Today's Bee Letter: Family separation at the border. (submitted, not published)

RE:6/21/18 Ruben Navarrette’s Liberals get ‘woke’ that families at the border get separated
Light a candle of the shrine of miraculous agreements! Columnist Ruben Navarrette and I agree! Trump is not the ultimate bad guy for separating immigrant families. In fact it was Obama who set the precedent, tripling his predecessors’ deportations. Trump’s direct solution: build a wall.

Unfortunately, Trump and Navarrette omit any mention of the systemic cause: U.S. military, economic and political aggression south of its borders. Between 1798 and 1994, the U.S. is responsible for 41 changes of government south of its borders, regularly supporting military juntas and dictators.

The people coming north are typically refugees, frequently fleeing problems U.S. policy created. If we’re so serious about diminishing the immigrant problem, how about we stop attacking our neighbors? Let’s not let public sympathy distract from the root of the problem.

Affordable Housing

The Sacramento Bee published it's Influencers solutions to California's housing problems.

The problem with those influencers is that none (so far) mention the real solution: Higher real estate taxes. Low real estate taxes reward land speculation, and drive prices up. Taxing the "rent" (unearned profit) out of real estate keeps prices low, and housing affordable. This is classical economics, BTW (and Henry George). Check out the case for those taxes here.

But the Bee is so liberal! No?

The Five Stages of Money (and why we’re stuck at stage 4)

Posted on June 18, 2018

By J.D. ALT



Like everything else, money has evolved. It began in a primitive form and morphed into something more sophisticated, more successful. Then, probing and testing for an even better form, it morphed again. A simplified history of money’s evolution can be outlined in five stages:

STAGE 1: Money is a tangible thing of value—e.g. a gold coin.

At some point in the pre-history of humankind, the “invention” of money solved a time-gap problem in cooperative trade: I’ll give you my baby goat in exchange for your flint-knife—but you have not yet made the knife, so the exchange is stymied. To solve the impasse, you give me a token of gold to temporarily stand in place of the flint-knife, so you can take my baby goat. The gold token is a promise that the knife will be delivered, and that promise is secured by the fact that the gold itself is deemed equally valuable as the knife. In the meantime, I may find someone else with a flint-knife already made who will exchange it for the gold, thus completing the trade. The invention of this place-holder transformed the cooperative trade interactions of human society.

Eventually, this stage of the invention was “perfected” with the innovation of the gold coin—a standardized golden disk, stamped out by an authority, guaranteeing that it contained a specific amount of the precious metal. Thus, the place-holder could be quickly and accurately quantified in transactions without the need for weighing or measuring.

[Note: Although it doesn't have much impact on Alt's argument, archaeology validates none of the above description of money as a substitute for barter. Instead, money appeared as payment for having offended the Gods -- so it was not an accident that there were money changers at the temple in Jerusalem. It also provided a means to repay offended families when they were injured. This prevented blood feuds and made for societal cohesion. So money was not a substitute for barter. It originated as a social construct designed to keep people of common beliefs together in a society. The barter myth apparently originated around the Renaissance. See David Graeber's Debt: The First 5,000 Years for the details here.]

STAGE 2: Money is a paper receipt for a tangible thing (e.g. a gold coin) held in safekeeping.

The next stage dramatically raises the bar for monetary convenience and safety. Instead of carrying the heavy gold or coin around and physically transferring it from person to person in transactions, the precious metal is kept in a secure vault. The owner of the gold receives a paper receipt which can claim the safe-kept gold when presented to the keeper of the vault. The paper receipt, then, is what is carried around—and is used to buy goods and services. Sellers accept the paper receipt as a place-holder because they know they can present it to the gold-keeper and receive the specified precious metal.

There are two important things to notice in Stage 2 money: First is the mechanism of “displacement.” The gold is still the physical place-holder of value, but it is operationally displaced by the paper receipts. It is possible for the paper receipts to be exchanged in many trades before one of them actually makes its way back to the safe-keeper of the gold itself.

Second, the paper receipt being traded is a receipt for a specific gold hoard safe-kept in a specific repository. Having received the paper receipt in a transaction, if you want to get your actual gold place-holder, you must present the receipt to the actual repository where that specific gold has been stored.

STAGE 3: Money is a promissory note for tangible things held in safekeeping.

Stage 3 replaces the idea of a “receipt” with the idea of a “promissory note.” This may seem like a minor detail but operationally it is a huge innovation that changes what money can do, and how it can be used.

In stage 2, the paper place-holder was a receipt for a specific hoard of gold being safe-kept at a specific repository. Your receipt could obtain that specific gold—but not, for example, a different deposit of gold being safe-kept in another, perhaps closer, repository. This inconvenience created an obstacle to trade that Stage 3 money overcame.

The innovation was the “promissory note.” This is a piece of paper that promises to exchange a specific amount of gold for the paper note. Most important, the promissory note could be presented to any safe-kept gold repository—including the one that happened to be just down the road, as opposed to one three hundred miles away. The real innovation here, obviously, was not the promissory note itself, but the cooperative arrangements and agreements between the keepers of the various gold repositories that honored this convention.

The thing to notice is that Stage 3 has added something new to the idea of “displacement.” Gold is still the physical place-holder in a trade transaction, but in addition to being operationally displaced by a piece of paper, it is now “anonymous”: While the gold held in the repositories can be claimed by specific people (the holders of the promissory notes) in specific quantities, in aggregate it is “owned” by all of them together, because any promissory note can claim gold in any repository.

The innovative result of this anonymity—and the ultimate perfection of Stage 3 money—was that the keepers of the gold repositories discovered they could legally make loans backed by the precious metal they held in safekeeping. They could do this without usurping ownership of a specific thing owned by another person. They could, in effect, evolve into what we now call “banks.” The amount of gold in safekeeping could now back-up more than one promissory note at the same time—based on a calculated improbability that more than one note would simultaneously claim the gold. As a consequence, the number of place-holders for cooperative trade, and the ease with which they could be obtained and traded, increased dramatically.

STAGE 4: Money is a promissory note for a tax credit.

Stage 3, as just described, was basically the money status quo for what we think of as modern history. Then something extraordinary happened quite by accident. As is usually the case in evolution, not only was the innovation accidental, but it is still taking time for the benefit to be understood and functionally incorporated in a new operational stage. But there can be no doubt about the fact that Stage 4 money—whether we acknowledge it or not—has arrived.

The accident happened in 1971. At that time, the U.S. dollar was a Stage 3 promissory note promising to exchange a specific amount of gold from the U.S. Treasury, on demand, to the holder of the note. In a spat between French president Charles de Gaul and U.S. president Richard Nixon, the Stage 3 cooperative arrangements and agreements were momentarily abandoned: de Gaul suddenly presented the U.S. promissory notes (dollars) held by France to the U.S. Treasury and demanded the gold in exchange!

Rather than loading ships with gold-bars from Fort Knox (America’s safekeeping repository) Nixon took the unprecedented step of declaring that the promise in the promissory notes would not be honored. U.S. dollars would no longer be exchanged, on demand, for any amount of gold at all. When he did this, Nixon (and the rest of the world) assumed it was a temporary declaration—that the U.S., France, and the rest of the world would soon negotiate a new understanding of how gold exchanges would be handled. It was a big “yawn” that, for the most part, everyone soon forgot about. Of crucial importance, however, the new gold-exchange agreements were never made, and gold quietly slipped from its role as place-holder in trade.

Even though the collective yawn was quite robust—trade amongst people and states and countries continued as always—something quite fundamental had changed. The world had transitioned to another stage of monetary evolution: Money was still a “promissory note” place-holder, but what was promised in exchange for the note was no longer an amount of gold safe-kept in some repository. The promise had been replaced with something else—but what? After half a century, the answer has yet to percolate into the awareness, understanding, and operational policies of mainstream economic thinkers and policy-makers.

In fact, the answer is clearly printed on the front of every U.S. Federal Reserve Note—the promissory notes (which we now use as dollars) that replaced the old U.S. Gold Certificates: “THIS NOTE IS LEGAL TENDER FOR ALL DEBTS PUBLIC AND PRIVATE.”

Other than stating the banal fact that you can “legally” use the U.S. dollar to buy your groceries, these words establish the very significant promise that the U.S. government will accept your Federal Reserve Note as a payment for your debt to the government—meaning, most specifically, your tax debt. More to the point, the government’s Federal Reserve Note is the only thing the government will accept as a tax payment.

The accidental innovation that created Stage 4, then, is this: Money has become a promissory note for a tax credit. A tax credit, in a society that regularly and unfailingly requires its citizens to pay taxes, it turns out, is just as valuable as a place-holder in a trade transaction as was a token of gold.

Stuck in Stage 4 with Stage 3 thinking

The innovative twist of Stage 4 money is profound: whereas the amount of Stage 3 gold a society safe-kept to back up its promissory notes was finite and limited, the number of “tax credits” a national government can issue is (a) unlimited, and (b) completely controlled by the discretion of the taxing authority. The U.S. government, in other words, has an infinite supply of U.S. tax credits in its “vault”—and it can issue them, at will, with the stroke of a keyboard.

It is critically important to see that this is different, in fact, from “printing money”—a Stage 3 transgression where promissory notes were issued without having safe-kept the gold they promised. A promissory note for a tax credit, in contrast, can always be backed up by its promise—at no cost, it should be emphasized, to the federal government.

The irony of the present moment is that even though we are now firmly established and operating with Stage 4 money, our mainstream economic planners and political leaders continue to think and operate as if we were still, somehow, in Stage 3. They behave, in other words, as if U.S. dollars are “backed” by some invisible, finite, “gold-like” resource which everyone—including the U.S. government—must compete to have some apportioned share of.

It’s very likely that it will require a new generation of economic explainers and political leaders—individuals not guarding professional claims staked out in the Stage 3 money-structures—to fully understand and utilize the innovation Stage 4 money makes possible. When that does happen, human society will move on to Stage 5. For a lot reasons, we can’t get there soon enough.

STAGE 5: Money is a mechanism for social enlightenment.

This may sound grandiose, but I’m simply referring to the ability of a large society, operating collectively, to (a) build and operate a sustainable interface with earth’s resources, and (b) actively provide each society member opportunities to optimize their potential for health and success. Understanding and creatively managing Stage 4 money makes these aspirations possible.

Specifically, Stage 5 is possible because promissory notes for tax credits can do something new. Not only can they act as place-holders in the trade of profit-making enterprises—as Stage 3 money so efficiently and effectively made possible—they can also be issued and used as direct government payments for non-profitable goods and services.This can happen because (a) it “costs” the government nothing to produce the promissory notes, and (b) they provide real income to the citizens providing the non-profit generating services. In other words, Stage 5 money can uniquely and directly be used to pay citizens, on a large scale, to undertake, design, build, and provide non-profit goods and services which, until now, could not be undertaken or accomplished without stressing the monetary system itself (i.e. by “printing money”).

Given the pressing needs America and the world now face, which profit-making enterprise has no interest in addressing—access to land and affordable housing for low-income people, global warming and rising sea-levels, climate change, drought-induced migration and catastrophic storm and wild-fire events, the collapse of ocean fisheries, loss of agricultural diversity and food self-reliance of local communities—the time for Stage 5 money is at hand. We have it in our grasp. The question is: when we will see what it is and how to use it.

At last!

Galbraith, Frank and the rich...

"People of privilege will always risk their complete destruction rather than surrender any material part of their advantage. Intellectual myopia, often called stupidity, is no doubt a reason. But the privileged also feel that their privileges, however egregious they may seem to others, are a solemn, basic, God-given right. The sensitivity of the poor to injustice is a trivial thing compared with that of the rich."

John Kenneth Galbraith

(Quoted here, with a Thomas Frank article...)

...one thing to add: Bernard Fall notes that France spent more than it received in Marshall Plan money after World War II trying to hold onto its Indochinese colonies.


Here's T.F.'s comment about the Democrat's role in promoting the rich.

Sprawl is not the Best Alternative

[See also Sprawl costs us all]

The following comments about land use planning are based on more than a decade and a half's experience as a real estate broker. During that time I brokered, bought and sold property, appraised property professionally, and was a loan officer (mortgages, and for a brief time, SBA loans). I also sat on a Sacramento County Community Planning Advisory Council (CPAC) for nearly half that time, as Vice Chairman. So, in addition to participating in many real estate transactions, I saw plenty of Sacramento County’s planning process and sat in many hearings about land use proposals large and small.

So...this is perhaps an informed opinion. Probably not perfect, but certainly not just some random flight of fancy.

My conclusion after those years observing the process is best expressed by this editorial that appeared in the Business Journal in 1993. Not much has changed. The process is designed to fail, and working as designed. Its failure deprives the public of many amenities and is the source of some large private fortunes. Countries whose land use practice differs significantly (e.g. Germany) have a robust public realm, and things like free tuition for their universities (even for foreigners, in Germany). In the U.S., we're subjecting our students to debt peonage, and privatizing the public realm, making the economy into a series of toll booths for the benefit of some toll-collecting rentiers.

We've also heard from some of the shills for the land speculators since that 1993 editorial appeared. One of them, former Folsom Mayor Bob Holderness, appeared at a local political club to promote a developer's projects, where he regaled those present with charming stories of Folsom’s early days. What he didn’t tell those present was that the people he used to regulate were paying him to promote their project and to be their attorney. He also didn’t mention his presence on the legal team that sued to block an initiative requiring a vote of the public to approve major land use changes, like the project he was promoting. We can't have that pesky democracy interfering with developer profits!

Working for those he previously regulated is corrupt enough, in fact it’s the definition of corruption to use one’s public position to promote private interests, but appearing as their advocate in court was certainly icing on the cake. Unsurprisingly, Mr. Holderness denied that the only motivation to approve the South-of-50 development he was promoting was profit for his clients after I reminded him the region has 20 years worth of infill that’s cheaper and simpler to develop, at least for the local jurisdictions.

But the real motive for outlying development is that the speculators can buy the land cheap, and sell it to builders, once they get permission to develop, for 50 - 100 times what they paid for it (income tax free!). It’s a very profitable racket. It impairs the population's health, lengthens commutes and infrastructure runs, and ultimately impoverishes its inhabitants unnecessarily.

Some other Folsom residents shared their enthusiasm about their city over coffee, telling me that South-of-50 development was inevitable. I’m afraid my frustration about the failure of land use planning locally overwhelmed whatever graciousness I might have mustered to respond, and I argued against the inevitability. I’m not even sure how “inevitability” enters into human experience since none of us can be absolutely sure we’ll wake up tomorrow...but, knowing what I know, I told them that sense of inevitability for south-of-50 development was baloney. I suppose we'll see, eventually. I do know of at least one other initiative that's in the works to require a public vote to approve major plan changes like south-of-50.

Despite my grumpy reaction, my coffee-drinking friends responded that they loved their homes, and even loved the way Folsom ran public policy. As nearly as I can tell, they knew much less about the alternative to their sprawl neighborhoods, but were willing to put that alternative down as noisy, densely packed homes where no one would want to live.

Actually, traditional, non-sprawl neighborhoods can be as urban or as rural as you like. Here is a diagram of the variety of densities available in such neighborhoods (from here):



Contradicting the conventional narrative that no one would want a traditional neighborhood, one traditional, mixed-use, pedestrian-friendly neighborhood (McKinley Park), is the most valuable real estate in the Sacramento region. Actual buyers spending their money made it so, not just my opinion. Certainly traditional neighborhoods do accommodate more compact development more gracefully than sprawl.

If public policy and conventional bank underwriting didn't make it so difficult to build traditional neighborhoods, impairing the supply, and if so many people weren’t bidding up prices in McKinley Park, my coffee-drinking friends could choose to live in something similar to their current circumstance--houses with yards that separate them from the neighbors--while the arrangement of home, commerce and offices (i.e. the mixed use) would let them walk to many destinations, including transit stops. Sprawl kills even the possibility of viable (i.e. non-subsidized) transit.

To make those destinations, including the transit, economically viable, the coffee drinkers would have to accept multi-family homes in their neighborhoods, but even this is not entirely unfamiliar since current sprawl standards typically permit duplexes on street corners. Four- or eight-plexes in those locations would make possible viable transit and neighborhood commerce, and would make available more affordable housing, too. Multiple stories of housing above retail centers could serve the same purpose, but conventional sprawl mall development avoids that too. And yes, while internet shopping threatens the economic viability of conventional malls, the market favors shopping centers that include housing.

Currently, the income monocultures of sprawl neighborhoods divide and alienate social classes from each other, magnifying the effects of the already egregious wealth inequality in our country. If you look at the photos in the linked McKinley Park web pages, you can see mansions next to multi-family dwellings, next to cottages, next to commerce (restaurants, etc.) next to offices (typically legal and medical). These different uses and different incomes coexist without conflict. In fact traditional neighborhoods are typically safer since there are more eyes on the street, and the public spaces are well-surveiled.

Contrary to the standard sprawl narrative, denser development does not make crime occur. NY City has a lower per-capita crime rate than sprawling Phoenix, AZ.

To appreciate the contribution poor people can make--and generosity is among their gifts--then living with them essential. Otherwise, sympathy for the poor is just some abstract talk, without much substance.

But don't traditional neighborhoods cost more to build? No. Literally nothing about the construction costs in traditional neighborhoods exceeds sprawl, and since traditional neighborhoods can accommodate density more gracefully, their infrastructure maintenance costs are more sustainable. If you do the research, you’ll see Sprawl Costs the Public More Than Twice as Much as Compact Development.

Then why is sprawl cheaper when buyers look at homes? The short version: buyers see many more such neighborhoods, and that bigger supply exists largely because of misguided current public policy (in Sacramento sprawl-to-pedestrian-friendly new construction is something like 200-to-1) and more sprawl-favoring subsidies from governments and banks mean more sprawl is what builders build.

Banks are reluctant to lend to build anything unconventional, so now that sprawl is the default, traditional neighborhoods sometimes have a harder time getting construction money. This practice originated with the racist red-lining practices of previous years. The suburbs and their sprawl were the destination of white flight.

The developers of Village Homes in Davis (currently a very desirable non-sprawl neighborhood there) had to struggle to find a bank for their construction money. Pedstrian-friendly Laguna West had to settle for lower densities than would make their commerce and transit viable because the banks would not make apartment construction loans when it was being built out.

Nevertheless, once they are built, traditional neighborhoods attract enough buyer interest that they typically sell for premiums. This is true nation-wide, not just locally. Some examples of those premiums: 40% for Kentlands, MD, 40% for Orenco Station, OR, and as much as 600% for lots in Seaside FL, compared to nearby sprawl.

The differences in the health of these neighborhoods' inhabitants are striking too. Sprawl means every single trip must be in a car, yet even a 10-minute daily walk can lead to significantly fewer late-life health problems. So it’s not a big surprise that sprawl is the nexus of the diseases of chronic inactivity--obesity, heart and artery disease, diabetes, etc.

The accessibility of various uses also means the non-driving elderly and youth can still get around and lead full lives without a chauffeur, or the expense of elder-care facilities. The requirement that everyone own a car to get around is the most regressive of our “taxes,” cruelly crushing poor people.  Our cities are apparently designed for car dealers--and the absurdly wide sprawl streets are designed for garbage trucks--more than for people.

I don’t expect to persuade my coffee companions that the alternative would be nicer. They apparently are satisfied with their current circumstances. But Folsom, which saw the alternative presented by Andres Duany in 1989 when he lectured there, could have had nicer neighborhoods, more valuable, more sustainable, and healthier living conditions. Folsom's public policy makers preferred sprawl.

It’s also worth remembering that traditional neighborhoods reduce vehicle miles traveled by roughly half. Global warming is no joke. We need to do what we can to curtail it, and halving our CO₂ emissions would be helpful. Building more sprawl to lengthen commutes, especially while the fastest growing demographic is the over-85 seniors who are losing their licenses, is repeating the same thing, expecting a different outcome. It's crazy.

Here’s Duany's lecture, like the one he delivered in Folsom in ‘89--it's nine 10-minute segments delivered in San Antonio. You might also read the book he co-authored: Suburban Nation: The Rise of Sprawl and the Decline of the American Dream. At least take a look at the video to understand the design alternative to sprawl.


I am not alone in saying "modern" land-use planning is misguided. Here's one planning authority's comment: "The pseudo-science of planning seems almost neurotic in its determination to imitate empiric failure and ignore empiric success....to put it bluntly, [sprawl planners] are all in the same stage of elaborately learned superstition as medical science was early in the [19th] century, when physicians put their faith in bloodletting." —Jane Jacobs The Life and Death of the Great American City

...or, consider Houston. It has minimum lot sizes and road standards, nothing else qualifies as "planning." It has no zoning, not even a planning department. I'd defy anyone to point out a significant design difference between Houston and Sacramento. Planning, at least as Folsom and many other local governments do it, is a waste of time...but doesn't need to be.

Some Good News

There are some good recent developments worth mentioning. The State of California now mandates "Complete Streets" for new development. These streets do more than accommodate autos, they give access to pedestrians and cyclists, too. The State also now requires builders focus on vehicle miles traveled (VMT) rather than level of service (LOS) when designing streets. That should encourage more traditional, pedestrian-friendly designs.

What Additional Public Policy Changes Need to Happen?

The following are changes that would make the planning process more rational, not, as it is currently,  just cover for handing public money to land speculators and their shills:

1. Use-based planning that tries to anticipate whether parcels will be residential, commercial, etc. decades in advance of market demands does not and cannot work. If we want to guide development in reality, we must implement form-based planning. Form-based planning specifies building sizes and development intensity, not uses as is currently done.
2. Since Proposition 13, building fees must cover the local jurisdiction’s actual infrastructure costs. In the Sacramento region, those building fees have varied wildly ($10,000 a door to $70,000 a door) while costs remain the same for those neighboring jurisdictions. If fees do not reflect actual costs, any new development starves existing neighborhoods of infrastructure. For rational planning, jurisdictions must explicitly state the calculation of these costs and building fees, and make that calculation available to the public.
3. The unearned increment--the difference between the cost of land proposed for rezone and the value of the rezoned land--is an enormous subsidy for land speculation. Taxing this unearned increment, or doing as the Germans do--making developers sell the land to local government at the ag land price, then re-purchase it at the upzoned price--is the obvious remedy to this drain on civic resources. 

 Unless and until local government changes how it does planning and approvals, modifications to specific projects cannot produce the best outcomes for the community, the environment, or our region's people and natural resources.

Other process changes that would improve public policy outcomes:

1. Rather than holding repeated hearings, the jurisdiction could empanel what amounts to a grand jury about big projects and hold a single hearing. No CPACs, and no planning commissions or other hearings would insulate those making the decision from public outrage or approval. In such “grand juries,” citizens could get educated and advocate for unbiased public good, rather than biased NIMBYism. This would provide a disinterested perspective in hearings otherwise full to overflowing with bias and contentiousness.
2. The jurisdiction needs to employ facilitators who summarize the arguments of the different sides in a hearing...pro, con and "Grand Jury"... It can provide baseball hats of different colors so, at a glance, policy makers can see the size of the crowds for each point of view. This avoids endless hearings in which dozens, even hundreds of citizens line up to say “I don’t like it!” again and again, while taking account of the size of public support or dissent. The current exhaustive redundancy grinds any intelligent policy making to dust.
3. Finally, we need a study of public banking, and founding public banks for public purpose. Private banking guided by profit, not public interest, currently hold a veto on design and development outcomes. If nothing else, a public bank would be able to underwrite projects in the public interest that weren’t necessarily so profitable--things like affordable housing. By offering a line of credit, they could also eliminate the need for government’s need for large reserves.

Don't Forget:

That 1993 editorial
Duany's San Antonio Lecture

Update: Sacramento News & Review covers the South of 50 Development, elaborating and expanding on the web of questionable connections to this proposal. 

Leftist Debunks John Oliver's Venezuela Episode

Last Exit to the Road Less Traveled

Posted on June 9, 2018 by J.D. Alt |


By J.D. ALT

We now stand where two roads diverge. But unlike the roads in Robert Frost’s familiar poem, they are not equally fair. The road we have long been traveling is deceptively easy, a smooth superhighway on which we progress with great speed, but at its end lies disaster. The other fork of the road—the one less traveled by—offers our last, our only chance to reach a destination that assures the preservation of the earth. --Rachael Carson, Silent Spring

What’s important to keep in mind in this quote from Rachael Carson’s 56-year-old warning shot over the bow of corporate civilization is that there are two roads being traveled now. We are no longer at a fork. The fork is half-a-century behind us. The goal is not to get the superhighway to somehow re-route itself and follow the path less traveled. It can’t. The superhighway will, and must, continue accelerating in its inevitable direction, simply because the greed and power of the people driving that highway will not allow them to alter course. But if there is any truth to Rachael Carson’s warning (and there seems to be growing evidence of it) the other path—the Road Less Traveled—will become the surviving branch of our evolutionary diagram. The present goal, therefore, should be to create as many exits from the superhighway as possible—and to encourage and enable as many people as possible to take those exits to explore and follow the other path.

Visualizing how we all got on this superhighway in the first place will be helpful to seeing the exit ramps. To make this visualization, it isn’t necessary to speculate about an ancient, human pre-history. The process can be clearly seen and understood in a modern anecdote describing how one particular community of people joined the highway.

I quote now from the book Fishing Lessons by Kevin M. Bailey*, where he retells author Robert Johannes’ story of fishermen in Palau, an island country in Micronesia. “Seafood was once abundant there. The Palauan fisherman never had trouble finding enough fish to satisfy their own and their village’s needs. The fisherman gave away the fish they didn’t eat to other villagers…. They lived in a state of ‘subsistence affluence.’

“…. After Japan colonized Palau in the 1920s the fishermen began to sell their fish to obtain attractive and exotic goods offered by the Japanese. The fishermen bought nets and motorized boats with the money, allowing them to catch more fish to sell in order to obtain more goods. They fished harder to harvest more fish and visited more distant areas of the reef to find them. Over the years, the fish abundance dropped.

“The fishermen bought even bigger boats to catch the vanishing fish, but to do that they had to borrow money. They had to sell all their fish to pay off their loans. They stopped giving them away in the villages; instead they sold them to the outsiders and to other villagers. Now the people in the village had to work for the money to buy their food….

“Pretty soon, there were not enough fish over the reefs for the fishermen to make payments on their loans, so the village sold their customary access rights to the fishing grounds. The people in the village began to eat imported fish in cans.”

In a nutshell, that is the superhighway. Here are a few simple observations:
The superhighway is driven by trade.
Trade seduces local people to transform a local resource into a commodity which they exchange for commodities from other localities.
Transforming local resources into commodities—which can be sold to much larger communities (i.e. markets)—seduces the local people into over-harvesting or over-utilizing the local natural resource.
As the local resource-commodity becomes more difficult to obtain, local people are further seduced into adopting new and more aggressive technologies to harvest it—resulting in a further over-harvesting or over-utilization of the resource.
As the technologies required to harvest the local resource-commodity become more complex and expensive, the local people are forced to go into debt to acquire and operate those technologies.
To service their debt, the local people eventually are forced to consign to their creditors their natural ownership of the local resource itself. The local people are now the tenants and employees of the new owner—which, in one personification or another, is the “superhighway.”
The new tenants and employees now work for wages—which are set by the superhighway—and must use their wages to buy their subsistence in the form of commodities produced by the superhighway from the global network of local resources it now owns and controls.
In the end:
The superhighway literally owns the earth’s resources.
Everyone in the world is a working tenant and employee, (except for the 1% of the people in the world who are the creditors who own the superhighway itself.)
Every local resource has been over-harvested or spoiled to the point of collapse or depletion.

It is this last point, of course, which is ultimately Rachael Carson’s warning: Whether you’re a creditor or debtor, an owner or employee, a landlord or tenant, when the local resources (and all resources are “local”) are spoiled, depleted, and cannot be restored or renewed, the pavement of the superhighway comes to an end. There is nothing left to exploit, nothing left to trade. Long before that point is reached, however, life stops being fun—first for the 99%, then, finally, for the 1%, which is basically everybody still traveling the superhighway.

The Artisan Path

Meanwhile there is the Road Less Traveled. People who took that fork some time back are doing things differently. The chief differences are two: First, they are using local resources to create goods and services for local communities rather than mass-markets. Second, they are refusing to harvest or utilize their local resource beyond what it can sustainably provide. In fact, people on this path spend time and effort to nurture their resource with great care. (If they are fishermen, for example, they research the habitat needs of the fish they catch, and they plant the plants and clean the waterways that feed the habitat.)

Because of this fundamental approach to life and business, instead of adopting ever-bigger and more expensive technologies to increase yields and profits, these people derive genuine pleasure from exploring and perfecting the “art” of producing their product or service while preserving and enhancing the sustainability of their resources. They are what we call “artisans.”

Just so there is no confusion on this point, don’t imagine that the term “artisan” refers to special talents in making something artistically attractive. If you’re a hard-nosed, practical-minded engineer, don’t imagine you can’t be an artisan. In fact, you could be one of the greatest artisans who ever lived. All that’s necessary is that you apply your hard-nosed practicality to the “art” of utilizing resources sustainably to create something of utility. That is the art that economist E.F. Schumacher called “beautiful.” That is what artisans do. And that is what gives them fun, challenge and pleasure in their everyday lives.

The last exit to the Road Less Travelled, then, is the path of “artisanship.” And the essence of artisanship is the pleasure derived from addressing the challenge of how to be healthy and comfortable on the earth without over-harvesting or spoiling local resources.

This all sounds naively utopian for the simple reason that everyone knows the artisan life is not a high-paying job. In fact, it might not “pay” anything at all! This is a fundamental problem with the Road Less Travelled—and a big obstacle to the goal of attracting more and more travelers to its path (so it is an operating, viable roadway when the superhighway begins to falter).

Take the example of the artisan fishermen again: They are going to plant plants and clean waterways that improve the habitat for fish, right? Who is going to pay them to do that work? When they subsequently catch a fish and sell it in their local market, they will earn some dollars—but to earn enough dollars to also pay for improving the habitat that nurtured that fish, they must sell the fish for two or three times what a fish sells for on the superhighway. This is what is known, conventionally, as “economics.” The superhighway fisherman not only doesn’t spend time or effort nurturing fish habitat, he operates a giant floating machine that actually destroys the habitat while efficiently sucking and scraping the water for whatever happens to be living in it. The machine is expensive, yes, but the cost per fish scraped out is—at least until fish population collapses— “profitably” low. This translates to the superhighway market next door to the artisanal market: flounder at $5/pound, versus flounder at $15/pound. Where are you going to shop?

There are two answers to this question. First, if you have a decent-paying job on the superhighway, you can “participatorily” exit to the Road Less Travelled by skipping the supermarket and purchasing the more expensive artisanal flounder. The value and importance of this kind of participatory exit cannot be over-stated. There are emerging artisanal businesses all over the country, and they should be smothered with love, affection, and consumer dollars.

The second answer is that we need to demand that “conventional” economics be seriously reconsidered in our highest political offices and debates. What good is a conventional economics that tells us we can only create jobs and “profit” by literally destroying and despoiling the resources we depend on? That sounds un-economic to me—but it is literally the generic business model of the superhighway. What good is a conventional economics that hammers us with the logic that our monetary system can freely create money to dig out and grind up resources (because doing so generates a “profit”)—but we cannot create money to restore those diggings to their natural, productive state (because who would earn a “profit” by doing so)?

The last exit to the Road-Less-Travelled, then, ultimately depends on establishing a new understanding of the modern fiat-money we use today—an understanding that will enable us to see a remarkable new reality: the “costs” of resource protection and restoration are the income of artisanship.

*I am grateful to Kevin M. Bailey for introducing me to the general theme of this essay—as well as the quotation from Rachael Carson.

China’s housing: It Doesn’t Have to be This Way

By Michael Hudson Friday, June 1, 2018 Interviews China Permalink


In this week’s edition of The Hudson Report, Paul Sliker speaks with Michael Hudson about the state of housing in the U.S. vs. China, why unaffordable housing is not a part of true nature, and why the self-supporting class of millennials can’t afford to buy homes.

“Housing is a very good investment if you have millionaire parents.” – Michael Hudson

THE HUDSON REPORT: US vs China housing…and those millennials
Paul Sliker: Michael Hudson welcome back to The Hudson Report.

Michael Hudson: It’s good to be back. I’m just home from China, getting over jetlag.

Paul Sliker: You recently gave a paper at Peking University about the economy and what sorts of policies they should implement and what to avoid.

But Michael, because we only have a short amount of time in these weekly segments, I want to look specifically at housing in China, and then compare that to what’s going on here in the U.S. In your speech you argued that China’s most pressing policy challenge is to keep down the cost of housing and that the policies best suited to avoid what you call the “neo-rentier disease.” Can you give us a picture of what’s going on currently with housing in China, and then explain what you mean by “neo-rentier disease” and how the Chinese can avoid it.

Michael Hudson: To put this in international perspective, you could say that international competition is based on labor’s cost of living in each country. The most important expense in every country’s cost of living today is housing. What makes a country competitive in manufacturing or other sectors comes down to how much it costs to pay for housing.

20 or 30 years ago only 10 percent to 12 percent of one’s income had to go for housing. That’s about the ratio in Germany today. But in America today it’s over 40 percent in the big cities. It’s also over 40 percent in London, and and it’s rising throughout Europe. But this is not a force of nature. It doesn’t have to be this way. It’s largely because banks have found that they can do to housing the same thing they’ve done to education: Housing is an excuse to get people into debt.

The most important way to get people into debt for housing is to take control of the government with your lobbyists to un-tax housing. The property tax is way less than the rise in land prices. That leaves the rising rental value available to be paid to the banks. The reason why housing prices are going up is because a house is worth whatever a bank will lend. And they are lending more and more, to enable new borrowers to bid up property prices.

You’d think that China would have learned this by looking at the West, or at least by reading Volume 3 of Capital. In fact the Peking University meeting, the Second World Conference on Marxism, David Harvey gave the opening and closing speech. His point was that the Chinese should read Volume III of Capital to understand why and how the volume of debt and credit grows exponentially. As banks get richer and richer, the One Percent get richer. They need to nurture more and more markets for their credit and debt creation. So they lend on easier and easier terms, at a rising proportion of the home’s value. So it’s bank credit that has been inflating the price of housing.

David Harvey asked how China can let the price of housing go up so high in Shanghai (the most privatized city) that almost everybody who has a house is a millionaire. How can China expect to remain competitive in exporting industrial products when the cost of housing is so high?

Unfortunately, his talk and mine were almost the only economic talks at the meeting in Peking. As one of the Russian attendees pointed out to me, “Marxism” is the Chinese word for politics. “Marxism with Chinese characteristics” means to doing what they want politically. But economically they’ve sent their students to the United States, to attend business schools to learn how U.S. financial engineering practices.

Shanghai is where Milton Friedman and the Chicago Boys came in the 1970s and early 80s, because the Chinese government worried that if western Marxists came over, they would tend to interfere with domestic Chinese politics. So actually, China had less exposure to foreign Marxian economics than to U.S.-style neoliberal teaching.

I gave the same basic talk in neighboring Tianjin, which is a more interesting city in many ways. It’s where Chou En-Lei went to school. Talking to women students (about 80 percent of the economics students were women, because it’s considered a social science there) about how they planned to get an apartment, I was told that they would have to marry a boy whose parents gave him an apartment. I didn’t meet any male student who said he would have to marry a woman with her own apartment. It’s a male’s role to have an apartment for his wife. So if you can’t find a guy with his own apartment this is not going to lead to a happy married life, and there may be no marriage at all.

Some of the students that I talked to three years ago are graduating now, but are still not married. So I asked where they were going to live. One of the problems I found out – in addition to what we just talked about – was that in order to prevent a rural exodus to the big cities, people from the provinces or from small towns are not allowed to get a passport to live in these cities. They’re only allowed to buy apartments in their home town. China is trying to prevent overcrowding and the development of slums. As a result, in order to get an apartment the student decided to teach at a university or the high school that provides its own housing.

So China’s corporations, public universities and other institutions are doing much what the Russian Soviets did: Employers provide their own workers with housing.

Meanwhile, you’ve had a move in the last three years under President Xi against corruption. The way they’ve moved against corruption is to put in a bureaucracy to prevent it. That is a natural step in any country. The bureaucracy has put a short lease on what governments can spending. So most universities, if they have big conferences, need a private-sector participant to share in the cost, especially if they bring people over from abroad. At the worse, this shifts corruption from the public sector to the private sector.

Meanwhile, there’s a shift going on in China now, and the political attitude of the students I talked to is quite different from what it was a decade ago, when students really thought that they could change the country and get rid of corruption. OK, they’ve cracked down on corruption. They put in bureaucracy. But now they’re faced with a problem that their students have all been sent to America to study economics and come back and ask “How do we get a free market?”

I couldn’t believe that students in China were asking me about a free market. But that idea led President Xi a few months ago to say they’re thinking of letting in American and European banks. Well, I think this would be a disaster. If you let in the American and foreign banks, their product is debt! What are they going to lend money for?

The answer is that they’re going to lend more money to buy apartments than other Chinese banks are willing to lend. That’s how banks increase their market share – a race to the bottom, into deeper and deeper debt. The new banks will lend on easier terms, with lower down payments. That provides buyers with even more credit to bid up the price of real estate. The effect will be to start pricing China out of the market.

So this is a self-destructive move by China. Property is worth whatever a bank will lend, and foreign banks are going to be as aggressive as they were in America. What the Chinese don’t get is that the business plan of U.S. banks is fraud. Bill Black showed that in his analysis of the 2008 crisis. The junk-mortgage collapse was basically a fraud crisis. It may be repeated in China. In any case, it is a Trojan horse to financially bid up the price of housing, and maybe even education and anything else the banks can make loans on. That would make debt service so high that Chinese workers won’t be able to be hired to produce goods that are competitive internationally.

Paul Sliker: I wanted to ask you specifically about the issue of debt in China. Their private debt bubble is basically the biggest in the history of capitalism. I think the 2017 numbers had it at about 220% of GDP. So what do you think is going to happen there with the broader economy?

Michael Hudson: Under current conditions nothing. It’s not a problem. Here’s why: The debts are owed to government banks. A government can do what the U.S. can’t do. The government can forgive debts, at least those that are owed to itself, without creating a political backlash. If a viable corporation has run up too much debt, the government can forgive it. This is better than letting the debt close down a factory or force it be sold to a predatory asset management firm as occurs in the United States. That is the advantage of having public credit and why credit should be public. That’s how it was in Babylonia. Rulers were able to cancel debts all the time in the 3rd millennium and 2nd millennium BC, because most debts were owed to the palace or the temples. Rulers were cancelling debts owed to themselves.

China can cancel business debt owed to itself. It can proclaim a clean slate. It can minimize debt service to whatever it chooses. But imagine if Chase Manhattan and Goldman Sachs are let in. It would be much harder for the government to raise real estate taxes leading to defaults on the banks. It could save the occupants by making new loans to those who default – based on lower land prices.

Well, you can imagine the international furor that would erupt. Trump would threaten to atom bomb Peking and Shanghai to save his constituency. His constituency and that of the Democrats are the same: Wall Street and the One Percent. So China may lose its ability to write down debts if it lets in foreign banks. That was what the big political discussion was when did discuss economics at the Chinese Academy of Sciences in Beijing and in Tianjin, where we’re going to have a conference on Fictitious Capital in October.

Paul Sliker: Michael I know you briefly explained this a bit earlier in our conversation, but when we were emailing today about doing this segment, you tipped me off to a new book by the London-based economist Josh Ryan-Collins. He essentially shows that unaffordable housing is not a part of nature. That’s counter to the way most people believe that housing actually works. Can you explain that in more detail?

Michael Hudson: Yes it’s natural for people intuitively to think that housing prices are going up because people have more money to spend, or that the population is going up. But housing prices are going up even where population isn’t, like in London or Australia. The reason prices are going up is that banks are making more and more reckless loans. They’ve lowered the down payments. They’ve stretched out the mortgages to interest-only mortgages (no amortization payments!) and they’ve basically convinced government to pick up most of the costs.

Once you’re able to packagemortgages and sell them to somebody else, the bank doesn’t care whether or not the buyers can pay. So you can have someone without a job, without an income, or with no assets at all (the NINJA borrowers that were infamous in 2008). If you lend them a million dollars to buy an apartment, they’re can live there for a few months and then default if they can borrow 100 percent of the mortgage, as they could in 2008. But that’s going to bid up the price of everybody’s apartments.

Something like that has has happened in London. It’s happened throughout Europe. It’s happened in New York. It’s happened throughout most of the United States. The price of housing is rising, but not because people are more popular or prosperous. They’re paying more and more of their paycheck for housing. And as we’ve discussed before, that forces them to cut back on their other consumer spending, so that they don’t have enough money to spend on goods and services.

That’s why now you’re finding whole buildings like 666 Fifth Avenue that Trump’s son-in-law Kushner owns. It’s reported to be 40 percent empty. He had to go to Qatar, right near Saudi Arabia, and promised to make US foreign policy serve it if its rulers would give him a loan to bail out his building. So you’re having New York commercial real estate being bailed out by Trump’s foreign policy.

And also, you’re having business rents in New York going down because there’s no one to buy stuff in the stores, because they have to spend so much money on the apartments they rent just to live in New York City or its environs.

Paul Sliker: This is a good transition to what I want to ask you about millennials and the U.S. housing market. A good chunk of our listeners are in the millennial generation. Some of those people have reached out to us, knowing that we do these weekly episodes with you and have wanted to get your take on the state of the U.S. housing market. I know you just shared a little bit about it.

I presume they want that information because some of them are straddling that line. Maybe they make just enough to afford housing, but it’s still a pretty daunting investment. A lot of younger adults are still scared about what they saw happen, maybe to their families, neighbors or communities during 2007-2008. By the numbers millennials are buying less than older generations – and lots are rejecting the notion that they need to buy a home.

There’s still a profound cultural impression here in America that owning a home is a good investment, the ultimate symbol of prosperity, success and tangible proof that you’re living the so-called American Dream. But some people who have reached out to us have been so forthright to ask point-blank: “Can you ask Michael Hudson whether it’s worth it or a safe investment for me to get into the housing market?” Of course, there’s no blanket answer here. People’s personal finances, where they’re looking to buy the home, how much other types of debt they might be in, all would play a role in assessing that.

But excluding the trust fund babies – who are wealthy enough to buy a house without batting an eyelash – what could you say about the U.S. housing market right now to someone who is young and who is genuinely torn on whether to take out a mortgage on a house, to inform them on how to make that decision a little bit better?

Michael Hudson: Well, first of all as you just hinted, there are two classes millennials now. One class of millennials inherits houses from their parents, or have a trust fund or the parents have paid for their education in full and have helped them get a house or have given them their own house. Those are the millennials that have housing. But I don’t see how the rest of the millennials can get housing, especially if they have a student debt, because the banks are now subject to higher lending standards. These higher standards mean that if you already have to pay 15 to 20 percent of your income for your student loan or other bank debt, you’re not going to have the 40 percent of your income left to spend on the mortgage. That is what it takes now that we just raised interest rates last week to 5.3%. Banks are not going to lend you as much money as they used to. New buyers now have to actually have to make a substantial down payment, and pay off the mortgage in a shorter time. So unless the millennials can get their parents to co-sign, it’s not going to be practical for them to buy a home.

It’s not a generation gap as such, because rich millennials who have parents helping them are in one class, and self-supporting millennials (which used to be just about everybody in their late 20s) can’t afford to be self-supporting anymore, even in their 30s. If you are self-supporting and do have a job, you certainly can’t ask for a raise, because you could be escorted out quickly. And you can’t go on strike because then you would miss the mortgage payment and lose your house. So you’re painted into a corner.

So sure, housing is a good investment if you have millionaire parents. But if you don’t have millionaire parents you’re stuck. Don’t worry if you can’t get a bank loan. The market has really become extreme.

The problem is, how to rent in New York City, where the average rent is $4,500 a month. They’d have to move out to the suburbs with a roommate. So here you have the problem that China solved: the student debt problem. Basically the US government should abolish the student debt. That would enable this class of millennials to use their money to make a down payment for an apartment and actually get a place to live, like everybody for the last hundred years has been able to do.

I don’t think people realize the radical damage that Obama did to the economy by bailing out the banks and not rolling back the terms of bank credit to keep housing affordable. Obama basically said, “Make housing unaffordable. Make as many junk loans as you want. Don’t worry, because I’ll stand between you and the mob with the pitchforks.” He didn’t jail any bankers. He didn’t regulate them. He created the situation that Trump inherited. Trump has just pushed it to a further degree, with full Democratic support. The Democratic donor class loves Trump. They want him to be reelected because he’s cutting their taxes, he’s deregulating their banks, and he’s essentially deregulated fraud!

This leaves the millennials with a problem. How can they cope with a situation where they don’t have anyone representing their interests either in Congress where it’s really the same party now, or with an opportunity to earn enough to get a home mortgage? It’s very hard to earn the money that you need to buy a house anymore. There has to be a god in a machine – Deus Ex Machina – meaning rich parents or a rich uncle.

Paul Sliker: So maybe a better investment for millennials would be to organize outside the banks.

Michael Hudson: Well, here’s the other problem: Congress last week deregulated community banks. I’ve worked as a consultant for community banks in Chicago. Their strategy is to make more reckless loans than the commercial banks. So deregulating them enables them to lend at even higher debt to equity ratios. They can set lower down payments, and help bid up the price of real estate even more. So the congressional rewriting of bank regulations last week makes it much harder for millennials to get an apartment, because it will inflate the price of housing with yet more bank credit.

Paul Sliker: Fascinating. Well Michael, like every week, I wish we had more time to talk. But I did want to let everyone know who is in the Greater New York area that this coming Saturday, June 2nd, 2pm at The Left Forum in Manhattan at John Jay College, I’ll be moderating a panel—Negative Economics – its Pedigree and History—between Michael Hudson and Michael Perelman about the long pedigree of anti-labor and anti-reform junk economics from the 18th-century classical economists to the Austrians and modern mainstream. You can find more info about that, on LeftForum.org

But Michael Hudson, thanks again for joining us on this week’s edition of Left Out’s “The Hudson Report.”

Michael Hudson: It’s good to be here with you, and I’m glad we had a chance to talk about real estate for a change.

Paul Sliker is a writer, media consultant, and the co-host of Left Out—a podcast that creates in-depth conversations with the most interesting political thinkers, heterodox economists, and organizers on the Left. Follow him on Twitter: @psliker