Origins of the Silicon Valley Housing Crisis and How to Fix it

Most of the wealth being generated in Silicon Valley is the result of advanced engineering, risky venture capital and cut-throat business acumen in the face of rapidly-evolving competition. Visa, HP, Intel, Adobe, Ebay, Apple, Google, Facebook – the concentration of multi-billion-dollar enterprises in this tiny pocket of Santa Clara Valley is staggering.

But not everyone making big money in Silicon Valley had to major in a STEM field or produce any real wealth to do so. For those who have speculated on rising land values, the last 40 years has been a gamble that keeps paying off. In the 1960s, when the land in Santa Clara Valley was producing prunes instead of circuits, John Arrillaga Sr. and Richard Peery could see the wheels of a new boom beginning to turn. These young entrepreneurs spent the next decade building the corridor through which much of Silicon Valley’s world-changing innovation would pass.

By constructing custom and cost-effective office units quickly for emerging tech companies, Arrillaga and Peery dominated the region and became its go-to developers. Their signature, low-slung concrete buildings called tilt-ups made for cheap and quick construction early on. The pair was also among the first to build before tenants were confirmed, in the hopes that immediate availability would be attractive to businesses. The land they had bought up as young men began to generate formidable returns, and the speed of technological progress coupled with an apparently insatiable demand for more space created today’s Silicon Valley, synonymous with skyrocketing land values. While this new value injected into Santa Clara Valley draws people to the area and creates prosperity for those in innovative industries, it also attracts speculation where it is possible to capture significant wealth simply by owning land.

Arrillaga is worth more than $2.5 billion, a fortune earned in part from unparalleled skills as a developer, but also because he was able to extract a great deal of unearned wealth. The contribution of pioneering land developers to economic growth is undeniable, but unfortunately, taxation structures have not kept pace with the rapid transformation of unproductive land into a cybercity of millionaires and billionaires. The wealth that has been obtained from constructing buildings is hard earned, but the enormous increase in rental income resulting from rapidly-increasing land values has not been earned. It’s not as if aging structures have grown more valuable, it’s the land underneath them that has skyrocketed in this hub of innovation, land values created by an aggregation of economic activity not attributable to any one person, developer, or tech company. The value of this land is indeed a socially-created value.

Today, the success of entrepreneurs starting tech companies has made Silicon Valley the most expensive place to live in the United States. As these tech giants grow, the reach of their impact on the housing market spreads, and migrant employees move with their money to suburbs farther and farther out from where they work. In so doing, they shape land values and make other lasting changes to the urban environment. The gains generated by developers like Arrillaga and captured by speculators can ripple out into the wider community and inflate the cost of living.

By Unsplash via Pixabay.

The incredible wealth now being generated by high-tech industries in Silicon Valley has put a premium on all surrounding land, both commercial and residential. Working-class residents can only hold on to rent-controlled accommodation for so long before the profit motives of private developers see them evicted, and their housing demolished. According to the Guardian:

Between 2000 and 2013, the number of low-income households in the Bay Area increased by 10 percent, but the region lost 50 percent of units defined affordable for this population, according to researchers at the University of Berkeley, California, who have closely studied gentrification and displacement.

The proliferation of wealth in our communities is a wonderful thing; the only reason it causes such polarization is because systemic inequalities go unaddressed.

We can have the best of both worlds. For men like Arrillaga and Peery to have the opportunity to create these cash cow business parks and bring thousands of talented professionals to Silicon Valley is incredible, it should be celebrated.

As people have come together to produce a great deal of wealth in the tech industry, land values have boomed. Those who were able to get on the property ladder before an oncoming swell in land values simply sell or rent for huge windfall gains, unearned wealth, while prior tenants are displaced. Incoming renters are squeezed or turned away entirely by the high rent.

The problem is not the tech companies or their workers, and it is not the vulnerable tenants; it’s not even the landlords who benefit from, perhaps unconsciously, playing the working class renters and the angry anarchists off the techies. It’s our system of property taxation. The best and simplest way to correct the imbalance, to give justice to everyone, is to implement a system of Land Value Taxation while reducing taxes that harm the poor and the production of new wealth.

From the developer’s’ perspective, a Land Value Tax would in no way detract from the incentive to build in the first place, as the taxes on buildings would be eliminated, after sales and wage taxes. Furthermore, the incentive to build on unused, centrally-located land would increase. They would have an even greater incentive to build immediately because owning the land without having tenants would leave them in the red after paying their Land Value Tax bill each month. The site would not be a speculative asset, but one that only yields a positive return if a developer uses it well to meet people’s needs.

For Arrillaga and Peery, the taxes due on their development portfolio would have grown with the unprecedented business success of their tenants, from dirt cheap taxes on empty lots to large tax bills on lucrative land accommodating high-end office buildings. This would have generated a massive amount of public revenue without harming incentives toward innovation. The seeds of gentrification are nurtured by insufficient housing supply, but Land Value Tax would mean that centrally-located land would be developed to accommodate increasingly more people at comfortable densities.

By lauramba via Pixabay.

This policy encourages landowners to maximize the revenue they can generate by constructing and maintaining buildings of the highest caliber to attract tenants. As opportunity brings more people to an area for work, demand for housing pushes land values even higher, which increases revenue from the Land Value Tax even more. A landowner can then create more housing, often vertically, to cover the larger tax, or if they are unable or unwilling, sell to a developer who will. This applies not just to Silicon Valley, but to any in-demand area where the concentration of jobs forces living costs higher than many can afford.

Land Value Tax can be used as a source of revenue to fund great social programs, even while reducing wage and sales taxes -from health vouchers to housing for mentally ill homeless people, or even a universal basic income. Without a Land Value Tax, however, the benefits these social programs create will simply be captured by landlords through higher rent charges. Thus, the positive effects of these social policies would nearly be wiped out, funneled into the pockets of landlords as rent hikes. For example, if everyone was given a $10,000 basic income each year, all else being equal, what would happen to the cost of rent? It would go up by a comparable amount, and largely cancel out the benefits of basic income to the most vulnerable people. However, with Land Value Tax, incentives to increase housing supply would result in people being able to protect their basic income from rent hikes.

Governments will not be able to subsidize their way out of this housing crisis with palliative measures. Creating a system of incentives in which the market is enabled to correct itself is the most sustainable way forward, and offers the best hope of ensuring affordability for all while simultaneously giving a boost to incredible growth in future industries.

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Fixing The Bay Area Housing Crisis

The San Francisco Bay Area is in the midst of a severe housing affordability and displacement crisis, the result of years of inadequate public policy, a clash of generational attitudes, and ubiquitous obstruction of new housing projects. At the BIL Oakland: Recession Generation conference, hosted by EarthSharing.org on July 9, a panel of four housing advocates shared their thoughts on where to go from here.

Zac Shore, Stephen Barton, Alex Lofton and Tim Colon described a multi-faceted crisis requiring concurrent and complementary solutions.

Zac Shore is the director of development for Panoramic Interests, a construction company focussed on affordable student housing, workforce housing and homeless housing in San Francisco.

The company has a modular construction ethos that crystallized when they traveled to the U.K. and witnessed the construction of 190 apartments in eight days using shipping containers.

“When we saw that, we were convinced, and now we’re starting to build with it on a large scale in San Francisco.”

Panoramic Interests has built hundreds of apartments for students and workers, and is now beginning to build for the homeless. Shore cited demonstrable cost savings associated with housing homeless, cutting down on chronic use of emergency services and offering an economic incentive alongside the humanitarian one.

Stephen Barton represented the Bay Area Community Land Trust and the Committee for Safe and Affordable Homes. Barton has a PhD in city and regional planning from the University of California, Berkeley, and was director of the Housing Department and deputy director of the Rent Stabilization Program in Berkeley, California before retiring recently. He has written widely on housing policy and co-authored Common Interest Communities: Private Governments and the Public Interest.

Barton argues that new construction does not have the ability to solve the Bay Area’s housing crisis.

“It’s not to say that increasing the housing supply is not important, because it’s desperately important,” he said. “But of course we have Prop. 13 here in California and its progeny designed to protect real estate investors’ windfall profits, and of course encouraging land speculation because people who own vacant and under-utilized land hardly pay anything in taxes.”

Using taxes to treat rental property like a business rather than personal real estate would be a step in the right direction, “to recapture through taxation the value that we and those who came before us have created,” Barton said.

“If you applied a two percent tax to rental property in the whole Bay Area, you would raise $500 million a year and it could lead to construction of as many as 50,000 affordable apartments.”

“About half of the rent that tenants pay in the Bay area is not, in fact, necessary to profitably operate and maintain the housing once it’s been built and the construction costs are amortized. Instead, it’s basically an admission charge – ‘welcome to the magic kingdom, here’s how much you have to pay to be here in the Bay area’.”

Alex Lofton is a co-founder of Landed San Francisco, a community-based brokerage organization that raises capital from investors interested in local real estate, and uses that money to support first home-buyers with down payments.

“Our whole system is set up on the intergenerational transfer of wealth: you’ve got to ask your mom or you dad, or brother or sister, or grandparents to help you buy your first house, especially in expensive places. So we just say ‘Why can’t there be other options than mom and dad…to borrow that money?’”

“You live in a place like this and you question if you’ll ever become an owner…the leap from renter to owner is just impossible.”

While affordability was the main problem with Bay Area housing, requiring greater supply and higher incomes, another way forward was thinking about the concept of ownership differently, and coming up with creative ways for whole communities to help people get started in the property market.

“There isn’t a silver bullet, it does take a lot of solutions.”

Tim Colen, at the time of conference, was executive director of the San Francisco Housing Action Coalition, an organization promoting well-designed and well-located housing. Prior to this, he was president of the Greater West Portal Neighborhood Association, and spent 25 years working as geologist.

San Francisco is cursed by having a red-hot economy, and highly-skilled workers flooding into a city that has a history of under-producing the amount of housing it needs.

“We have chosen policies for the last two or three decades that have led us to this position where our population is growing by about 10,000 residents per year… a city that has a historic production rate [of houses] somewhere around 1700-1800 units a year.”

“It’s already a city that’s become hostile to the young, young families, seniors, immigrants, the artists, the weirdos, the hippies, everybody. It’s going in the direction of becoming a luxury resort with a certain amount of housing we can afford to subsidize.”

In Sacramento, liberal democrat Governor Brown has taken a bold step by introducing “by-right housing”, whereby if certain conditions are met by developers then new builds cannot be obstructed.

“It’s the first tool we’ve seen in ages that says ‘you can’t appeal projects to death anymore’,” Colen said.

The dominant conversation around housing has been one of intergenerational change, and the desire of previous generations to keep things the way they are, Colen said, and this has tipped the balance of power toward those who say no to development and increase construction costs.

“We’re strangling ourselves,” he said. “There is not enough money in the world to subsidize our way out of this problem.”

 

This panel discussion highlights a struggle between established residents and newcomers, who should be joining forces against an entirely different threat. Renters are being squeezed out of the Bay as prices surge, while would-be newcomers, many of whom are tech workers, are kept out by the same phenomenon. Both blame each other, yet it is landowners who are making a killing off the skyrocketing costs for space in the Bay Area.

Yes, tech workers drive up the cost of land, but freezing new construction also makes apartment rents artificially high. Both groups are right, but it is unfettered and untaxed landlordism that is the real problem.

There is a way to help protect those in danger of being forced out of the Bay, while also giving access to newcomers in innovative industries: tax the rising value of land and reduce taxes on working and exchanging. A citizen’s dividend paid out of the revenue from a land value tax, what some call a basic income, should be given to everyone to be spent as they wish. They would use this money to subsidize their apartment, while construction could boom in downtown San Francisco and elsewhere in the Bay. With more people able to fill the new units in the central locations, this would take pressure off areas even slightly outside the central business district. This in turn would retard the rise in rent from what it otherwise would be, while putting more money in vulnerable people’s pockets to secure housing.

 

 

Feature photo: Guner Gulyesil City Romance via photopin (license)

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Is The American Dream Dead in Northern California?

In 1931, historian James Truslow Adams said the American dream mandates that “life should be better and richer and fuller for everyone, with opportunity for each according to ability or achievement”, regardless of social class or circumstances of birth. But what does that actually mean?

For some, the vagueness of the American dream concept makes it difficult to quantify. Identifying a more specific metric of focus would offer a clearer picture of American opportunity for prosperity and success, and an upward social mobility for all people.

TechCrunch.com journalist Kim-Mai Cutler delivered a presentation at Earthsharing.org’s BIL Oakland 2016: Recession Generation event on July 9, in which she focused on the intersection between opportunity, technology, and land. To address this intersection, she referenced the research of Stanford University economist Raj Chetty.

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Figure 1

Chetty analyzed the family income records of 40 million children over the past 20 years and calculated the likelihood of a child born into the poorest 20 percent (lowest quintile) of society reaching a higher quintile in income. Isolating geography as a determining factor, Chetty found that, for example, the city of San Jose provides the best opportunities for a poor child to reach the 80th percentile in income distribution, compared to all other cities across the country. This is shown in Figure 1.

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Figure 2

Despite this, Figure 2 shows a trend reflected statewide and across the United States wherein median wages are increasing, but poverty is also on the rise, and homeownership is falling.

This trend in Santa Clara County flies in the face of conventional thinking, whereby poverty should decrease as incomes and opportunities multiply. If people are making more money, yet are less able purchase a home, the home price must be rising faster than the wage.

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Figure 3

Similarly, apartment rent is skyrocketing. There is a lot of job growth, which would tend to indicate that labor is more in demand and that incomes will be higher, but most of the new jobs do not pay well – most make less than 50 percent of the average median income (AMI), as seen in Figure 3.

To add insult to injury, Figure 4 shows that many lower-wage workers fall well short of average asking rents, and are therefore unable to work and live in the same area. These people must either cohabitate or commute long distances in order to secure housing that they can afford.

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Figure 4

These are direct consequences of Proposition 13, which greatly limits property taxation in the state of California. Proposition 13 defines what a parcel of real estate can be taxed, how much that tax can grow annually, and when the parcel’s value can be reassessed. Over time, this has created severe market distortions, as developers have no incentive to build additional housing that is affordable. This ultimately limits housing supply, forces workers to commute further from the urban centers, and leads to additional sprawl.

How does this all affect upward mobility? For starters, family commute times correlate with a child’s future success and earnings. Figure 5, from Chetty’s study, shows that a transit time of 15 minutes or less significantly enhances a child’s upward mobility.

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Figure 5

If the American dream is precipitated by upward mobility from one income quintile to the next, it is becoming an unattainable dream for an increasing percentage of the population. Without significant policy change, it will become impossible for many families to escape wage slavery.

Remedies do exist – some to resolve the problem altogether, and others to mitigate it. Metro San Francisco has seen a significant growth of working professionals choosing cohabitation, as well as the tiny house movement of 100-400 square-foot spaces. Unfortunately, these behaviors do not address the structural inequities and land misuse created by the current policy environment and Proposition 13.

With this in mind, it would be sensible for new housing construction in the Bay area to occur where economic activity is most concentrated, namely downtown San Francisco. Downtown areas tend to have the greatest land values, but traditional strategies for construction in the city center tend to be very expensive, politically treacherous, or otherwise ineffective. While cohabitation and tiny houses might make the area more affordable for a few, government must incentivize urban development in high-demand areas to effectively turn the tide of this crisis. To this end, the city and state must consider a Land Value Tax.

The economist Henry George documented this phenomenon of market exclusion 137 years ago in his seminal work Progress and Poverty. George demonstrated how rent increases faster than wages, and to expedite new construction, he recommended eliminating taxes on work and consumption and shifting the source of revenue to Land Value Taxation. His idea was to encourage landowners and developers to increase residential and commercial space in order to pay the Land Value Tax, while generating a respectable return and providing value to others. Land Value Taxation naturally becomes even more effective wherever land values are higher, like the urban core of cities. Implemented in cities, Land Value Taxation leads to a substantial increase in both living and working space.

California faces a unique challenge due to the limits imposed by Proposition 13, and overcoming this would require a difficult voter-approved constitutional amendment to completely overhaul the property tax system. State legislators and regional and city planners would be remiss not to consider a Land Value Tax, which has had demonstrated success in increasing residential space in the United States and abroad.

 

Watch Kim-Mai Cutler’s presentation below:

 

Images: Keynote presentation by Kim-Mai Cutler at BIL Oakland: Recession Generation 2016

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Julia Bossmann: Challenges Of A Post-Work Society

BIL: Oakland 2016 Recession Generation was an Earthsharing.org conference in Oakland, California on July 9th. Foresight Institute president Julia Bossmann presented an argument for moving toward a post-work society, and the changes both economic and social that would be required to achieve this.

Bossmann recounts the incredible advances in artificial intelligence we are witnessing, whereby computers are writing original imitations of Shakespeare, dispensing effective legal advice and piloting cars through traffic. Bossmann believes that innovative scientific research will be next on the list of A.I. accomplishments.

Photo: FritzchensFritz AMD@14nm@GCN_4th_gen@Polaris_10@Radeon_RX_470@1622_M60J5.0A_215-0876204___Stack-DSC07208-DSC07236_-_ZS-PMax via photopin (license)
Photo: FritzchensFritz AMD@14nm Radeon_RX_470 via photopin (license)

“They have theoretically unlimited memory, they have a way faster speed of reading, they can find insights and facts from all across and then draw connections and find patterns. So now that we may have reached the limit in medical research – that one human mind may not be enough to figure it all out – having a machine mind may open the floodgates to finding out much more.”

Bossmann’s scenario of a post-work society presents significant economic challenges, with a disruption of millions of jobs across the professional spectrum. Truck drivers could be an early casualty, but many others earning an income by selling their time and labor stand to lose their current employment due to automation.

“How would a human even compete with someone who can drive for thousands of hours at no end and not ask for a salary?”, Bossmann says.

Photo: jurvetson Your Uber Otto has arrived via photopin (license)
Photo: jurvetson Your Uber Otto has arrived via photopin (license)

In general, a person’s income is derived either from time, or from ownership of assets like land and other property. Bossmann states that “once the time goes away, the only thing left is ownership. And we all know that ownership is not distributed in a way that all of us could just live on that alone; in fact, most of us need to sell our time to live”. A radical shift in how we think about ownership is required if society is to remain prosperous, Bossmann says.

As artificial intelligence progresses, those who own the valuable sites where A.I. research takes place, especially in Silicon Valley, will continue to become more disproportionately wealthy vis a vis the appreciating value of their land: rents they can charge, prices for which they can sell, etc. They will become wealthier not by doing the research and development themselves, but simply by owning valuable space in areas doing R&D. Regardless of Bossman’s predictions about the rate of A.I. progress and its replacement of human labor, a greater proportion of the wealth created will continue to go to owners of prime land.

Those who own prime locations already have a large advantage over wage earners, simply by their ever-appreciating real estate values. We have seen a huge explosion in labor-saving devices, wealth production, and wealth inequality in the last two centuries. These gains disproportionately go to the owners of property. So, there is already a need to share the returns from owning natural resources like land.

This need to redistribute the benefits of land ownership become even more obvious in Bossmann’s prediction of the future – where she assumes a lack of A.I. winters/ceilings, no comparable human intelligence augmentation, and where the Law of Comparative Advantage (between humans and robots) no longer holds. In such a scenario, obedient robots would simply produce enormous amounts of wealth, and this wealth would all go to those humans who own the natural resource inputs needed for A.I. The people who did not own land, or receive a dividend/basic income of some kind, would simply have no income.

Henry George, a prominent political economist and author from the late 19th century, argued that gains derived merely from the ownership of land and other natural resources should be considered the property of everyone, not just the title-holders. A system of land value taxation would be a pragmatic way of shifting the burden of raising public revenue from workers to landowners. It would be the obvious choice for funding a basic income that would protect people from unemployment now, and facilitate any kind of post-work society.

“Once we have figured out this dilemma, and we have machines that will do most of the work on the planet… we will look back and think that it was barbaric that people had to sell most of their living time on this planet, doing things they didn’t want to do,” Bossmann says. But reaching an economic consensus is not all that is required to reach a prosperous post-work society.

“Many of us define ourselves by our jobs, what we do for a living, how much money we make, all these things are important to so many of us. Are we willing to give up this kind of thinking for something better?”

Julia Bossmann is president of Foresight Institute, a think tank promoting transformative future technologies, and founder of Synthetic, a startup building A.I. of its own. Bossmann is a McKinsey Fellow, Singularity University GSP graduate and master of science in neuroscience and psychology. She lectures on Artificial Intelligence, hard technology, innovation, the future, and technology transforming society.

 

Photo: Tej3478 <a>Artificial Intelligence</a>. Licensed under Creative Commons.

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Creating Strong Towns With Localized Self-Government

BIL: Oakland 2016 Recession Generation was an Earthsharing.org event which took place on July 9th in Oakland, California. Keynote speaker Chuck Marohn presented his experiences as an engineer, city planner, and founder of the non-profit Strong Towns to explore the problems with large, specialized systems of government, and the case for localization.

In a world where city planners and engineers must work within a narrow vision on the same sorts of projects, Marohn says there is a disconnect that only leaves space for endless repairs and fix-ups, and very little room for real creative thinking or new technology. With many cities struggling financially or going broke, Marohn makes a case for innovation that not only can increase the productivity and self-sufficiency of a town, but can improve the lives of all who live there.

Marohn suggests that while big governing organisations tend towards specialists as decision-makers, localized government is most effective when generalists are in charge. People who can make connections with others, seek out the experts on any given subject, and bring together combinations of skills will be the most successful leaders.

“The large systems that we have created – really a byproduct of the things that happened in the Depression and World War II – allowed us to accomplish a lot of things in a very short period of time, but come with their own fragility, their own kind of disconnectedness.”

“You can see in things like the Brexit vote, you can see in things like the conversation we’re having in our election cycle… you can see this disconnect between the large systems we have to govern ourselves, the large systems we have to run our economies, and the way we actually live our everyday lives.”

He has also advocated for shifting from the traditional property tax to a land value tax. He explains:

“The property tax system punishes investments that improve the value of property. The land tax system… punishes property that is left idle.”

Charles “Chuck” Marohn works as a licensed engineer in the State of Minnesota.  He is a member of the American Institute of Certified Planners and founder and president of Strong Towns, a national media organization that supports the development of resilient cities, towns, and neighborhoods. Marohn holds a Master’s degree in Urban and Regional Planning from the University of Minnesota and a Bachelor’s degree in Civil Engineering from the University of Minnesota’s Institute of Technology.  He is the author of Thoughts on Building Strong Towns. Volume I and A World Class Transportation System.

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Chelsea Roff: A Non-Profit Is A Business Too!

Chelsea Roff Discusses non-profits at BIL Oakland 2016: Recession GenerationChelsea leads Eat Breathe Thrive, a Los Angeles based non-profit focused on treating and preventing eating disorders. Eat Breathe and Thrive began as a free program that Chelsea began at local clinics, as her personal passion, in her free time. After some timely and fortunate media exposure, the opportunity suddenly arose for her to convert this program into a meaningful career as part of a non-profit organization.

Chelsea was one of the featured speakers at BIL Oakland 2016: Recession Generation.  The event served as a skill-sharing event for those interested in social, economic, environmental justice.  In addition, a myriad of revolutionary ideas aimed at promoting greater social, economic and environmental justice like land value taxation were introduced and discussed at length.

In the talk, Chelsea introduces the similarities and differences between non-profit and for-profit businesses. During it, she explains how to effectively manage and fund raise for a non-profit. In particular, Chelsea carefully introduces the potential revenue streams available to non-profits and how the unique status afforded to nonprofits serve to better enable their sustainability, all while satisfying the extensive byzantine legal requirements that the IRS places upon all 501 (c) non-profits. 

About Chelsea Roff (bio)

Chelsea Roff is the Founder and Director of Eat Breathe Thrive, a nonprofit organization that prevents and helps individuals overcome disordered eating and negative body image. An internationally recognized author, speaker, and yoga teacher, Chelsea has spent the past seven years pioneering integrative health programs for people with mental health challenges. Prior to her work in mental health advocacy, Chelsea worked as a researcher in a psychoneuroimmunology laboratory. Her research explored how stress affects mental, emotional, and social health, and how mind-body practices like yoga can improve the outcome of chronic immune diseases like HIV/AIDS and cancer.

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Whither Homo Economicus?

by Lindy Davies

You walk up to a food counter in a train station. You have five minutes to grab a bite before you have to board your morning train. A grumbling young woman, who exudes contempt for you and for every other customer in the line, charges you a premium price for a leathery, slapped-together breakfast sandwich which, nevertheless, takes another three minutes to get to you. She and her colleagues are distracted; each of them likely has a long list of personal problems — but all you know for sure is that she has made your breakfast transaction thoroughly unpleasant. You have encountered Homo Economicus.

eatit“Economic man” is a key template for economic analysis. It assumes that we respond to the problem of scarcity with profit-maximizing behavior— or in other words, we try to secure material gain in the hardest-nosed, most self-interested way. Many people are uncomfortable with this idea: is it a simplifying assumption — or is it simply nonsense? People bristle at the notion of self-interested maximization. What about fun? Family? Spiritual Life? Cat videos?

And, anyway, we are often observed choosing to do things that aren’t “economical.” Someone drives into a convenience store twelve days in a row and buys a soft drink. The buyer could make a single trip to a supermarket and buy a twelve-pack of same beverage for 40¢ less per bottle. Who knows what constitutes economic behavior? Perhaps the soda-drinker had a crush on the cashier. Perhaps he liked to thumb through the magazines on sale there. And, anyway, the soda has zero nutritional value, so it’s really hard to say what’s going on in any sort of practical terms, but, well — he keeps buying those sodas.

“Economic Man” in Economic History

This issue isn’t new; it was recognized by the classical economists. John Stuart Mill was the first to refer to “economic man.” He made it clear that he saw Homo Economicus not as the whole person, but only that part of the person which concerns the science of political economy,

…an arbitrary definition of man, as a being who inevitably does that by which he may obtain the greatest amount of necessaries, conveniences, and luxuries, with the smallest quantity of labour and physical self-denial with which they can be obtained.

Henry George added the clarifying insight that the desires we seek to satisfy are entirely subjective. Contra Adam Smith, George pointed out that our desires aren’t necessarily selfish; they might be spiritual, or altruistic. Whatever our desires are, anyway, we try to satisfy them with the least “irksome toil” (and, what constitutes “irksome toil” is also subjective: one person’s hard labor might be another’s best fun).

When we undertake irksome toil, unwilling to do so without compensation, seeking to do as little of it as we can — our behavior falls under the definition of Homo Economicus. Obviously, we want to spend as little time as possible in that state. We want to get mere profit-maximization out of the way so that we can enjoy our free time.

Despite the tremendous progress of labor-saving technology, there is still work that people have to do. People are still called upon to pick up garbage, change diapers, unclog drainpipes, guard convicts, seize territory, do laundry, teach children, serve all-night customers, patrol streets… and, even, write books. Will there ever be enough labor-saving inventions to get the Homo Economicus out of human lives? In Sacred Cows and Other Edibles, Nikki Giovanni offered an interesting point of view on this question:

I like my profession. I hope the telephone operators, the hamburger turner at McDonald’s, the pressure checker at Kentucky Fried who see to it that those spices and herbs get really deep in the chicken are proud, too.

colonelAt first, I thought Nikki Giovanni (whose poetry I like very much) was being facetious. She had the talent, drive and good fortune to enjoy a career as a poet. That didn’t necessarily make her life easy, but I think she’d choose it over frying chicken for Colonel Sanders. Eventually, though, I realized that her point is unassailable: if the chicken fryer doesn’t care about her work, everyone suffers. True, she is underpaid; most workers are. But, jobs are scarce: more personable and diligent workers are eager to take her place. Giovanni is telling us that, despite the manifest injustice of our society, one can still choose to be a person. Remember that young woman at the breakfast counter? She was resigned to being Homo Economicus — and you’re not going back to that breakfast counter, if you can possibly avoid it.

You might point out that it is in a worker’s economic interest to be more pleasant, so she can hold onto her job. But, I suspect that she cares very little for this job; she considers herself to be a worker, (impersonally, insultingly) hired to do a (dull, underpaid) job; perhaps her situation is a notch above abject slavery, but it’s not far above it. She is, in a word, alienated.

Is Social Progress Linear?

“Alienation” is something that Marxist theory has a lot to say about; indeed, it is said to be the basic condition of workers under the capitalist more of production. Marx saw workers as suffering from a four-fold alienation: from the things they made, from the process of making them, from their own selfhood, and from other workers. This cubicle of alienation in which workers (inevitably) find themselves is a big part of the reason why Marxist theory sees revolution inevitable, and capitalism doomed.

Others, however — such as Henry George — see the possibility of fundamental reforms that would make a market economy work for everyone. If we all seek to reduce the amount of irksome toil we have to to perform, it follows that a progressive society would be able to reduce the net amount of time that its people spend behaving as Homo Economicus. This would imply a continuum of social progress. At the bottom is slavery: a slave, compelled to perform “irksome toil” to survive and avoid punishment, is pure Homo Economicus. At the top, we might find an artist: getting paid for for work that was done for the sheer joy of doing it.

Then there is the joyous, painful endeavor of raising children — where does that come in on the scale?

Let’s consider a few examples:

Autoworker Aaron works for $17/hr in a nonunion Toyota plant, and has to make a decision about whether to join a union. He decides against it, because $17/hr is better than any alternative that’s available to him, and he doesn’t want to jeopardize his job.

Autoworker Betty is a member of the Communist party working at the Totota plant, and works behind the scenes to organize coworkers. Her activism is frowned on by her supervisors, who stick her with unpleasant tasks and don’t recommend her for promotion.

Dad Charlie chooses to forgo his career and stay home with the kids. His wife makes good money, but has a stressful, long-hours, fast-track career. Charlie’s role as a home support person makes it all work.

Mom Diane chooses to forgo her career and stay home with the kids. They’ve moved to a low-rent area and her husband is working part-time. They don’t have much money, but they have plenty of time together as a family.

Mom Ellen and dad Frank both work full-time. The kids are in pre-school, and after-school activities. They need to do this to keep up with their mortgage and all the other payments, and try to put some money away for the kids’ college educations.

Dad Greg and mom Harriet would both be working full time, if they could both find jobs. As it is, they work as they can, often on conflicting schedules. They’ve had to get help from friends and family to get by, and finding responsible supervision for the kids is a constant challenge.

diyNeighbor Ian worked overtime to save up enough to hire a contractor to build an addition to his house. Neighbor Jim made sure to have a flexible work schedule (at a lower pay scale) and built his home addition himself.

Can you divide the Homo Economicus behavior from the “for my own good reasons” personal behavior? Which of those examples do you admire? Which do you feel pity for? The further we rise, economically, above abject servitude, the more ambiguous this question gets. It gets harder to separate the time we spend making a living from the time time we spend pursuing personal satisfaction — each blends into the other.

The question is by no means simple. A progressive society, as we’ve seen, is one that succeeds in reducing the net amount if time its people spend as Homo Economicus. But, if we cannot clearly separate out the portion of our labor time we spend that way, then how can we make that distinction? How can we tell (in the aggregate) whether we are gaining or losing?

On the other hand, “gaining,” in the sense of moving along the line on which society is advancing (or retreating) might not be the only option, or the best way to look at things. Marxist theory sees human society as moving along a time-line from feudalism, through capitalism, on the way to socialism and the Workers’ Paradise. Henry George’s conception of social development also sees society as moving along a line, either forward toward a progressive society that maximizes both association and equality, or regressing, failing the promise of civilization, declining into a new dark age. Marx, I suppose, would transform Homo Economicus into Homo Comunismus, a fit and happy team player. Henry George would reduce Homo Economicus to a vestige, no more onerous or stressful than brushing one’s teeth. (Some versions of Marxist utopia, as well, have technological development enabling workers to sample many jobs and switch them at will.) These outcomes are, at best, a long way off. In the meantime, is self-interested maximixation all we have to look forward to? (Or as Nikki Giovanni put it, “Spam, Used Cars, and More of the Same”?)

When was Homo Economicus Born?

It may be, however, that in terms of economic behavior, society does not move in a line. There may also be a recursive process at work. Another possible starting point for social/economic development is the traditional society. There are various kinds of traditional societies, of course, but compared to the paradigm we’d call modern, industrial or developed, there are things they have in common. I think it would be accurate to say that the behavior we’ve been calling Homo Economicus was rarely, if ever, exhibited in traditional societies. True, there were fights over land and resources, and there was even slavery. There was drudgery and hardship; winters were long; lifespans were short. Nevertheless, in no indigenous culture was it the norm for people to spend substantial portions of their time performing meaningless tasks in exchange for things. We take this behavior for granted; our ancestors didn’t.

likitIn an earlier stage of industrial development the “labor time” model made perfect sense. It didn’t matter that the work might be meaningless, because the efficiency of industrial production made it possible for everyone to be better off. As productivity continued to increase, workers could organize to collectively bargain for better wages. In the United States this process reached its peak in the industrial golden age of the 1950s and 60s. While not everyone was happy (African Americans, for example, were effectively excluded from the general prosperity), millions of US workers were quite happy to get paid $25 an hour, with pensions, health plans and paid vacations, for being Homo Economicus.

It seemed like such a good plan: you get a decent job, put in the hours, get raises, buy a house (a comfortably appreciating asset), raise kids, send them to college, and then get rewarded for your career of homo economizing by settling into a well-provisioned retirement. But then “our jobs” started getting sent overseas, real wages stagnated or fell, and things started getting confusing. Raising a family started to require two full-time salaries. In the prevailing myth, June Cleaver and her friends had happily done the cooking and the childcare as their part of the family bargain. Now, suddenly, they were too busy, and these “household” tasks increasingly became part of the economy. Should June have received Homo Economicus wages for handling all those poopy diapers?

Such a question would never have come up among the unassimilated Sioux, or Inuit, or Australian Aborigines, the Kalahari Bushmen, or the artists of Lascaux or Mesa Verde. Such societies had their problems, to be sure, but alienation, in the sense that Karl Marx described, was not one of them. The Georgist economist Fred Foldvary put it this way:

Human beings did not start out poor, hungry, needing development. Primal man had natural wealth from the bounty of nature. Only after humanity turned to agriculture and conquerors took the land did the brave hunter become a lowly peasant working for a wage pittance from dawn to dusk while the lord dined on wine and game hens under chandeliers. Only after the descent to serfdom does development beckon with the promise of increasing productivity.

It has long struck me that the economic analysis of Henry George, dealing as it does with the pervasive, unavoidable role of land in society, offers a key theoretical bridge between traditional and modern ways of seeing the economy. When indigenous people admonish European colonists that “The land does not belong to us; we belong to the land,” they are not being romantic. They are making an entirely reasonable and true statement that arises from a worldview in which there is no Homo Economicus. That statement only seems quaint from the point of view of industrial society, which is predicated on owning the land and controlling its resources.

digitBut: industrial society has reached a turning point. We can no longer afford to reckon “economic growth” without factoring in its effect on the natural world. And we live in a dysfunctional society in which, in James Baldwin’s words, “not even the most spectacular recipients of this prosperity are able to endure these benefits; they can neither understand them, nor do without them, nor can they go beyond them.” (Soccer moms cannot escape this dilemma in their SUVs.)

I think we need to return — without turning away from the benefits of science and technology, for there can be nothing evil in science and technology per se, only in the self-serving uses to which we put them — to a life in which we are part of where we live, in which we are nurtured and informed by our place and our community. By doing so, we may be able to develop a sustainable understanding of “economic growth.” And then we can finally put Homo Economicus to rest. Not because there will no longer be work to do — but because the challenges of devising a sustainable future will leave us no time for the “irksome toil” that industrial development so usefully, efficiently, imposed on us. What we have to do will be too important not to care about. We will have to keep it real.

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Marie Howland, 19th Century Gender Equality Pioneer

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).

 

Woman @orking at Texaco Refinery
Port Arthur refinery, The Texas Company via photopin (license)

 

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.

 

Fairhope, Albama.
Fairhope, Albama. By Stratosphere (Own work) [GFDL (http://www.gnu.org/copyleft/fdl.html) or CC BY-SA 4.0-3.0-2.5-2.0-1.0 (http://creativecommons.org/licenses/by-sa/4.0-3.0-2.5-2.0-1.0)], via Wikimedia Commons

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.

Cover Image: Ironing Day- vintage stereoscope card via photopin (license)

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