the bookstores, restaurants and low-profit enterprises. Either there should be a land tax, or public ownership of the land. Those are the alternatives. If you tax away the land’s rent, it would not be available to be paid to the banks. You could afford to cut taxes on labor. You could cut the income tax, and you could cut taxes on consumption. That would reduce the cost of living.

To me that’s pretty close to the position of Georgists on how to handle land, isn’t it?

I don’t like to mention Henry George, because he didn’t have a theory of land rent or of the role of the financial sector and debt creation. The idea of land tax came originally from the Physiocrats in France, François Quesnay, and then from Adam Smith, John Stuart Mill, and in America from Thorstein Veblen and Simon Patten. All of these economists clarified the analysis of land rent, who ended up with it, and how it should be taxed. In order to have a theory of how much land rent there is to tax, you need a value and price theory. Henry George’s value theory was quite confused. Worst of all, he spent the last two decades of his life fighting against socialists and labor reformers. He was an irascible journalist, not an economist.

The classical economists wrote everything you need to know about land rent and tax policy. That was the emphasis of Adam Smith, John Stuart Mill… all the classical economists. The purpose of their value and price theory was to isolate that part of the economy’s income that was unearned: economic rent, land rent, monopoly rent, and financial interest. I think it is necessary to put the discussion of tax policy and rent policy back in this classical economic context. Henry George was not part of that. He was simply a right-wing journalist whom libertarians use to promote neoliberal Thatcherite deregulation and anti-government ideology. In Germany, his followers were among the first to support the Nazi Party already in the early 1920s, for instance, Adolf Damaschke. Anti-Semitism also marked George’s leading American followers in the 1930s and ‚40s.

So I guess I have to go back a bit further in history, to read the original Physiocrats as well…

John Stuart Mill is good, Simon Patten is good, Thorstein Veblen is wonderful. Veblen was writing about the financialization of real estate in the 1920s in his Absentee Ownership. I recently edited a volume on him: Absentee Ownership and its Discontents (ISLET, Dresden, 2016).

Germany’s land tax reform seems to go in the wrong direction. Germany has to establish new rules for it’s “Grundsteuer” that in fact is a mingled tax on land and the buildings standing on it, based on outdated rateable values of 1964 (in the West) and 1935 (in the East). The current reform proposals of the federal states will maintain this improper mingling and intend a revenue neutral reform of this already very low tax. It brings about 11 billion Euro to the municipal authorities, but this is only 2% of the total German tax revenue, whereas wage tax and sales tax make up for 25% each. We need a complete tax shift, don’t we?

Germany is indeed suffering from rising housing prices. I think there are a number of reasons for this. One is that Germans have not had a real estate bubble like what occurred in the US or England. They did lose money in the stock market, and many decided simply to put their money in their own property. There is also a lot of foreign money coming into Germany to buy property, especially in Berlin.

The only way to keep housing prices down is to tax away the rise in the land value. If this is done, speculators are not going to buy. Only homeowners or commercial users will buy for themselves. You don’t want speculators or bank credit to push up prices. If Germany lets its housing prices rise, it is going to price its labor out of the market. It would lose its competitive advantage, because the largest expense in every wage-earner’s budget is the cost of housing. In Ricardo’s era it was food; today it is housing. So Germany should focus on how to keep its housing prices low.

I’d like to come back to the issue of interest once more. The English title of “Der Sektor” is “Killing the host – How Financial Parasites and Debt Bondage Destroy the Global Economy”. It’s much more coming to the point. It struck me that you mention John Brown. He wrote a book called “Parasitic wealth or Money Reform” in 1898. I came across his book some years ago and thought that he was somehow America’s Helmut Creutz of the 19th century. He was a supporter of Henry George, but in addition John Brown analyzed and criticized the interest money system and its redistribution of wealth. He said that labour is robbed of 33% of its earnings by the parasitic wealth with subtle and insidious methods, so that it’s not even suspected. Why does almost nobody know this John Brown?

John Brown’s book is interesting. It is somewhat like that of his contemporary Michael Flürscheim. Brown’s book was published by Charles Kerr, a Chicago cooperative that also published Marx’s Capital. So Brown was a part of the group of American reformers who became increasingly became Marxist in the 19^th and early 20^thcentury. Most of the books published by Kerr discussed finance and the exponential growth of debt.

The economist who wrote most clearly about how debt grew by its own mathematics was Marx in Vol. III of Capital and his Theories of Surplus Value . Most of these monetary writers were associated with Marxists and focused on the tendency of debt and finance to grow exponentially by purely mathematical laws, independently of the economy, not simply as a by-product of the economy as mainstream economics pretends.

So you recommend reading his book?

Sure, it is a good book, although only on one topic. Also good is Michael Flürscheim’s Clue to the Economic Labyrinth (1902). So is Vol. III of Capital.

Brown’s plan of reforms included the nationalization of banks and the establishment of a bank service charge in lieu of interest. The latter sounds remarkably up-to-date. In Germany the banks are raising charges because of the decrease in their interest margins. How is your view on the matter of declining interest rates?

Well, today declining interest rates are the aim of central bank Quantitative Easing. It hasn’t helped. The most important question to ask is: what are you going to make your loans for? Most lending at these declining interest rates has been parasitic and predatory. There’s a lot of corporate take-over lending to companies that borrow to buy other companies. There is an enormous amount of stock market credit that has helped bid up stock prices with low-interest credit and arbitrage. This has inflated asset prices for stocks, bonds and real estate. If the result of low interest rates is simply to inflate asset prices, the only way this can work is to have a heavy tax on capital gains, that is asset price gains. But in the US, England, and other countries there are very low taxes on capital gains, and so low interest rates simply make housing more expensive, and make stocks and buying a flow retirement income (in the form of stocks or bonds that yield dividends and interest) much more expensive.

I guess Brown is getting to the positive aspects of low interest also.

What Brown was talking about were the problems of finance. In the final analysis there is only one ultimate solution: to write down the debts. Nobody really wants to talk about debt cancellation, because they try to find a way to save the system. But it can’t be fixed so that debts can keep growing at compound rates ad infinitum. Any financial system tends to end in a crash. So the key question is how a society is NOT going not to pay debts that go bad. Will it let creditors foreclose, as has occurred in the US? Or are you going to write down the debts and wipe out this overgrowth of creditor claims? That’s the ultimate policy that every society has to face.

Very topical, the German Bundesbank sees the combination of low interest rates and a booming housing market as a dangerous cocktail for the banking sector. “The traffic lights have jumped to yellow or even to dark yellow”, Andreas Dombret said, after the Bundesbank had denied the problem in the last years by dismissing it as Germany’s legitimate catch-up effects. The residential property prices have gone up by 30% since 2010, in the major cities even by more than 60%. The share of real estate loans in the total credit portfolio is significantly rising. The mortgage loans of the households have increased in absolute terms as well as relative to their income. It’s only due to the low interest rates that the debt service has not increased yet. But the banks and savings companies are taking on the risk: the mortgages with terms of more than ten years have risen to more than 40% of the residential real estate loans. The interest-change risks lie with the banks. Don’t we have to face up to the truth that interest rates shouldn’t go up again?

What should be raised are taxes on the land, natural resource rent and monopoly rent. The aim should be to keep housing prices low instead of speculation. Land rent should serve as the tax base, as the classical economists said it should. Adam Smith, John Stuart Mill… all urged that the basis of the tax system should be real-estate and natural resource rent, not income taxes (which add to the cost of labor), the cost of labor and not value-added taxes (which increase consumer prices). So tax policy and debt write-downs today are basically the key to economic survival.

Banking should be a public utility. If you leave banking in the present hands, you’re leaving it in the hands of the kind of crooks that brought about the financial crisis of 2008.

Couldn’t the subprime-crisis have been prevented if the Fed had introduced negative interest rates in the 1990s?

No. The reason there was the crash was fraud and speculation. It was junk mortgages and the financialization of the economy. Pension funds and people’s savings were turned over to the financial sector, whose policy is short-term. It seeks gains mainly by speculation and asset price inflation. So the problem is the financial system. I think the Boeckler foundation has annual meetings in Berlin that focus on financialization and explain what the problem is.

Yes, that’s a big topic. The financial sector is interested, as you said, in short-term gains, but people who want to save for their retirement are interested in long-term stability – that is contradictory. Do you know the “Natural Economic Order by Free Land and Free Money” by Silvio Gesell?

It is not practical for today’s world, it is very abstract. The solution to the financial problem really has to be ultimately a debt write-down, and a shift to the tax system, as the classical economists talked about.

Gesell was also advocating the taxing of land. I think he had something in mind with bidding for the land, letting the market fix the prices.

He did not go beneath the surface to ask what kind of market do you want. Today, the market for real estate is a financialized market. As I said, the basic principle is that most rent is paid out as interest. The value of real estate is whatever a bank will lend against it. Unless you have a theory of finance and the overall economy, you really don’t have a theory of the market.

You are advocating a revival of classical economics. What did the classical economists understand by a free economy?

They all defined a free economy as one that is free from land rent, free from unearned income. Many also said that a free economy had to be free from private banking. They advocated full taxation of economic rent. Today’s idea of free market economics is the diametric opposite. In an Orwellian doublethink language, a free market now means an economy free for rent extractors, free for predators to make money, and essentially free for financial and corporate crime. The Obama Administration de-criminalized fraud. This has attracted the biggest criminals – and the wealthiest families – to the banking sector, because that’s where the money is. Crooks want to rob banks, and the best way to rob a bank is to own one. So criminals become bankers. You can look at Iceland, at HSBC, or at Citibank and Wells-Fargo in the news today. Their repeated lawbreaking and criminal activities have been shown to be endemic in the US. But nobody goes to jail. You can steal as much money as you want, and you’ll never go to jail if you’re a banker and pay off the political parties with campaign contribution. It’s much like drug dealers paying off crooked police forces. So crime is pouring into the financial system.

I think this is what’s going to cause a return to classical economics – the realization that you need government banks. Of course, government banks also can be corrupted, so you need some kind of checks and balances. What you need is an honest legal system. If you don’t have a legal system that throws crooks in jail, your economy is going to be transformed into something unpleasant. That’s what is happening today. I think that most Europeans don’t want to acknowledge that that’s what happened in America (USA). There is such an admiration of America that there is a hesitancy to see that it has been taken over by financial predators (a.k.a. “the market”).

We always hear that oligarchies are in the east, in Russia, but hardly anyone is calling America an oligarchy… although alternative media says that it’s just a few families that rule the country.

Yes.

Michael Hudson is the author of Killing the Host (published in e-format by CounterPunch Books and in print by Islet). His new book is J is For Junk Economics. He can be reached at mh@michael-hudson.com

Disposable Americans: The Numbers are Growing

Posted on April 6, 2017 by Reid Mukai

By Paul Buchheit

Source: Information Clearing House

As often noted in the passionate writings of Henry Giroux, poor Americans are becoming increasingly ‘disposable’ in our winner-take-all society. After 35 years of wealth distribution to the super-rich, inequality has forced much of the middle class towards the bottom, to near-poverty levels, and to a state of helplessness in which they find themselves being blamed for their own misfortunes.

The evidence keeps accumulating: income and wealth — and health — are declining for middle-class America. As wealth at the top grows, the super-rich feel they have little need for the rest of society.

Income Plummets for the Middle Class

According to Pew Research, in 1970 three of every ten income dollars went to upper-income households. Now five of every ten dollars goes to them.

The Social Security Administration reports that over half of Americans make less than $30,000 per year. That’s less than an appropriate average living wage of $16.87 per hour, as calculated by Alliance for a Just Society.

Wealth Collapses for Half of Us

Numerous sources report that half or more of American families have virtually no savings, and would have to borrow money or sell possessions to cover an emergency expense. Between half and two-thirds of Americans have less than $1,000.

For every $100 owned by a middle-class household in 2001, that household now has just $72.

Not surprisingly, race plays a role in the diminishing of middle America. According to Pew Research, the typical black family has only enough liquid savings to last five days, compared to 12 days for the typical Hispanic household, and 30 days for a white household.

Our Deteriorating Health

In a disgraceful display of high-level disregard for vital health issues, House Republicans are attempting to cut back on lunches for over 3 million kids.

The evidence for the health-related disposability of poor Americans comes from a new study that finds nearly a 15 year difference in life expectancy for 40-year-olds among the richest 1% and poorest 1% (10 years for women). Much of the disparity has arisen in just the past 15 years.

It’s not hard to understand the dramatic decline in life expectancy, as numerous studies have documented the health problems resulting from the inequality-driven levels of stress and worry and anger that make Americans much less optimistic about the future. The growing disparities mean that our children will likely see less opportunities for their own futures.

It May Be Getting Worse

The sense derived from all this is that half of America is severely financially burdened, at risk of falling deeper into debt.

It may be more than half. The Wall Street Journal recently reported on a JP Morgan study’s conclusion that “the bottom 80% of households by income lack sufficient savings to cover the type of volatility observed in income and spending.” Fewer than one in three 25- to 34-year-olds live in their own homes, a 20 percent drop in just the past 15 years.

It may be even worse for renters. The number of families spending more than half their incomes on rent — the ‘severely’ cost-burdened renters — has increased by a stunning 50 percent in just ten years. Billionaire Steve Schwarzman, whose company Blackstone has been buying up tens of thousands of homes at rock-bottom prices and then renting them back while waiting out the housing market, finds the growing anger among voters “astonishing.”

What’s astonishing is the disregard that many of the super-rich have for struggling Americans.

Paul Buchheit is a college teacher, an active member of US Uncut Chicago, founder and developer of social justice and educational websites (UsAgainstGreed.org, PayUpNow.org, RappingHistory.org), and the editor and main author of “American Wars: Illusions and Realities” (Clarity Press). He can be reached at paul@UsAgainstGreed.org.

No Man’s Land

Posted on May 11, 2016 by Reid Mukai

By Steven Stoll

Source: Orion Magazine

A chainlink fence topped with razor wire surrounds fourteen acres of thistle and grass at East Forty-First Street between Long Beach Avenue and South Alameda Street in Los Angeles. These two city blocks occupy a transitional environment of sorts. In one direction the sight of small houses stretches for miles toward the Pacific Ocean, but turn around and the neighborhood becomes industrial, consisting of a textile factory, a scrap metal recycling company, trucking terminals, and warehouses. The tracks of the Southern Pacific Railroad run parallel to Long Beach Avenue. There are few trees or anything green and growing but the drought-resistant thistle.

In 1986, the City of Los Angeles acquired the land from a group of owners through eminent domain, but then folded plans to build a waste incinerator when the community resisted. The land ended up in the holdings of the Harbor Department. It had been two years since the uprising that followed the acquittal of four Los Angeles police officers, tried for beating Rodney King. Perhaps looking to make a gesture and lacking its own use for the site, the Harbor Department invited members of a local food bank to plant a community garden.

They did. Between 1994 and 2006 hundreds of families grew a profusion of food plants on what had been a blighted lot just a few years before. One visitor identified a hundred species, most of them native to Mexico and South America— chayote, guava, tomatillo, sapodilla, and sugarcane, in addition to maize, beans, avocados, bananas, and squashes. The South Central Farm was not misnamed: photographs show the land in robust cultivation, producing a wealth of food.

But in 2001, one of the prior owners filed a lawsuit against the city. The property had never been used to build the incinerator, and so, he argued, Los Angeles had no reason to seize it. The city settled the case in 2003 by selling the fourteen acres back to the prior owner.

In the ensuing confrontation a single absentee negated the sustained labor and improvements of 350 families, representing around a thousand people, now accused of squatting. They refused to leave. Lawyers filed briefs. Gardeners swore resistance. (One said, “Just think if we assemble, two from every family, and you know we’ll each grab a hoe, and no one will get past us.”) Movie stars showed up with camera crews. A foundation offered millions of dollars as a purchase price, which the owner rejected. A date was set for the forced removal of the stalwarts. On June 13, 2006, Los Angeles County Sheriffs arrested forty people. Bulldozers destroyed the farm. A decade later, the land remains vacant.

In the case of the South Central Farm, ownership for profit triumphed over use for subsistence, which, of course, is the way of the world. Nothing could be more ordinary than a landowner asserting his rights. And yet, just five centuries ago, what happened on those fourteen acres in south Los Angeles wouldn’t have made sense to anyone.

In 1500, no one sold land because no one owned it. People in the past did, however, claim and control territory in a variety of ways. Groups of hunters and later villages of herders or farmers found means of taking what they needed while leaving the larger landscape for others to glean from. They certainly fought over the richest hunting grounds and most fertile valleys, but they justified their right by their active use. In other words, they asserted rights of appropriation. We appropriate all the time. We conquer parking spaces at the grocery store, for example, and hold them until we are ready to give them up. The parking spaces do not become ours to keep; the basis of our right to occupy them is that we occupy them. Only until very recently, humans inhabited the niches and environments of Earth somewhat like parking spaces.

Ownership is different from appropriation. It confers exclusive rights derived from and enforced by the state. These rights do not come from active use or occupancy. Property owners can neglect land for years, waiting for the best time to sell it, even if others would put it to better use. And in the absence of laws protecting landscapes, the holders of legal title can mow down a rainforest or drain a wetland without regard to social and ecological cost. Not all owners are destructive or irresponsible, but the imperative to seek maximum profit is built into the assumptions within private property. Land that costs money must make money.

Champions of capitalism don’t see private property as a social practice with a history but as a universal desire—a nearly physical law—that amounts to the very expression of freedom. The economist Friedrich Hayek called it “the most important guarantee of freedom, not only for those who own property, but scarcely less for those who do not.” But Hayek never explained how buyers and sellers of real estate spread a blanket of liberty over their tenants. And he never mentioned the fact that the concept, far from being natural law, was created by nation-states—the notion that someone could claim a bit of the planet all to himself is relatively new.

Every social system falls into contradictions, opposing or inconsistent aspects within its assumptions that have no clear resolution. These can be managed or put off, but some of them are serious enough to undermine the entire system. In the case of private property, there are at least two—and they may throw the very essence of capitalism into illegitimacy.

The first of the system’s contradictions points to its origins. Land in the English countryside during the sixteenth century was regulated by feudal obligations so obscure and so thick that few people today can make sense of them. An English peasant could use a run of soil for a term of years or for her entire life, but it did not belong to her. Village elders, representatives of the local lord, and even the deacon of the church might have claimed an interest in how this or that field was planted. Everyone from monarch to serf received a different slice of the realm. These use rights could be exchanged only in very limited ways: a lord occupied his ancestral house and manor for as long as he lived, but he could not sell them.

All sorts of events caused the demise of feudalism. The Black Death of the fourteenth century killed so many millions that the labor market tipped in favor of those who survived. The spread of money gave things exchange value and made buying and selling easier. Food production increased during the sixteenth century, creating more calories for work and more commodities for trade. And an international wool market inspired lords to change common fields into sheep walks.

The problem was that lords could not put sheep where they wanted. They lived within the feudal assemblage of obligations and rights attached to social orders and scraps of landscape. Faced with declining returns and proliferating opportunities, they began to curse the old rules—they wanted land for themselves.

Enclosure is just what it sounds like: the physical and legal bounding of an area. In practice it meant the seizure of villages, common fields, and outlying forests and marshes. It allowed lords to evict former residents so that they could do new things with land. Sometimes it happened by agreement, with peasants giving in to demands they feared to contest; other times there was violence. In 1607 at least one thousand peasants tore up hedges in Northamptonshire and filled in ditches that demarcated property lines. The rebels made a statement: “Wee, as members of the whole, doe feele the smarte of these incroaching Tirants, which would grind our flesh upon the whetstone of poverty.” King James didn’t flinch from the whetstone. His forces killed forty insurgents and hanged their leader.

The king’s involvement tells us that grasping lords did not do this dirty work by themselves. Parliament legalized their land grab by granting them something that had never before existed in human history: ownership. Lords could now act without regard to tradition or the needs of residents. Some demolished whole communities. The word pauper dates from the seventeenth century to describe poor people who wandered the roads homeless, eating anything they could scavenge and turning up cold and wet at church doors. Peasants became workers as their only option for survival. Some stooped for a wage on the very land they once tilled as members of villages.

Enclosure created two things at once: private property and wage labor, the essential preconditions for capitalism. Like all social practices, private property has a degree of flexibility. Some of its advantages can and should be diffused among as many people as possible. By eliminating messy titles to land and its embeddedness in tradition, enclosure made possible a new measure of innovation and abundance. But that’s also the first of its contradictions. It generates wealth and unprecedented social power for some by making others poor and dependent.

All of this matters because enclosure never came to an end. It jumped continents and kept on going. The colonial wars for North America, in which Britain and then the United States seized land from hundreds of tribes, can be understood as a rolling dispossession—by purchase, treaty, and ejectment. Enclosure also took place in Australia and South Africa. Wherever nation-states became landowners they turned the commons into private property. The epicenter of enclosure today is Africa. A resident of the village of Dialakoroba, in Mali, which has lost thousands of acres to foreign investors, recently said this: “I do not know, in ten to twenty years, how people will live in our villages because there will be no land to till. . . . Everything has been sold to rich people in very opaque conditions.”

Private property’s second contradiction comes from the odd notion that land is a commodity, which is anything produced by human labor and intended for exchange. Land violates the first category, but what about the second? As the historian Karl Polanyi wrote, land is just another name for nature. It’s the essence of human survival. To regard it as an item for exchange “means to subordinate the substance of society itself to the laws of the market.”

Clearly, though, we regard land as a commodity and this seems natural to us. Yet it represents an astonishing revolution in human perception. Real estate is a legal abstraction that we project over ecological space. It allows us to pretend that a thousand acres for sale off some freeway is not part of the breathing, slithering lattice of nonhuman stakeholders. Extending the surveyor’s grid over North America transformed mountain hollows and desert valleys into exchangeable units that became farms, factories, and suburbs. The grid has entered our brains, too: thinking, dealing, and making a living on real estate habituates us to seeing the biosphere as little more than a series of opportunities for moneymaking. Private property isn’t just a legal idea; it’s the basis of a social system that constructs environments and identities in its image.

Advocates of private property usually fail to point out all the ways it does not serve the greater good. Adam Smith famously believed that self-interested market exchange improves everything, but he really offered little more than that hope. He could not have imagined mountains bulldozed and dumped into creeks. He could not have imagined Camden, New Jersey, and other urban sacrifice zones, established by corporations and then abandoned by them. Maximum profit is the singular, monolithic interest at the heart of private property. Only the public can represent all the other human and nonhuman interests.

Unbelievably, perhaps, the United States Congress has done this. Consider one of its greatest achievements: the Endangered Species Act (ESA) of 1973. The act nails the abstraction of real estate to the ground. When a conglomerate of California developers proposed a phalanx of suburbs across part of the Central Valley, they came face to face with their nemesis: the vernal pool fairy shrimp. In 2002, the Supreme Court upheld the shrimp’s status as endangered and blocked construction. It was a case in which the ESA diminished the sacred rights to property for the sake of tiny invertebrates, leaving critics of the law dumbfounded. But those who would repeal the ESA (and all the other environmental legislation of the 1970s) don’t appreciate the contradiction it helps a little to contain: the compulsion to derive endless wealth from a muddy, mossy planet.

Of course, in the era of climate change, those invaluable laws and the agencies they created now seem too limited in their scope and powers to take on the spectacular collision between Economy and Ecology now in motion. But maybe the most radical way we can treat the ownership of Earth—the single most subversive notion we can have about private property—is that it’s merely a social relationship, an agreement between people to behave in certain ways. It can be challenged, changed, and contained. Much of what holds failing social systems together is that those in power succeed in eliminating the mere thought that things could be otherwise.

Should private property itself be extinguished? It’s a legitimate question, but there is no clear pathway to a system that would take its place, which could amount to some kind of global commons. Instead I suggest land reform, not the extinguishing of property rights but their radical diffusion. Imagine a space in which people own small homes and gardens but share a larger area of fields and woods. Let’s call such legislation the American Commons Communities Act or the Agrarian Economy Act. A policy of this sort might offer education in sustainable agriculture keyed to acquiring a workable farm in a rural or urban landscape. The United States would further invest in any infrastructure necessary to move crops to markets.

Let’s give abandoned buildings, storefronts, and warehouses to those who would establish communities for the homeless. According to one estimate, there are ten vacant homes for every homeless person. Squatting in unused buildings carries certain social benefits that should be recognized. It prevents the homeless from seeking out the suburban fringe, far from transportation and jobs (though it’s no substitute for dignified public housing). Plenty of people are now planting seeds in derelict city lots. In Los Angeles, an activist named Ron Finley looks for weedy ground anywhere he can find it for what he calls “gangsta gardening,” often challenging absentee owners. In 2013, the California legislature responded to sustained pressure from urban gardeners like Finley and passed the Urban Agriculture Incentive Zones Act, which gives tax breaks to any owner who allows vacant land to be used for “sustainable urban farm enterprise.”

Squatting raises another, much larger question. To what extent should improvements to land qualify one for property rights? The suppression of traditional privileges of appropriation amounts to one of the most revolutionary changes in the last five hundred years. All through the centuries people who worked land they did not own (like squatters and slaves) insisted that their toil granted them title. The United States once endorsed this view. The Homestead Act of 1862 granted 160 acres to any farmer who improved it for five years. Western squatters’ clubs and local preemption laws also endorsed the idea that labor in the earth conferred ownership.

It’s worth remembering that there is nothing about private property that says it must be for private use. Conservation land trusts own vast areas as nonprofit corporations and invite the public to hike and bike. It’s not an erosion of the institution of property but an ingenious reversal of its beneficiaries. But don’t wait for a land trust to be established before you enjoy the fenced up beaches or forests near where you live. Declare the absentee owners trustees of the public good and trespass at will. As long as the land in question is not someone’s home or place of business, signs that say KEEP OUT can, in my view, be morally and ethically ignored. Cross over these boundaries while humming “This Land Is Your Land.” Pick wildflowers, watch sand crabs in the surf, linger on your estate. Violating absentee ownership is a long-held and honorable tradition.

The arrest of the South Central Farmers was deeply disturbing in Los Angeles. So much so that citizens began to call for other farms, in other locations throughout the city and county. Ten years later community gardens abound. More than a hundred of them are thriving, including the Stanford Avalon Community Garden, which was established by some of the very families evicted from the South Central Farm. It runs one mile long and 80 feet wide underneath power lines, on city property. There is space for 180 plots, each about 1,300 square feet. The farmers compete with each other for the greatest yields. They pay a small fee for a plot and absorb all the food into their households, to be eaten and sold.

Building this garden movement has not extinguished any of the rights of private or public landowners. But only sustained resistance and protest could have forced these entities to accommodate thousands of household farmers. Yet nothing could be more ordinary or more radical than the desire for autonomy from the tyranny of wages, a dream that persists in billions of humans striving in slums and factories, ready for their moment to reclaim the commons.

Steven Stoll is Professor of History at Fordham University, where he teaches environmental history and the history of capitalism and agrarian societies. He is the author of Larding the Lean Earth: Soil and Society in Nineteenth-Century America (2002) and The Great Delusion (2008), about the origins of economic growth in utopian science. His writing has appeared in Harper’s Magazine, Lapham’s Quarterly, and the New Haven Review. He is finishing a book about losing land and livelihood in Appalachia.

Why Are We Still Working?

Posted on March 10, 2016 by Reid Mukai

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By Mike Dowson

Source: NewMatilda.com

This may be an opportune moment to consider the question. Especially if you’re not actually working.

You may have retired. Perhaps you’ve just left university, considering your options. Perhaps you’re taking a welcome break.

Maybe you have no choice but to take a break. Did you retire early because your job was axed? Has the casual work you depend on dried up? Have you been unable to find a job, despite your qualifications?

Perhaps, as you read this, you’re at work, filling in time, forgoing a holiday. Or at the beach, while the kids play in the surf, watching for emails on your phone.

Of course, it’s obvious why we work. Money. You don’t get something for nothing. And everything is so expensive these days.

If anything, most of us need to work more. Both spouses, extra hours, second jobs. Would anyone, except an idiot, seriously suggest we should all be working less?

Well, actually, yes.

As long ago as 1930, the economist John Maynard Keynes predicted that, by now, people in technologically advanced societies wouldn’t need to work much at all. When Keynes said this, advances in technology were yielding extraordinary increases in productivity. The implications seemed obvious. If it took less time to produce what we needed, surely we’d work less.

It turns out that for much of the 20^th Century average working hours in developed countries steadily fell. Then, around the 1970s, the trend plateaued. In some countries, it reversed and working hours began to climb again. This occurred at the same time women were entering the workforce in great numbers so total workforce participation also increased.

In Australia, by the new millennium, many full time employees were working more than their grandparents had.

What happened? Did technology fail to deliver the gains Keynes expected?

On the contrary. Technological advancement outstripped even the giddy imaginations of futurists from a century ago. We can grow food, dig up minerals, make fridges and bridges, move things and ourselves around the planet and share knowledge and information much faster with a fraction of the workforce it once took.

But if staggering productivity gains haven’t manifested as lower working hours, where did they go?

Some prominent economists, including some Nobel laureates, have grappled with this question.

Gary Becker observed that our appetite for material goods has expanded along with our ability to produce them. Instead of working less hours, we opted for bigger houses with more gadgets, which we replace more often.

This process has been fuelled by a deluge of marketing, which persuades us to consume things we previously didn’t recognise a need for.

Does that explain it? Anthropologist David Graeber doesn’t think so. If it continually takes fewer human hours to produce these things, shouldn’t we be able to afford them without working more? What are all these working hours producing?

Graeber argues that, although productive jobs have, in fact, been steadily automated away just as predicted, we have also seen a vast proliferation of new jobs that only seem to exist to keep people working.

Consider this. Productivity growth has stalled in Australia. How can this be? Technology hasn’t stopped advancing. The time we should be winning back through productivity gains must be getting reabsorbed.

Productivity returns are highest in capital-intensive industries like mining and manufacturing. As those jobs disappear, either replaced by technology, or lost altogether, the workforce moves into labour-intensive industries like hospitality and professional services. This dilutes the gains in the other industries.

At the same time, unemployment has been trending up since 2008. Young people especially, are out of work. The number of underemployed people, who would work more if they could, is also high. More jobs are casual.

There’s a downward trend in job prospects for new graduates. Some of them settle for part-time work or a free internship. Many find work which is unrelated to primary qualification. That’s now more likely to be in a job without benefits, or multiple such jobs.

There’s another factor. Our lives are now longer relative to our working lives. We tend to start full-time work later, after years of study, and more of life is spent in retirement. Many jobless older people are struggling with the cost of living. Many would work more if they could.

Instead of everyone working less, what seems to be happening is that experienced workers, in professions which are still in demand, are working more, while the young, the old, and those with skills which no longer attract investment have difficulty finding work.

MIT academics Andrew McAfee and Erik Brynjolfsson refer to this as the great decoupling. For many years, real GDP per capita and median income rose in tandem. Since the 1970s, wages as a percentage of GDP have fallen dramatically, while corporate profits as a percentage of GDP are now at their highest level, despite recurring economic shocks.

To put it simply, labour isn’t as important to growth as it used to be.

There is nothing in the economic outlook or current government policy settings which suggests this trend is going to change.

Automation, artificial intelligence and robotics are encroaching on more human occupations. The Committee for Economic Development of Australia (CEDA) has estimated that as many as 40 per cent of the jobs that are left are vulnerable to replacement by technology over the next decade.

No matter how many politicians chant the jobs mantra for the media, more productive jobs are going to disappear.

The terrible irony in this situation is that there is so much that needs to be done.

Among the underemployed graduates I personally know of, there is a psychologist, a soil chemist and a biodiversity specialist. Have we run out of things to do in the areas of mental health, agriculture and the environment?

Mental illness is widespread. Our food bowl is under threat from climate change. We have a mass extinction on our hands.

What we don’t have, apparently, is sufficient money to invest in making full use of the talent that is available to face these challenges.

Why? What failure of collective enterprise could result in this absurd incongruity?

Capital, like technology, is largely blind to human need. Capital goes where the profit is. If there was profit in healing minds and saving species, some of it would go there. While there is more profit in alcohol, gambling and deforestation, more of it will go there.

People don’t register their desire for a healthy society by shopping for it. Capital doesn’t get that signal through the market. The argument that consumers somehow direct the course of civilisation by choosing dolphin-friendly tuna and “eco” cleaning products is stupid and facile. The factors that most affect our destiny are not options in the supermarket.

If a healthy society is something we want, we have to act collectively. Since few people are active major shareholders, for the time being that task tends to fall to governments.

Whether enacted via direct spending, or by creating incentives for private investment, government initiatives are funded from collective surplus – in other words, tax revenue or borrowing against future earnings increases. Despite political spin to the contrary, our tax is low compared to the OECD as a proportion of GDP.

The great decoupling has coincided with rising inequality. Those with money to invest get rich. Those with only labour to sell miss out. Capital doesn’t like to pay for labour, and it doesn’t like to pay tax either.

But why, if our labour isn’t needed for profit, are we still working?

Faced with a looming crisis in social services, but committed ideologically to low taxation, successive Australian governments used tax concessions to turn superannuation and real estate – where most Australians keep their wealth – into a mini-capitalist alternative to social security.

Of course, this only works while people have jobs that provide super and sufficient income to buy housing. And it doesn’t help the real economy, the place where we apply technological innovation to produce things of real value, especially things we can export.

Nevertheless, one group of people enriched themselves through property investment, pushing up the value of real estate around the country in the process. Another group of people became affluent with nothing more than a job that paid super and a home in a good location.

With commodity revenue pouring in from overseas, it was easy to believe we had discovered some kind of magic prosperity formula. But the surplus generated from commodities mostly wasn’t invested back into productive activity. Instead it was turned into tax cuts and other benefits. These had broad electoral appeal but favoured the wealthy, and encouraged further speculation.

The real estate boom didn’t make the country richer. Nor did it make housing more accessible. It simply transferred wealth from one group of people to another. In the process, it put a basic need out of reach of many, including young people, and diverted investment from the productive economy. It also lured a huge number of Australians into precarious debt.

Contrary to popular opinion, encouraged by unscrupulous politics, we have relatively low government debt, but we now have the largest per capita private debt in the world.

So why are we still working? Because we’re in debt.

Middle-aged people are the ones working long hours. They’re also the ones buying houses. And they’re the ones with the most credit card debt as well.

The generation before them had affordable housing, job security and a real social safety net. They’re not so fortunate, but for the ones after them, a steady job with enough for a deposit has become a kind of Holy Grail, and social security is survival at best.

The current trend points to a time when a young graduate might start adult life with a HECS debt, go into credit card debt on a part-time job and a free internship, and eventually get into massive debt to own a flat her grandparents could have bought with ease.

She might even find a job in financial services, if they haven’t all been automated. It’s the sector that helps wealthy people turn their money into more money. It’s also where ordinary people go to borrow money for a house.

Debt is profitable. Even during the great decoupling, as productive jobs disappear, and real wages fall, it’s proven possible to harness the aspirations of ordinary people for profit, without any of the effort or intelligence required for developing new productive capacity, by simply enticing a greater proportion of personal income into servicing debt.

The mining boom is over. Not that it was ever as important as the miners like to claim. Manufacturing continues its long decline. The banks have been warned they are overexposed.

Whatever combination of policy levers is applied, we need to create the conditions that direct investment into producing things that we and the world need, while caring for our environment and our population. We don’t need to direct it in into unearned private wealth at the expense of our neighbours, our country and future generations.

Our current class of politicians has so far failed to even acknowledge our present circumstances, let alone articulate a credible vision for change. Many of them became rich from property investment. Our Prime Minister is a former banker.

Naturally, the people who’ve done well for themselves are reluctant to sacrifice their advantage. Nevertheless, we have to change the narrative around “wealth creation” from one which is essentially about personal enrichment from gaming the system, to one which is about mutual benefit through innovation and productivity.

Change has come, whether we like it or not. If we respond intelligently, taking advantage of the potential we have developed through our education system, we may very well end up working less, but not in a divided society, with many of us struggling to survive.

Rent Strikes: ‘together we can defeat the housing market’

Posted on March 3, 2016 by Reid Mukai

By Matt Broomfield

Source: RoarMag.org

As they revive a long-dormant form of protest, rent strikers in London and San Francisco must learn lessons from the great strikes of the 20th century.

When you can no longer afford to pay your rent, only one course of action remains: stop paying it. On both sides of the Atlantic, tenants are militating against the unbearable pressure of the housing market via the only locus of power available to them — going on rent strike.

Midtown Apartments, San Francisco

Jose LaCrosby was an African-American hair stylist to the stars. Nina Simone, James Brown and Miles Davis all frequented his San Francisco salon. Terminally ill at the age of 89, LaCrosby was told by his doctors that he should return to die among his friends in Midtown Apartments.

But the City of San Francisco had just hiked rents by up to 300 percent. If the Korean War veteran wanted to move back in to a ground-floor apartment it would now cost him $3700 a month. LaCrosby had lived in Midtown for two decades, but he spent the last 7 months of his life under fluorescent lights in an anodyne hospice ward, unable to afford the grossly inflated rent.

LaCrosby’s treatment is symptomatic of the way Midtown is being used as an asset to be stripped for cash, says long-time resident and Save Midtown organizer Jay Majitov. “This community is being displaced by the greed and avarice of property pimps preying on the weak and the disenfranchised,” he explains. Many of Majitov’s neighbors moved into Midtown after being socially cleansed from other areas of San Francisco in the 1960s, on what they understood was a rent-to-buy agreement.

But though Midtown paid off its collective mortgage in 2007, the city reneged on its agreement to hand the building over to the tenants. Instead, Midtowners were hit with a threefold increase in rent, far outstripping the maximum increase set by San Francisco rent controls. Appalled by this betrayal of trust, the tenants of 65 Midtown apartments have been withholding their rent increase since August 2015.

University College London

On the face of it, LaCrosby’s working-class neighbors in Midtown have little in common with the primarily middle-class, primarily white students of University College London. But the price of UCL accommodation has risen by 56 percent in the last six years, and the university extracts £16 million annually in pure profit from their residences. The halls remain shabby, cramped and infested with cockroaches.

As a result, around 150 students are currently striking for a 40 percent rent decrease. “UCL call residents in halls customers, not students,” says David Dahlborn of UCL, Cut The Rent (UCL-CTR). “It’s sheer exploitation.”

There have been rumblings about wider rent strikes across the British left for months, while US activists in Portland and elsewhere are now looking to copy Midtown’s example. Yet until a couple of years ago, no one was talking about rent strikes at all.

The problem(s) with rent strikes

Once a cornerstone of tenants’ rights activism, since the 1980s the rent strike has largely been absent from the arsenal of the left. The most famous rent strike in history occurred in 1915, when the fear of a Bolshevik insurrection forced the UK government to appease strikers in Glasgow by introducing rent controls. As the Communist threat faded after the second Red Scare, so too did the need to form housing policy with one eye on the Kremlin, and the government’s attitude toward rent strikers hardened accordingly.

Given that many rent strikes occurred in mutual relation with industrial strikes, their decline in popularity can partially be ascribed to the decimation of workers’ right to strike by Thatcher and her successors. The UK now loses a tenth as many days to industrial action as it did in the 1980s, and “strike” has become a politically toxic term. (UCL-CTR advise their activists to avoid the word altogether when door-knocking.) The fragmentation of the left and the castration of the trade unions have left Britain without left-wing superstructures capable of amplifying wildcat rent strikes into a broader social movement.

There are also delocalized issues inherent in the mode of protest. The vulnerable people who stand to gain the most from a reduction in rent are also those most imperiled by eviction: working-class people, people of color, single mothers and the disabled, often living in social housing. According to Jay Majitov, many Midtowners will be forced out of state or onto the street if their strike is broken. There is no legal protection for rent strikers in the UK or the USA.

Recrimination can be brutal: after the arrest of rent strikers in Kings’ Cross in 1960, crowds of protesters were baton-charged and violently dispersed by mounted police. Mary Barbour and her army of Glaswegian housewives were forced to fight off heavy-handed bailiffs with wet clothes, rotten food and flour-bombs. Barbour would stomp round the tenements whirling a football rattle to summon her troops as the “factor” moved in.

Midtown property managers Mercy Housing have kept up an aggressive campaign of intimidation, towing residents’ cars for minor infractions and muscling into pensioners’ homes. “They came in as an occupying force, a colonizer. There’s no regard for cultural sensitivity or the long-term tenants,” says Majitov. Tenants have been told they face eviction if their grandchildren visit more than twice a week, or if they hold barbecues on their own property. “I’m sorry, man, but barbecues are what we do,” Majitov adds.

Making rent strikes work

An industrial striker does no work and so loses her pay, but rent strikers actually save money while they agitate, as astronomic rents stop crippling working people and start depreciating from the profits of housing companies. The more unbearable the financial burden on the renters, the keener the loss suddenly felt by the landlord, in an efficacious reversal of power dynamics.

Last year, UCL-CTR organized students from UCL and SOAS in a successful strike, securing £400,000 compensation after the university conceded it had left students in unlivable conditions among cockroaches, rats and incessant building works. London’s first genuine rent strike for 40 years only involved 50 students, but each individual striker made a tangible, measurable impact on the university’s finances. Glasgow 1915 and UCL-SOAS 2015 are century-spanning testaments to the fact that a well-executed rent strike can be devastatingly effective.

Historically, successful mass rent strikes have benefited from a united left providing the infrastructure to exponentially increase the strike’s effect across multiple homes and into the industrial sphere, rather than leaving isolated strikers at the mercy of the bailiffs. A New York strike in 1907 relied on the backing of a strong, active Socialist Party, and the Glasgow strikes would not have succeeded without union support.

As noted above, the male-dominated superstructures traditionally capable of supporting mass direct action have diminished in size and power. If they want to achieve this vital escalation, 21^st century rent strikers must look to alternative, grassroots networks of activists.

Alternate support networks

Most successful rent strikes have been led by women. The distinction between rent strikes and industrial strikes should not be collapsed into a crude dichotomy between the male public sphere and the female domestic sphere. In 1907, 16-year-old Pauline Newman led strikes which secured rent reductions for 2000 New York families. She worked till 9pm in a textile factory before campaigning all night in the slums of Manhattan. Working-class women have always worked formally in the marketplace, as well as informally (and unpaid) in the home.

But Newman, the “East Side Joan of Arc”, was supported by housewives who spent the day going from tenement to tenement urging other families to join the strike. Working-class shop-floor networks intermeshed with female-dominated domestic networks. The Glasgow rent strike was sparked by landlords seeking to cow women into submission while their husbands were away fighting in the war. Again, Mary Barbour and her army rapidly spread information through the slums whenever the factor descended, militating via a social infrastructure which their landlords grossly underestimated.

Half of all British housing benefit recipients are single women. The average female flat-sharer in London earns £4236 less than her male counterpart, and twice as many women as men spend over half their salary on rent. Women have a disproportionate stake in the housing crisis, and male politicians continue to underestimate their ability to organize and resist. Though not a rent strike per se, the success of the Focus E15 mothers in resisting eviction attempts by Newham Council illustrates the continued power of localized, female, working-class support networks.

Interlocking working-class communities and communities of color have proven similarly capable of disseminating information and resistance. Rent strikers in 1930s Peckham relied on a rolling guard of unemployed laborers to defend their homes while successfully agitating for an improvement in living conditions. Majitov repeatedly emphasizes the importance of working-class solidarity in Midtown: “We don’t build apps, we don’t code. We drive buses and we deliver mail. And if this working-class community of color hadn’t stood together we would have been out a long time ago. ”

African-American Jean King (another woman) secured rent controls in St Louis after a year-long strike in 1969, while Majitov proudly notes that Save Midtown has the support of civil rights luminary Andrew Young, who successfully organized a rent strike alongside Martin Luther King in 1960s Chicago. Just like in Glasgow in 1907, Save Midtown have appointed tenant organizers with responsibility for contacting strikers across the development, and they are now reaching out to other African-American communities being abused by Mercy to launch a nationwide class action against the housing company.

The university bubble

A rent strike is a very different proposition for students, who are typically more privileged than the general population — a state of affairs maintained by the inaccessible rent conditions UCL-CTR are striking against. Many students have family homes to return to, and this can be leveraged against universities.

David Dahlborn explains: “When nothing had happened by the end of summer 2015, the international students who were on strike said ‘well, fuck it, I’m going home’. The university realized they couldn’t really send bailiffs to Mexico.” UCL capitulated soon after. Again, rent strikes reverse a power dynamic familiar to anyone who has tried to secure the return of a deposit from a suddenly evanescent landlord.

Students can also leverage the disjuncture between the public face of the academic university and its profit-making operations. “They say they’re concerned with education,” says UCL striker Aleksandra Tomaszewska. “But they’ve cut funding and bursaries while raising rent and tuition fees.”

Where housing companies are not hugely concerned with positive public relations, university authorities are at pains to emphasize that they provide a caring, nurturing environment. It would be a PR disaster for UCL to forcibly evict white, well-spoken, middle-class students. As with much student activism, student rent strikers can trade on their privilege to enjoy a much greater degree of security than their counterparts in council housing.

Universities constitute a ready-made network for the expansion of a strike. A successful rent strike at Sussex University in 1972-3 rapidly spread to 23 other universities. UCL-CTR is sharing advice and materials with student activists from SOAS, Imperial and Goldsmiths, as they seek to expand the current rent strike across the capital.

“Anyone could do it,” says Dahlborn, who repeatedly emphasizes the lateral organization of UCL-CTR. “Everybody on the strike is a potential organizer.” Students have more free time than workers; they have access to condensed bodies of left-leaning tenants paying vastly excessive rent; and they are keyed in to networks of information exchange between these bodies.

Rent strikes for the 21^st century

Paradigms established by 20^th century rent strikers could be instructive for those on the radical left wrangling about their relationship with Momentum and Jeremy Corbyn’s Labour Party. Newman and Barbour instigated their strikes alone, but willingly worked alongside hierarchical, party-rooted structures to replicate these actions on a wider scale.

But as Dahlborn argues, a successful general rent strike must ultimately emerge from coordinated grassroots action, as multiple localized organizations “replicate and generalize” tactics that have worked well elsewhere. An emphasis on the dispersal of power underpins much recent left-wing strategizing, and rent strikes can operate particularly effectively through decentralized, lateral organization.

“Together we are powerful, and united we can defeat the market,” Dahlborn says. The unity he describes is not monolithic but dispersed, varied and multiple. Strikes should be generated through grassroots networks, not mandated by top-down frameworks.

Networks of university activists provide one such structure. London’s Radical Housing Network, which unites housing co-ops, community action groups and union representatives, is another. (This organization could also facilitate liaison between university students and working-class activists).

Roger Hallam’s concept of “Conditional Commitment” involves assuring potential strikers that a strike will only go ahead once a certain number of other tenants have committed to the action. Successfully implemented by UCL-CTRE, this system of collective responsibility would function well in enabling dispersed networks of rent strikers to operate in unison.

Industrial strikes expose the gulf between the evaluated worth of employees’ labor and the evaluated worth of the products they manufacture. The fact that a rent strike is even tenable as a concept illustrates the fact that tenants, like workers, are treated as profit-making organs.

Historically, the establishment has therefore reacted ferociously to rent strikes, which expose the cruelty of market logic. A general rent strike called by a hypothetical national tenants’ union would likely meet with overwhelming opposition. But it would be much more difficult for the establishment to defeat a network of localized, coordinated strikes breaking out on university campuses and council estates across the country.

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After the Crash

Dispatches From a Long Recovery (Est. 10/2024)

Tag Archives: Real Estate