I was planning on writing this same idea when I happened across this meme on Facebook. The meme is credited to the Democratic Socialists of America. (I STILL hold that ‘Democratic Socialist’ is a stupid name for an economic system. I’m STILL pushing for ‘Social Capitalism’ instead…)
Nomenclature aside, the meme perfectly captures what bothers me most about so-called “Free Market Capitalism”. In one picture and a few words the meme proves there’s no such thing as a “free market” and I say it’s time to stop pretending otherwise.
The thing most free marketeers don’t understand is that the system known as the poorly named ‘Democratic Socialism’ was pioneered in the United States by one Franklin Delano Roosevelt. He didn’t call it that, of course. He called it the ‘New Deal’. It was the New Deal that made America great, not the free market.
Regulations helped control behaviors that had previously destabilized the economy, ultimately culminating in the Great Depression, on a regular basis. High taxes on the wealthy caused wealthy people to reinvest rather than just throw more money on their already colossal individual piles. (Piles they don’t “earn”, no matter what they tell you…)
You see, Capitalism, left to its own devices, consumes itself. I’ll give you just one example. Have you ever heard of a R.E.I.T.? (It’s pronounced “reet”.) That’s a Real Estate Investment Trust. They pool money they get from people with resources and use it, as the name suggests, to buy up real estate. It’s not a bad idea if you’re buying strip malls and office buildings or even apartment complexes. But now they’ve set their sights on single-family homes. By “now”, I mean over the last few years.
Social scientists have long known that having people own their own homes makes a community more stable. Once folks put down roots they are invested in the area. They want nice roads and good schools. They work and shop in the local area. People want to live in a nice place so they’re willing to help make it and keep it a nice place. In short, people owning their own homes is good for the society as a whole.
These days, owning your own home has moved well beyond the reach of most people. According to the local paper where I live, the median home price, as of April 13, 2017, is $639,000! The story says the reason is “tight inventory”. We’re told there’s not enough new building going on so people are competing for the small number of houses. This, in turn, means people are making offers, sometimes all cash offers, over the asking price…no matter how high the asking price!
How do people do that? How does a work-a-day Joe make an offer OVER $639,000 for a 3 bedroom, 2 bath tract house? I don’t think he does. I think R.E.I.T.S do. They have massive amounts of money. They don’t care how much they pay for a property as they intend to rent it out. (Which, in turn, causes the rental market to explode in cost.)
It’s a practice that artificially inflates the value of a house. People who DO manage to buy, want to keep that value, naturally. Should the market “correct” itself, they find themselves “under water” in their deal. The banks are motivated to maintain the artificial values because they know that if people find themselves too far under water, they walk away in what’s known as “strategic default”.
Real estate people I know all pretend they don’t know what I’m talking about…never even heard of a R.E.I.T. It’s hard to blame them. Think of the return on the sale of a $639,000 house! Capitalism at its finest. And the sad part is, it IS Capitalism at its finest which, unfortunately, equals society at its worst.
Sure, it’s contributing to homelessness, pushing people out of the markets and out of the area they may have grown up in. It’s destabilizing entire communities. But it’s generating profit and Capitalism has no other goal. As a microcosm, R.E.I.T.S are a fundamental example of Capitalism consuming itself.
But ask yourself: how long can this continue? We’re well past the point where people can choose where to live around here. IF you can find a place you can afford, you can stay. If not, you leave – or move into the streets. Homelessness is rampant. (As a sidebar: one of the things John Adams noted on his first visit to France – only a few years before the French revolution – was the number of “beggars” in the streets…)
Free market Capitalism dictates people should do nothing; let the market straighten itself out. But the wreckage to individuals and to the society as a whole in the meantime is far to dear a price to pay just so rich people can get richer.
I have a better idea: prevent R.E.I.T.S from buying single family homes. Worse for them but better for the communities they’re currently ravaging, require them to divest all single family holdings in an excruciatingly short period of time, say six months.
I’ll tell you this: I can write radical things like that because I know it’s never going to happen. The flood of inventory hitting the market at once would crash the artificially inflated value of homes almost overnight. The truth is, it would only represent a correction and as a bonus would induce a concurrent correction to rental prices. But none of the people who have been profiting from the status quo would be at all happy the gravy train was ending…