Howard H Aiken, a pioneer in computer engineering, has famously urged others to “[not] worry about people stealing [your] idea. If it’s original, you will have to ram it down their throats.”
Such reminders are especially useful when considering the various reasons that groundbreaking ideas don’t always achieve notoriety in history textbooks or mainstream culture. Marie Howland, a passionate advocate of women’s economic independence in the nineteenth century, is an apt exemplar of Aiken’s claim, for although she was a woman of revolutionary ideas, she is hardly a household name. As a white working-class woman, Howland was among the first of her class and gender to publish a novel in America and to participate in the women’s rights movement, challenging fundamental social conventions that limited the influence of women to domestic sphere. In alignment with authors like Jane Austen, Howland was deeply troubled by the way social conventions served to reinforce the systemic economic dependence of women on men. This has hardly been resolved: “equal pay for equal work,” one of the cornerstones of Hillary Clinton’s current presidential campaign, is merely one example of the work that remains to be done towards Howland’s goal of achieving economic equality among genders. What is most compelling about Howland, then, is how relevant her ideas for the economic equality of women continue to be today.
A concise summation of Howard’s worldview would be to say that she wished to see opportunities for women to achieve financial independence; this idea, however, necessarily challenged traditional boundaries separating the domestic and public spheres. Whereas a man might have many opportunities for different kinds of paid work outside of the household, a woman’s work was restrained to the household, where economic value was not so easily quantified. It was this distinction that, early on, led Howland to embrace the writings of French intellectual Charles Fourier. She admired Fourier’s idea that women ought to be empowered to select their work – primarily in a communal setting (phalanx) with other women – and be materially compensated. It is important to distinguish here that while many women in working-class families were, in fact, compensated for employment outside of the household, Howland recognized that this did not absolve them of traditional household duties; women, in many cases, worked a “second shift” on the home front and remained relatively imprisoned by this economic and social model. As Cliff Cobb states in his introduction to a special issue on Marie Howland in The American Journal of Economics and Sociology, “The only way to let women out of [their domestic] prison[s] was to knock down the walls that have separated the oikos (household) from the polis (public arena), the domestic and the non-domestic spheres” (74.5, 859).
The Fourierist model remains relatively obscure when compared to other alternatives to capitalism, such as Marxism, and might best be characterized as the combination of the communal elements of socialism with a view of humanity as an evolving subject striving towards a state of universal harmony in accordance to God’s will. Fourier believed that the divine model for social evolution required a move toward communal living, reducing the inefficiencies of individual households by consolidating and redistributing the work required by the community. Notably, domestic work such as cooking, cleaning, and childcare was included in this model. By normalizing domestic work within the community marketplace, Fourier’s plan for community living also implies a redistribution of power that has traditionally separated the genders, privileging white males above everyone else. It was Fourier’s hope that, by altering domestic work and power in this way, it would facilitate the sharing of power in other spheres.
Late in life, Howland would reside in the Georgist community of Fairhope, Alabama, which was founded on the ideas of American political economist Henry George. These ideas, implemented both in the United States as well as abroad, have yielded enormous economic opportunities. Not surprisingly, Howland found these ideas compelling and even necessary for realizing a more egalitarian world.
To be clear, none of this demonstrates that the core of Howland’s vision regarding the economic liberation of women cannot be better adopted by our contemporary society. If Aiken’s words are to be believed, we might argue that Howland’s ideas continue to pose challenges so significant that they are resisted by mainstream culture. The virtues of Howland’s ideas lay principally within the uncomfortable questions they pose. It is interesting, for example, to consider the widespread negative perceptions that persist regarding “feminism” as a disruptive – rather than restorative – social influence. The myth of an America offering equal opportunity to all regardless of gender, race, and other disadvantaged identities persists. Should continuing inequality be recognized, which groups stand to lose ground, and what type of social and economic justice, as envisioned by Howland, ought to be pursued? The idea of great disparity as a necessary evil (social Darwinism) remains an economic theory so deeply ingrained in our national narrative that it is often revered as unassailable, forestalling conversations that might otherwise pose promising alternatives but that have the potential to revise our current economic paradigms.
If there is anything we can learn from Howland’s ideas, it’s that justice in work relations cannot be achieved within the current capitalist system, nor can they be achieved by simply redistributing property. To secure a just system for women, said Howland said, the caretaking duties that women are often burdened with also need to be redistributed.
Thomas Piketty’s book Capital in the 21st Century has been flying off the shelves. It’s full of data indicating that the world is rapidly becoming more and more unequal. But if most people are just trying to make ends meet, who has time to read it? Last night, Piketty participated in a high profile talk with economics Nobel prize winner Joseph Stiglitz at a New Economic Thinking event in Paris.
Piketty’s thesis is that extreme inequality results from the observation that income grows faster than the general economy. Stiglitz agrees that inequality is on the rise. The key difference between the two economists however is that Stiglitz emphasizes the importance of rent-seeking, as the primary source of inequality, as opposed to “capital” in general.
They each propose systemic solutions.
What are the solutions you ask?
“It’s about the rules of the game… What is driving the growth of inequality? Minor tweaks in the economic system are not going to solve the problem… Yes, it’s important to improve our education system… Yes, it’s important to improve minimum wages… These will make a big difference, but they won’t solve the underlying problem. The underlying problem is the whole structure of our economy, which has been oriented more at increasing rents than increasing productivity and real economic growth that would be widely shared in our society… a tax on land, rents, would actually address some of the underlying problems… leading to a more equal society.”
Parents often admonish their children to get on the property ladder as soon as possible. They’re right in giving such advice. Wages have actually decreased in recent years while rents soar; Meanwhile, someone who does not necessarily work can make more money speculating on land than doctors and engineers make as part of their normal wages.
What does Piketty Mean by “Capital”?
On one hand, capital can mean buildings and factory equipment. Yet, it is often used to refer to money lent to companies to invest in such assets, and more generally as the sum of all economic assets. If this is how capital is defined, then things like land and other natural resources are subsumed under that definition too.
Why is that important? Well, if you are trying to bake a cake and you assume that baking soda is just another type of flour, you’re going to end up with a pretty disgusting, globally impoverished, cake. Yet, this is how Piketty defines natural resources, just another type of capital. In Stiglitz’s view, land and natural resources are different from man made buildings and manufacturing equipment.
A Global Tax on Wealth?
Piketty recommends a global tax on all capital, all wealth as he defines it, regardless of type. However there are some practical problems with this solution. One is getting all countries to coordinate all taxation. What if tax havens like Switzerland don’t follow suit with the rest of the world? The rich will simply continue to hide money there. As Stiglitz says in the video above, economic models show that such a tax on global capital would simply be shifted on to the poor, regardless of who was nominally billed. There is however a much deeper problem caused by thinking of resources as mere capital; the difference between what ought to be shared and what ought to be private is rendered arbitrary. It is used to justify bizarre conclusions from those on the left and right alike.
For example, Nestlé’s CEO has said that water is not a human right; everyone should pay him for the privilege of drinking. On the other end of the spectrum, communists claim that nearly everything should be collectively owned and managed; even people’s personal possessions, such as pots and pans, were confiscated during China’s “Great Leap Forward.” Both ideologies base their conclusions on the same faulty assumption -all sources of wealth are the same. If however, we can separate what is earned from what isn’t, and implement a sustainable system around this principle, we have a sound basis for creating a fair, meritocratic, and humane society.
The Earth Belongs to Everyone
We all have an equal right to drink clean water, breathe clean air, enjoy land and Earth’s other natural resources. None of us created the earth, it’s ours to share. Instead of taxing regular people for working and exchanging, we ought to tax earth’s natural resources, both their use and abuse. Chief among these resources is land.
“Unlike other assets, land can not be moved to a tax haven.”
As stated before, real estate, more precisely land, is a major source of inequality. Unlike other assets, land can not be moved to a tax haven. Thus, realizing the benefits of taxing land value does not require persuading every country in the world to participate in such a tax regime. Countries that do implement it however will see an enormous reduction in inequality.
For a more in depth response to Piketty, and to learn more about how a land value tax would reduce inequality, click here.
It has been suggested that the Ebola crisis is less a public health crisis than an inequality crisis. My first response upon hearing this was, “Ya think!?” No blame to Jim Wallis for saying it; I’m glad he did. But the fact that it needed to be said is troubling, to say the least.
Thus far, the American political and media response to the news about Ebola has left me feeling ashamed of my country. Our outbreak of posturing and wagon-circling has been American Exceptionalism at its tawdriest. Respected people, astute enough to sit on the Congressional Homeland Security Committee, urgently demand that we “seal the borders! Ban flights from West Africa!” Why hasn’t Obama done that already?
Seal US borders?
Among the many reasons why that’s a bad idea, the most obvious is that there are hundreds of alternate routes; for a ban to be effective, it would have to be worldwide. But, it would be impossible to enforce a worldwide travel ban; people would sneak into all manner of places, making exposures that much harder to track down. Also, there is wide agreement that the need for people and resources to help fight the West African outbreak is so great that it cannot be met without the resources of commercial airlines.
I suppose it’s understandable, though, that we’d be a little freaked out by a gigantic outbreak in West Africa of a fatal disease that manifests itself in such symptoms as high fever, headache, vomiting and diarrhea. In Sierra Leone, currently the epicenter of this outbreak, some 7,500 people, mostly children, have died of it in the past year.
No, I’m not speaking of Ebola, but another disease: malaria. Sierra Leone has the world’s highest death rate from malaria. (It also has the world’s highest death rate from tuberculosis, which kills even more West Africans than malaria does.) This year, Ebola has killed a (comparatively) modest 3,000 people in Sierra Leone.
Not All the News from Africa is Bad
There has been some good news out of Africa recently. Economic growth is taking off, and a new middle class is emerging in many countries, skilled at leapfrogging into 21st-century communications via mobile phones. Innovative entrepreneurs are creating devices that bypass infrastructural deficiencies to meet the needs of real Africans. South Africa and, especially, Botswana are making real strides against government corruption. At the moment, the most compelling piece of good African news is the way Nigeria has carefully, methodically — and so far, successfully — controlled the threat of an Ebola outbreak. It could have gone far differently. Lagos, Nigeria’s capital, is a city of 21 million people.
If Nigeria, a country that’s infamous for epic mismanagement and corruption, can do what it takes to contain an outbreak of Ebola, then surely the United States can do it — and, initial missteps aside, the US almost certainly will do it. But, it is a costly, and tricky, process. Ebola is only contagious when victims have already begun to show symptoms — which occurs after an incubation period of up to 21 days. Those symptoms include severe vomiting and diarrhea, and patients can decline rapidly. As their disease becomes more acute, the concentration of the virus in bodily fluids increases; this means that health workers (or family members) caring for acute Ebola patients are at the greatest risk.
Equipment, and techniques, exist for dealing with such patients. However, they are expensive and cumbersome; practitioners have to be carefully trained. It can be done, though: in late September, CNN aired a report on how one woman in Liberia cared for four family members with Ebola without getting infected. We all hope the two Dallas nurses who contracted Ebola will recover soon. It is not the least bit surprising, though, that there would be initial hiccups in a nation’s response to such a tricky disease. Make no mistake, though: nobody, anywhere, thinks that people in the United States need to panic (nobody, that is, except the cynical self-promoters who seek to gain from our panic).
Sierra Leone & Liberia
Sierra Leone and Liberia have made great strides toward economic and social stability in recent years. With their devastating civil wars behind them, their economies have been growing at rates of 11-13% . Two Liberian women, Ellen Johnson Sirleaf — the first woman to be elected President of a modern African nation — and peace activist Leymah Gbowee shared the Nobel Peace Prize in 2011. Liberia and Sierra Leone are comparable in size to North and South Carolina. They have long, lovely Atlantic coastlines, and are amply endowed with arable land and various natural resources.
The Carolinas have a combined economic output (GSP, Gross State Product) of $656.4 billion, while Sierra Leone and Liberia have a combined output of only $13.4 billion (GDP). Alas, these two nations are in no shape, in terms of medical infrastructure, to even combat the devastating diseases they were struggling with before the Ebola outbreak, diseases including: malaria, AIDS, dysentery, etc.
Some selected statistics (from the CIA World Factbook) should be enough to illustrate the point:
People under age 14
People per doctor
Female literacy rate
GDP per capita
Population below poverty line
In June of this year, Sierra Leone closed all schools due to the Ebola outbreak. In October, a school-by-radio program was announced. Its effectiveness will be limited, however, because only about 25% of families in the country own radios.
I have been emphasizing Sierra Leone because it is simpler to gather numbers for a single country, but most of what I’m saying about Sierra Leone applies to Liberia even more strongly. Indeed, it’s not easy to see why they benefit from being separate countries. Sierra Leone’s colonial history was tied with Great Britain while Liberia’s was with the United States, but their colonial, and post-colonial, politics were the same. Both powers cultivated tribal elites for powerful “overseer” roles that transferred intact into post-colonial politics. Recently, aided by the machinations of Liberian warlord (and convicted war criminal) Charles Taylor, both countries became embroiled in brutal civil wars. The war in Sierra Leone killed 50,000 people; Liberia’s killed more than 200,000.
This histories of Sierra Leone and Liberia are of course complicated. However, for the purpose of understanding their current health crisis, it is sufficient to oversimplify. They are both a product of colonialism. Boundaries were drawn in line with European interests, pitting rival groups against one another as part of a system of divide and conqueror. A class of elites/political pawns were posted to ruling positions. When independence came, the elites were poised to consolidate their power. In the Cold War political climate of the time, regimes vied for gifts of money and weapons from either the Soviets or the West. Political control bounced back and forth between “socialist” and “anti-socialist” regimes, but domestically the labels made little difference. People’s needs were never well-satisfied, which made them receptive to the promises of each new rebel faction that seized control.
From a distance, people are tempted to ask why these people can’t get their act together — but the reasons are not hard to decipher. According to many experts such as Paul Collier and Pádraig Carmody, perhaps the most important source of continued poverty and conflict in West Africa is natural resources. For example, Sierra Leone’s largest export is unsorted diamonds — precious stones scraped out of the ground and sold for much less than their improved value at, say Tiffany’s. The URF rebels in Sierra Leone paid Liberia’s Charles Taylor in diamonds for the weapons they used to escalate their civil war.
How much would it cost to wipe out Ebola?
I live in Central Maine, which, by US standards, is not a wealthy place. Frequently I see donation jars, in local stores, for a family whose house has been lost in a fire, or who has been visited with a very expensive injury or illness. People invariably fill those jars, but only after disaster strikes are they willing to give. It may be harder for us to wrap our minds around the suffering our neighbors in West Africa -but make no mistake, they are our neighbors. Our esteemed Congressional representatives have been making that point over and over, by telling us how easy it is for them to come and visit us.
At the national level, though, the cost of turning this terrible situation around is comparable to the small change I might toss into one of those local-relief jars. That may be hard to believe, but it really is. After the 2004 tsunami in Indonesia, the US sent 12,600 military personnel to a relief and rescue mission, various governments contributed $5 billion in direct aid, and private donors raised still more. Did that scale of relief effort cause any economic hardship? Does the reader even remember this?
The F-22 fighter jet just went on its first combat mission, successfully dropping bombs on an ISIL command-and-control building in Raqqah, Syria. The United States has a fleet of 190 of this state-of-the-art stealth fighter, at an overall cost of over $36 billion.
The US Navy has twelve full-size aircraft carriers. When one of these behemoths goes to sea, it does so with a retinue of ten escort ships; operating a single carrier battle group costs roughly $900 million per year.
I think we can afford to invest the funds necessary to prevent preventable diseases in West Africa. Don’t you?
Long Term Solution
We need to render such nations less vulnerable, unilaterally — by promoting democracy, transparency, and economic freedom. Economic freedom would consist of taxing these countries’ vast natural resources, and using the funds to improve medical infrastructure, among other things. Oil and diamonds are obvious examples, but the most important resource, one which all countries have, is land. Taxing it as a function of its market value would break up large feudal land holdings, making it available for poor subsistence farmers. In time, such a system would bolster domestic markets and reduce dependence on bargain-priced exports (and foreign loans). But it’s very hard to establish reasonable, sensible, long-term reforms when so many people, especially children, are dying before your eyes.
P.S.: The Impulse to Panic
Since the above article was filed, it has been reported that a doctor who volunteered in Guinea for Doctors Without Borders and returned, symptomless to New York City, has been diagnosed with Ebola. Before that, apparently, Dr. Craig Spencer did some normal traveling about the city. “See! See!” scream our friends at Fox News. Dr. Spencer was very familiar with Ebola’s pathology. He monitored his own condition carefully, and followed established procedures as soon as he developed a fever. (Initial reports that his fever was 103 degrees turned out to be a transcription error: it was actually 100.3.)
A woman, a nurse from New Jersey, was quarantined upon arrival at Newark Airport, and she has since developed a fever. This was done under a new policy announced by Governors Andrew Cuomo and Chris Christie; their two states will go beyond the Centers for Disease Control’s recommendations and impose a 21-day quarantine on medical workers returning from Ebola-stricken countries. New York and New Jersey will also impose tougher screening procedures on people arriving from Liberia, Sierra Leone and Guinea than those required by the federal government.
According to the Centers for Disease Control, it is likely that the NY/NJ restrictions will mean that fewer health workers will be willing to volunteer in West Africa, at a time when every possible hand is needed. The CDC has announced a new “active monitoring” system that seeks to severely limit the risk of new Ebola cases without the harmful effects of a travel ban or automatic quarantine.
Thus far there have been five cases of Ebola in the United States, and one death. It seems that Congressional Republicans and other fear-mongers won’t be satisfied unless there are no new cases — but that is not a realistic goal. We live in an intensely interconnected world, and freedom entails some risk: there are going to be some cases. I wonder how long it will take for the US Ebola death toll to reach 9 individuals. That’s the number of Americans killed, so far in 2014, in school shootings.
It has been generally assumed, for many years, that “the free market isn’t good at providing affordable housing.” If the free market can’t satisfy that basic, universal human need, then we can’t afford to trust the free market, can we? Oddly, the free market doesn’t seem to have a problem with providing other things we want to buy. There are sensible cars that working people can afford. You can go into Walmart and buy your kids a full set of school clothes for less than $100 (though you might pay a bit more if you’re concerned about abusing and killing textile workers). Do-it-yourselfers know that there’s healthy competition in the markets for lumber, nails, paint, wallboard and power tools. Why, there are even out-of-work carpenters eager to work for reasonable rates — it’s not the actual construction of the housing that’s unaffordable.
“It’s Not That Simple”
When water was the preeminent source of industrial power, towns grew up along the Appalachian fall line. In recent years, the globalization of various manufacturing industries has led to a decline in population — and real estate values — in many cities, especially in the Midwest.
The state I live in, Maine, has lost flagship industries in successive waves. In the 18th and 19th centuries, demand for Maine’s prodigious timber resources kept billions of board feet floating down the Penobscot river, and shipyards humming up and down the coast. (Today, one last shipyard, Bath Iron Works, struggles to keep its US Navy contracts.) Then, for many years, Maine was a leading producer of chickens. The cold winters helped to keep the large numbers of birds free of infection. But, when antibiotics were discovered to do the same thing, chicken farming quickly shifted southward, to avoid Maine’s high fuel costs. People — especially educated young people — moved away, and the state’s economy suffered. But, for those few who could afford a down payment, Maine homes were bargain-priced. So, one thing we can say about “affordable housing” is that it tends to come along with economic decline. But, sometimes, in some communities, that process can have a silver lining.
To return to the Maine example, old farms have been repurposed to make high-end wool products (sheep and alpacas like it there), or organic crops for a growing local-food market. Often, when land prices fall far enough, new, creative place-uses start becoming feasible. Sometimes the process turns communities entirely around. In Maine, an example is the community of Belfast, a town of some 6,000. In the 1980s, Belfast was a gritty, working-class community that smelled like its two biggest employers: fish-canning and chicken-processing. When the chicken industry left the area, and the struggling sardine plant closed, the town faced hard times. Housing was cheap, all right — who wanted to live there? However, the town had a usable harbor, and some charming old architecture, and it willed itself into becoming an artistic community. Galleries and bistros sprouted like fungi. Tourism boomed. Rents and house prices soared.
Urban Blight & Flight
Throughout the 20th century, US cities declined, while suburban communities boomed. This was a national phenomenon. It preceded widespread globalization, and cannot be linked with industrial decline. And, it was in precisely these blight-afflicted cities where the “affordable housing problem” became most acute. The cause of urban blight & flight had everything to do with the sad racial history of the United States. There were two great waves of rural-to-urban migration of African Americans. The first brought some two million blacks to Northern and Midwestern industrial cities, seeking to take advantage of the shortages of industrial workers brought about by the first World War. The second brought another five million or so after World War II, many of whom settled in cities in the West. Conditions in the agricultural South must have been pretty bad for so many people to pin their hopes on such an unlikely outcome.
Once the Great Wars were over, industrial jobs were no longer so easy to get (after WWII, millions of women relinquished factory jobs to returning GIs). Many unions denied membership to African Americans. Furthermore, the process of redlining — denying credit within certain racially-defined areas, was very widespread. These factors, combined with an endemic level of racism in society, ensured that people of color stayed within well-defined neighborhoods.Within those areas, unemployment was high, and it was essentially impossible for residents to establish businesses or buy homes. Rental housing was in short supply, and there was little incentive for landlords to pay attention to maintenance.
This was a recipe for crime, and decline — and many of cities’ white, middle-class residents started to leave — a process that was accelerated by the establishment of the Interstate Highway System, and the booming automobile industry. This process left behind impoverished, crime-ridden neighborhoods, patrolled by contemptuous and unreliable police. But you couldn’t say they weren’t affordable. At the very least, you could knock your way into the shelter of an abandoned building. A great many working people rented egregious housing, while paying for their own painting, re-glazing, and often heating, in Harlem, North Philadelphia, Watts, St. Louis, South Chicago and many other cities. This is not to suggest that urban decay is entirely due to racism. It happens in places that lack the USA’s chronic racism, and has much to do with a worldwide shift of manufacturing to the global South and East. But, people often find it easier to handle large-scale social problems if they can identify a scapegoat. In the USA, the identification of Black areas with drugs and crime suited this impulse.
At Least It’s Our Neighborhood…
There’s an inherent instability about this process, though. Blighted as these neighborhoods were, people had put down roots in them. They paid their taxes; city governments grudgingly provided them with infrastructure. Each had originally been part of a big city, a place where a great many people wanted to live. But, as land values fell, and more buildings were abandoned, eventually the place would become a real estate bargain.
The slum may have lowered the value of the land immediately under it, but the slum as a whole was still centrally located. A Doonesbury strip from the early 1980s showed a radio interview of the author of a book about making money in real estate. The author said that it was a good idea to distribute spray paint and crowbars to the local youth. “You mean,” asks the shocked interviewer, “you encourage them to vandalize their own homes?” The author replies, “Well, within reason. We ask them not to touch the copper plumbing.” The history of a place like New York City is characterized by waves of blight and gentrification. Manhattan’s Upper East Side was scrubby farmland, then a rough-and-ready neighborhood of German and Irish immigrants, with a dirty, loud El train running right through it. Now it’s among the priciest real estate in the world.
Similarly, Harlem in the 19th century was a community of fancy country estates. African Americans from the South started arriving in great numbers in the first decade of the 20th century, along with subways to take them back and forth to work. “Urban renewal” policies threw up high-rise housing projects in the 1950s in an attempt to “clear the slums” and address the housing crisis, but the neighborhood’s poverty remained. Now, after all these years, Harlem is becoming gentrified, and there is resentment over losing the old community, rough as it was — as well as the skyrocketing housing costs. Even the South Bronx is starting to sport some pricey new condos.
The Blight & Flight Pattern Reverses
Where do people go, when they get gentrified out of the neighborhoods they’ve lived in for years? One would think that in the vastness of New York, they would move to the Outer Boroughs. Some do — but real estate prices in New York have become so extreme that even cheap Outer-Borough neighborhoods, like Williamsburg, Red Hook or Astoria have become unaffordable. Many have to leave the Big Apple entirely and head for the more affordable “inner-ring” suburban communities such as Jersey City, Yonkers or Nassau County. This is becoming a nationwide pattern. People who can no longer afford to live in gentrified, former low-income neighborhoods are moving, in large numbers, into “inner-ring” suburbs. Poverty, racial tensions, and other social problems long associated with “the ghetto” are showing up in suburban communities. And housing in such places is becoming — that’s right: more affordable.
Must Affordability be Synonymous with Poverty?
Back in the mid 2000s, we seemed to be on a path that would make the American dream of owner-occupied housing come true for just about everybody. For a time, it seemed like anyone could secure a home mortgage. Banks were offering mortgages with no down payment, just a pay stub indicating the buyer could make the monthly payments. Just to make sure, Fannie Mae and Freddie Mac offered targeted mortgage programs for minorities.
Price was no object, because everyone expected the value of the real estate, which served as collateral for the loans, to keep going up. Suddenly, all these new homeowners could borrow against their home equity to buy a new car or a washer & dryer. It was a magical wealth machine, fueled by historically low interest rates. What a neat solution to the problem of affordable housing! Alas, it was based on a transparent fallacy, and the process made a few people fantastically rich, while deeply hurting just about everyone else.
The dreamer awoke; we realized we couldn’t really create the American dream out of pixie dust. There are currently more empty, foreclosed houses than there are homeless people in the USA. Unfortunately, homeless people don’t have stable jobs or good credit ratings. Which agency is going to deal with the innumerable i-dottings of transferring title to four million empty houses? And are the banks going to give up these assets, just to be nice?
Though it might make sense, in many ways, our current political system simply will not allow these empty homes to be given away to people who need them. Cities are left with the realization that they have to create affordable housing the old-fashioned way: build it. There are, basically, two ways of doing this. They could spend municipal funds to build public housing (which is politically unthinkable today) or somehow give private developers an incentive to build it (which is, as things now stand, economically unfeasible).
Cities Try to Put Deals Together
Nevertheless, a number of cities are trying this sort of thing. In New York a developer is allowed to build 20% more units than zoning allows. By “allows,” I mean the square-foot figure that has been negotiated using transferable development rights, public-space considerations, etc.). This is the case if it agrees to create, or keep from being lost, that same number of affordable units (“affordable” being subject to various official definitions). Two things about this: first, it solves the mystery of how people are able to build thousand-foot towers in areas that are zoned for, like, twelve stories. Second, in terms of meeting the need for affordable housing, it’s an inherently losing proposition. At best, the program will only create 20% as many affordable units as new luxury ones. If the luxury towers succeed, they’ll add to the upward pull on housing prices, causing more affordable units to be done away with. If they fail, luxury housing will be oversupplied, and since new affordable units are based on the creation of new luxury units, it’s self defeating. We have come full circle to the problem that we started with. Why is it that the market is able to provide working people with cars, cordless drills, blue jeans and smartphones — but not housing?
The difference is really pretty obvious; has the reader caught it? Here is a house. Let’s play real estate appraiser for a moment: is this house worth $50K? Or it is worth $1 million? You hesitate. You seem to need more information. Wouldn’t it depend on interest rates, and the boom/bust cycle? I mean, heck, you might not be able to get $50K for it, if nobody can get financing. True enough — yet there is another, much more important consideration — something real estate people know very well, but public-policy people always seem to forget. It’s all well and good to figure out where things are in the business cycle — but to answer our question, the thing you really need to know about this house is: where is it? How many people want to live there? How close is it to lots of people to meet, greet and make deals with? How easy is it to get from there to places where all those people gather for business and pleasure? What public services are provided to people who live there, how good are they, and who pays for them? It’s the value of that location — where it is — that accounts for the 20-fold difference in price.
It’s also worth noting that although people struggle to afford housing throughout the economy, and, indeed, the great bulk of foreclosures in the subprime housing crisis were in suburban areas. Nevertheless, it’s in urban centers that we hear the hue and cry for “affordable housing.” Fans of The Free Market are tempted to ask why urban centers need affordable housing. Aren’t cities supposed to be places that draw the best talents and most nimble operators? Urban taxpayers invest in public transportation systems; why can’t the workers just live outside the pricey (newly gentrified) central cities? But that doesn’t work, because — as we have seen — areas within commuting distance aren’t affordable either! The “affordable housing problem” of today’s cities isn’t a matter of community spirit, or compassion for the poor commuters. “Affordable housing” becomes a problem when so few people can afford to live in a community that its ability to sustain a local economy starts becoming threatened.
Cities Are Not Filled Up
There ought to be plenty of affordable housing. If one examines any US city — by driving through, flying over, or scrolling through Google Maps — one will see a truly amazing amount of real estate that is either entirely vacant, or grossly underused. How many surface parking lots does Downtown Brooklyn need? This waste of infrastructure-rich urban land happens throughout the city, from the hyper-valuable core right out to the fringes, making the urban area sprawl out much farther than it would otherwise need to (and drastically increasing both pollution and travel times).
Why does so much valuable land go to waste in cities? Because those who own the land are allowed to profit from community-created land value even though they don’t use the land. The vast majority of new urban developments are not undertaken by the land’s longtime owners. Developers acquire the land — often along with obsolete buildings they then pay to demolish — by paying big prices to owners who have not contributed one penny to the local economy. This is the major cause of urban blight and sprawl, and unnaturally high — and volatile — housing prices. It’s vital to separate the owners of land from the builders and operators of buildings. They may or may not be the same person — but economically their function is entirely different. In our economy, the value of land is not enjoyed by the people who create it. If that seems a bizarre statement, it’s only because we’re so accustomed to the utter conventionality of it. The value of locations is enjoyed by real estate owners, and banks (who hold equity in the property until the mortgage is paid off, and earn interest on the money loaned to buy it). Location value is created by the community, yet collected by private investors. In fact, it is collected by private investors whether they build housing or not. That is why housing is unlike any other commodity — and that is why the problem of “affordable housing” seems so unsolvable.