The rentier class always wins

Once again, taxpayers will end up paying the bill while rentiers escape unscathed

As the battle for our lives against the novel coronavirus pandemic rages, another battle is being ready to be fought: for the economy. It is not an exaggeration to say that that the second quarter of 2020 will see the most severe decline in global economic activity in the history of human civilization, and the question is whether we can come up with the right policies to ensure that the this does not deteriorate into another great recession or worse, another great depression.

For starters, let’s understand the scale of the carnage. Entire sectors of the economy like restaurants, hospitality, and travel have already collapsed. Entirely collapsed. The millions of workers that are now unemployed or which will be soon unemployed as a result of this will require a social safety net of epic proportions in order to survive the 3 or more months of lockdowns, with no guarantee that their jobs will still be there when the crisis is over. For countries that have pushed forward a comprehensive package of corporate lifelines and worker’s support (pay guarantees, moratorium on interest, utilities, mortgages, and rent, etc.), it is estimated that these may end up costing as much as 10% of GDP (maybe even more), putting further strains on national finances which in many cases have not yet recovered from the 2008-09 crisis. And for developing countries, with masses of informal workers and lack of social safety nets, the outlook could end up being as apocalyptic as the virus itself.

Tapping El Dorado

And yet there is one source of untapped resources that is seemingly going to yet again escape unscathed: wealth. In particularly, the wealth of the rentier class. What is the rentier class? It’s the class of individuals and institutions whose primary source of income is the rent derived from their assets, namely property. The rentier class is, by definition, unproductive, because property does not generate productive capital. There is no production of goods and no provision of services beyond managing the assets themselves. Whether by accident of history (the aristocracy and gentry of the UK owns 31% of all land) or by turning corporate profits into property-related investments (nowadays more lucrative in light of historically low interest rates), the rentier class exists for no other reason than to extract as much money from the productive sectors of the economy by providing a service (property) whose profitability rests on ensuring its scarcity.

Making matters worse is that the rentier class benefits most from the most vulnerable: non-homeowning individuals and small businesses who cannot afford to buy the premises where they operate. Anyone living in a large city like London or New York knows that rent is a huge expense; in London the average rent of a one-bedroom dwelling is equivalent to half the average income of the city’s residents. Adding to the cruelty is the fact that the harder it is to obtain home ownership, the more demand there is for renting which makes it more expensive still. For businesses overall, rent is a far smaller share of operational expenses and varies greatly by sector. However, it is still large enough to put a small business under water when sales dry out, especially since smaller businesses are unlikely to have massive cash piles to offset a major revenue shock.

It would therefore appear sensible to shift the burden of economic crisis financing to the rentier class since there is no other sector of the economy that has two of the most desirable features for such a thing: it’s non-productive and awash with assets. Which is why every economic crisis policy package should have measures such as cancellation of rent as a central component, along with more serious taxation and regulation of rentier activity in the longer run.

No pain, no gain

There’s another reason why the rentier class should bear a higher burden. The rentier class owns assets in order to manage income shocks. In fact, when it comes to welfare it is often assumed that owning assets means that one is undeserving of income support. For example,households with more than £16,000 in savings are not eligible for the UK’s new Universal Credit scheme, which is now the main source of welfare support. During an income shock, these financially prudent households (some of which, in the cruelest of ironies, may be saving up to by a home) are therefore being doubly punished, not only by the loss of income as a result of the crisis but also because their savings pot will be depleted to make up for these losses. With this logic it seems even more unfair that the rentier class, with all its assets, needs to be protected from an income shock while workers needing benefits are penalized; all the time they are labeled as lazy scroungers by the country’s vile right-wing tabloids and Tory politicians.

Of course, the rentier class is likely to do everything in its power to ensure it emerges with its profits unscathed, and that the cancellation of rent would likely cause them to go bankrupt. I doubt it. For starters, property that has already been paid in full incurs no loss to the owner from a cancellation of rent. Secondly, mortgaged property that is being rented out benefits from moratoriums on mortgage payments, which most countries have enacted as part of their pandemic emergency packages. Whatever rent is not paid during the moratorium will be made up because presumably most of these properties will continue to be rented until the end of the mortgage and probably beyond that. Thirdly, some rentiers such as individual landlords may claim that rent is their only source of income. In this case, they should be extended the same income support measures that the rest of the population gets, no more, no less. For larger landlords and commercial property companies, the government could offer loans. With their properties as collateral, of course.

Is all of this too harsh? Well, if political elites claim that “we’re all in this together” and that a crisis like this demands unprecedented sacrifice, then the sacrifice should be proportional the means. And few groups have more means without any corresponding contribution to society than the rentier class, who are nothing more than the effluent of economic systems that permit profit from the deliberate creation of scarcity. Unfortunately it’s highly unlikely that they’ll pay any major price for the pandemic and the resulting economic crisis. Because while free market fascists and liberal centrist cronies continue running the world economy, workers will always be the sacrificial lambs in the altar of capitalism.

But a boy can dream than the rentier class won’t always win.

Healthcare: a uniquely American tyranny

Economic liberals and libertarians should love universal healthare. This is why they don’t

One of the most shocking aspects of anyone who has spent any amount of time living in the US is its lack of public healthcare provision. It is the only industrialized economy not to offer either a universal healthcare service like Britain’s NHS, or a universal healthcare insurance scheme like that which is provided in countries like Germany and France. Even most of the richer developing countries offer services that the vastly wealthier US lacks: in my country, Mexico, you have access to the main public healthcare system with most formal jobs and even those in informal jobs have some limited coverage from a separate public scheme. Worse still is that the cost of private insurance in the US is horrifically expensive: the average monthly premium is estimated at over $300 a month for individuals and over $800 for families. Then there’s the copayments and the fact that insurers may decide not to cover you at all for a myriad of reasons.

However, there is another aspect of the US’s dysfunctional and inhumane healthcare system that is arguably the most troubling. That it exists solely for the purpose of private profit is problematic in itself but its nature as an instrument for labor’s subservience to capital is much worse. This is because for the grand majority of Americans, healthcare is obtained through their employers and is widely seen as an important “perk” of a good job. Although the Affordable Care Act (Obamacare) of 2010 made it much easier for  to obtain insurance while not employed, the fact that employers can generally negotiate a better deal with insurers as an institution than you as an individual means that job-based insurance schemes generally have better coverage and are cheaper than anything that you as an individual could obtain on your own. Consequently, the cost of losing a job is two-fold: not only your obvious loss of income but also the increased risk of suffering some health-related emergency or losing coverage for any condition that you or a loved one under your plan already had. Continue reading

The endorsement game: why Britain’s liberal centrist media must share the Brexit blame

How to endorse right-wing populism while pretending to be part of a reasonable center ground

It’s Endorsement Week and Britain’s liberal centrist establishment once again did what the liberal centrist establishment does: cower out of supporting a party (Labour) that is its only hope of averting the very Brexit that they allegedly stand against, as well as the horror show that would be five years of a Boris Johnson government. I am talking, of course, of the Economist and the Financial Times, the country’s two main liberal centrist publications, which for reasons that I find quite flabbergasting, have not received a smidgeon of the blame for the political mess that Britain finds itself in despite having significantly contributed to it.

It is conventional wisdom to blame Britain’s media for much of the current political malaise. On one hand there are the obnoxious right-wing tabloids like the Daily Mail and the Sun which have spent years promoting a toxic Euroscepticism that has contributed to the widespread support for Brexit. These have been tabloids that have consistently told their working class and conservative readerships that their problems are not caused by Whitehall but by Brussels; that the country has more to fear from immigrants than elites; and that somehow Brexit is going to usher in VE Day-like euphoria. “Believe in Britain!” they say, obliviating the mountains of evidence of how Brexit is going to deepen the immiseration that nine-years of Tory government has already inflicted on working people. Continue reading

The delusions of liberalism at the end of the end of history

Why liberals need to accept that the foundational ideology of the West is obsolete

No serious political scientist or pundit today would deny that liberalism, the foundational ideology of the Western world for the last few centuries, is under attack. Autocrats like Russia’s Vladimir Putin, Hungary’s Viktor Orbán, or Turkey’s Recip Erdogan have offered an illiberal challenge to liberal democracy that has gained strong appeal with its constituents. But in the very bastions of the liberal West, liberalism is also succumbing from the onslaught of far-right populism. That people like Donald Trump or Boris Johnson would become leaders of their respective countries would have seemed inconceivable just a few decades earlier. Now the question seems to be which country will be the next to fall into the cracks.

Despite these concerns, liberals from both the left and right of the political spectrum appear hopeful in their hubris. In the first two centuries after its inception, liberalism successfully dismantled the political absolutism of the ancien regime, and universalized the Western values of individual rights and liberties that almost every society on earth now takes for granted. In the 20th century it also fended off two great illiberal challenges in the form of fascism and communism. Although the term is annoyingly taken as a synonym of “left-winger” in the US, almost everyone in the Western world today believes him or herself to be a liberal from a political-philosophical perspective. Unfortunately, this label is usually self-applied without stopping to think what being a liberal actually means which is extremely problematic: a foundational political ideology that remains unchallenged eventually becomes a hindrance rather than a help to human progress when its adherents fail to realize it may be obsolete.

This post will make the controversial point that liberalism has reached that point of obsolescence. More so, I will argue that it is a political ideology tarnished with blood, riddled with hypocrisy and contradictions, and which has become a rhetorical concept intended to justify the presumed superiority of Western civilization and thought as a justification for Western hegemony. And even if by the end of these lines you remain steadfast in your belief that liberalism is a sacred pillar of modernity and must be defended at any cost, hopefully it would make you uncomfortable enough that you will never look at liberalism the same way. Continue reading

The exorbitant privilege of capital

Why we need to rethink capital’s relationship with labor

The robber barons

Capital has an exorbitant privilege. With capital we are able to undertake productive investments and reap a potentially infinite amount of rewards. However, capital is not the only factor of production: for those investments to succeed, we also need labor. Unfortunately the rewards received by labor are infinitesimal and declining. In the majority of the industrialized world, the share of national income received by labor has been dropping over the past decades as a result of a myriad of factors like globalization, deregulation of labor markets, and the neutering of the power and influence of unions. The root of this privilege goes back to the origins of capital and its historic process of accumulation.

Where does capital come from? One source is from capital itself. Any increase in the value of an asset provides the owner with additional income which can then be reinvested into other capital assets. Similarly, some assets like stocks and bonds provide a regular stream of income in the form of interest payments or dividends.  Additionally, physical capital like robots or other types of automated equipment can also produce additional capital without human input. However, the main source of capital is labor. Your work, as an employee of any firm, contributes to the profits of the firm through which the firm is then able to accumulate further capital. No amount of capital will make a firm thrive in the absence of labor which is why the two are not perfect substitutes. But capital’s exorbitant privilege comes from the fact that, unlike labor, it can generate infinite returns. Let’s see how this process takes place in practice. Continue reading

On inequality and consumption

A vibrant market economy benefits from more egalitarian income distribution

Inequality matters. Not just as an issue of fairness but also because a vibrant, market economy is much better off when wealth and income are spread around more evenly among the population. There are two reasons for this. First, consumption of certain goods and services “takes off” after a population reaches a certain level of income. Secondly, because the more people consume these goods and services, the more competition there is and the cheaper they become. In other words, the same amount of GDP among two populations but with vastly different distribution of income will result in vastly different consumption patterns; and consequently, production patterns as well. Let’s see how this manifests in real life.

A tale of two countries

When it comes to inequality, it’s hard to think of two regions in the world more disparate than Latin America and Scandinavia. Latin America has long held the title of most unequal region of the world, and even though most countries in the region are now considered “middle income”, a significant share of their population are still poor. Furthermore, those in the so-called middle class still have considerably lower purchasing power than a middle-class Westerner. In contrast, Scandinavia is one of the most egalitarian regions in the world thanks to a generous cradle-to-grave welfare state. When using Gini coefficients, a measure used by economists to measure inequality (with 0 being perfectly equal and 1 being perfectly unequal), Latin America tends to fall in the .45-.55 range. In contrast, Scandinavia usually ranks at .25-35. Continue reading

Embracing democratic socialism

Be on the right side of history and start wishing capitalism goodbye

Democratic socialism

There is just one New Year’s Resolution worth having in 2019: become a democratic socialist.

If you already are one, congratulations! This post may be preaching to the choir but I’m sure you’ll enjoy it anyway and will at least give you some good arguments against those who are still in denial (which sadly includes many on the left). If you’re not, keep reading and if these arguments don’t convince you, then perhaps nothing ever will.

What is democratic socialism?

The best way to describe democratic socialism is to start by what it’s not: communism. If you’re the kind that instantly has a mini heart attack by even a fleeting mention of the word “socialism”, relax, we’re not nostalgic for a return of the Soviet Union nor are we here to provide lame apologies for the disaster that is Venezuela (more on this later). With that out of the way, let’s explain in detail. Democratic socialism is the economic system whereby the means of production are owned and directly controlled by the people who work it. The key word here is directly. Whereas communism attempted to do this by having the state take control of these means (which proved disastrous), social democracy seeks no intermediary. Imagine an economy where every business was a worker-owned cooperative and workplaces guaranteed similar democratic rights to their workers as citizens are guaranteed in the public sphere. That’s basically it.

Democratic socialism might sound similar to social democracy but in practice, social democracy remains capitalist: there is no fundamental difference in the corporate ownership structure in social democratic countries to liberal capitalist ones. The main difference is that social democratic societies tend to provide a wider array of public services (a welfare state and state-owned firms) as well as take a more active role in preventing market excesses (regulation). They also encourage strong trade unions to give voice to workers in the workplace; in fact, many social democratic parties were born from the late 19th century and 20th century labor movements. Social democratic systems like the Nordic Model therefore sit in a muddled middle ground between socialism and capitalism, incorporating the capitalist ownership structure but with strong and active states that help ensure a socially just society. Continue reading

The New Right ecosystem

The communities and personalities behind conservatism’s lastest bid for your hearts and minds
The New Right Ecosystem

The New Right Ecosystem (click to enlarge)

The emergence of a new conservative movement in the Western world in the 21st century has been one of the most important political developments of our time. But despite the way that this movement has influenced recent elections and produced shocking results like Trump and Brexit, the grand majority of people still fail to understand how and where it emerged. Ever since Hillary Clinton first spelled out the “alt-right” in a campaign speech in 2016, this term has been used as a catch-all for all right-wing politicians and pundits that have pursued a populist, anti-establishment rhetoric but this too proven to be far too limiting in scope for understanding the breadth of the movement. It also ignores that many of the people pushing the movement’s ideas don’t identify with the alt-right, aren’t anti-establishment, and may even be coming from the left itself.

I have therefore created a convenient infographic on what I call the New Right Ecosystem: the assortment of communities that are supporting the New Right movement. Some are obvious, like the original alt-right, the men’s rights activists, or the troll and meme armies that proliferate on forums such as 4chan. Many of these were mentioned in a seminal 2016 Breitbart piece co-authored by who was then the rising superstar of the alt-right, Milo Yiannopolous. But over the past decade even other communities that once appeared to embrace left-wing values have shifted squarely into the Trump camp, as is the case with the New Atheist and skeptic communities that initially arose to combat religious fundamentalism of all kinds in the post-9/11 Bush years. Finally, others like the libertarians are using the New Right as a platform to pursue their free market agendas. The fact that nearly all alt-right and anti-establishment pundits refer to themselves as libertarians or “classic liberals” (an increasingly used euphemism for libertarian sympathies) is telling of how nationalism and market fundamentalism have formed a strange and toxic marriage.

I am confident that the infographic is mostly self-explanatory after reading the legends.  However, this post will serve as a basic F.A.Q., with more analysis coming in future posts. Continue reading

Your third-world reptilian brain

When your attitudes don’t develop in line with your incomes

Between today and Sunday, Mexicans will be able to vote in a public referendum on whether to cancel the construction of a new airport for Mexico City or allow it to proceed. The (admittedly shambolic) referendum is organized by the incoming government of Andrés Manuel López Obrador who promised to cancel the airport during his campaign but has since acceded to allow the public to settle the matter instead. But why cancel the largest infrastructure project in modern Mexican history? Well, it just so happens that the airport is being built on what’s left of Lake Texcoco, the only surviving wetland in the Mexico City metro area. It is an area prone to flooding, earthquakes, and sinking. But beyond that, it also sits on top of one of the largest aquifers in the region, one that supplies millions of people in the surrounding suburbs with fresh water.

Of course, being that most of those millions of people happen to be from poor and working class households means that their opinion on the matter had little influence on the current government when it drew up its plans. And well, the wetlands themselves have been largely abandoned, a giant greenfield site just waiting for it to be filled up with concrete and steel. Plans to restore some semblance of the old lake have not fared well in the last few decades despite its historical significance. Mexico City – or as it was called in Aztec times, Tenochtitlan – was once the Venice of America: a city built on the lake, crisscrossed by canals and floating croplands. It must have been an impressive sight to the Spaniards when they first marched across the city’s causeways. But after the conquest, the Spaniards began to dry out the lake in order to expand the city, in the process destroying the fragile anti-flooding mechanisms that the Aztecs had built. The response to constant flooding of the city was to dry out the lake further. After independence, the process of “modernizing” the capital continued, with the last canals being turned into freeways during the 1950s and 60s, and the lake itself practically disappearing by the 1990s save for a few remaining reservoirs which face an uncertain future once the airport is up and running, whenever that may be: it already faces a 2-year delay at least, a $2.5 billion cost overrun, and no shortage of corruption allegations over the opacity in the awarding of contracts. Continue reading

The Spectrum Fallacy

Why all of something good isn’t better than just some of it

The economic rise of China since the 1980s has been one of the most, if not the most, impressive feats of economic progress ever. It has eradicated poverty by the hundreds of millions, created an industrial sector that has dwarfed anything ever seen in human history, and despite the country’s size and maturity, continues to grow at a pace that any Western democracy and even most developing economies can only dream of. This has been largely been achieved by the Chinese government’s adoption of market policies. China is now the world’s greatest trading nation and also a massive receptor and supplier of foreign investment. Capitalism works, and it follows that China is the perfect example of why countries should liberalize their economies and embrace free markets unconditionally.

Except it doesn’t follow.

If you were tempted to draw this apparently obvious conclusion, congratulations, you are a victim of what I like to call the Spectrum Fallacy, possibly the most pernicious flaw of logical argumentation in policy circles. What is the Spectrum Fallacy? It is the flawed premise that just because something is demonstrably better than something else, more of that something is necessarily better than only some of it. It is very similar to a well known logical fallacy, the false dilemma. Like the false dilemma, the spectrum fallacy assumes that there is a false choice, that one must necessarily choose between two mutually exclusive options (statist communism or laissez-faire capitalism). However, here we are assuming not that there are more choices but that either of these two choices can be better when they are applied less extremely across the spectrum of possibilities. Continue reading