Tearing Apart the Social Fabric

Edward J. Dodson

[Reprinted from Land & Liberty, Vol. 114, No. 1220, Winter 2007]

We can thank Fred Harrison for his penetrating study of history, identifying an 18-year land market cycle going back hundreds of years. As we know, appreciation for the importance of this historical analysis is yet to become widespread. Only a small cadre of economists have ventured beyond the theoretical limits of neo-classical writings to explore the consequences of entrenched landed privilege their predecessors analyzed and debated during the era of the political economist. And, in recent years, a growing number of economic forecasters have abandoned a priori theoretical approaches in favor of a posteriori analysis of data and predictors of what is likely to happen in the future.

What we know and argue is that analysis that recognizes the very real differences between nature and what we produce by applying our labor to nature has a distinct advantage when it comes to forecasting the future. To date, unfortunately, our collective efforts to establish such a forecasting capability have suffered from an absence of dedicated resources. Hopefully, a younger and more skeptical generation of economics professionals will find their way to a redirected theoretical vigour.

In the meantime, as we look at the global economy and the growing evidence that the system is highly stressed, our criticisms of conventional fiscal and monetary tools are affirmed. Nothing economists as public policy advisers have proposed has ever stabilized land prices. If anything, land speculation is as widespread today as ever. Population migrations, advances in technology transfer and global communications have stimulated urban land values all around the globe. The opportunities for rent-seeking gains, often making use of bank-provided credit, have simultaneously resulted in troubling patterns of increased wealth and income concentration in many of the social democracies. Nowhere more so than in the United States.

Here in the U.S., serious cracks in the social fabric have developed. None of the candidates hoping to win the U.S. Presidency - with the possible exception of Dennis Kucinich -- are even aware there is a problem with landed privilege. Democratic Party candidates talk about raising the tax rates on those with the highest incomes but make no distinctions between income that is earned or unearned (i.e., derived from producing goods rather than from rent-seeking privilege and subsidies). Nor do any of the candidates seem to be very worried by a U.S. government debt that has passed $9 trillion and is increasing by $1.45 billion each day. George Bush's successor will be faced with the challenge of having to raise over $500 billion each year just to service this debt. How seriously this debt level will stress credit markets and the global economy is uncertain. One thing is for sure, the pain will be felt by those least in a position to deal with greater hardship.

The signs of economic and societal stress in the U.S. are apparent for all to observe. Some 44% of all U.S. households have no financial reserves at all. A majority of households have no retirement plan except for that provided under the Social Security program. Nearly 33 million people live in households classified by the government as below the poverty level. One in four households who live in rented housing are required to devote over half of their monthly income just for rent; the cost of utilities - on a steady upward climb - is an added living expense.

And, then there is our health care nightmare. The latest statistics indicate that just since 2000 the percentage of the population covered by employment-based health insurance fell from 64.2% to 59.7%, while the number of uninsured in the U.S. has climbed to 47 million. Obesity is a national epidemic, with nearly 25% of the population described as obese, including a steadily-increasing percentage of the nation's children and adolescents. The long-term implications of a population in such ill-health are frightening.

The U.S. is also in the midst of what could easily devolve into another financial sector meltdown. Through the first half of 2007, nearly 461,000 bankruptcy petitions were filed in U.S. federal court (5% of which involved businesses), resuming an upward trend in record filings that temporarily subsided in 2006, when total filings totaled only 590,000 - down from 2 million in 2005*. Defaulting mortgage loans and the resulting home foreclosures are a major factor in the escalating number of individual bankruptcies. Foreclosure actions during the first half of 2007 have been pursued on over 573,000 properties (55% higher than in the first six months of 2006). This amounts to one foreclosure filing for every 134 households in the United States. In some parts of the U.S. the number of foreclosures has been large enough to trigger even more defaults, as homeowners find themselves unable to carry the costs of rising interest rates on adjustable rate mortgages, yet unable to refinance into a fixed rate mortgage because of falling land values.

The stresses on the social fabric in the U.S. are both serious and diverse. The tools employed by government are either ineffective or destructive. A real question is whether our circumstances will deteriorate at an accelerated pace, bringing on a full-blown depression; or, by some remarkable convergence of externalities the downturn will be moderate and relatively short-lived.

NOTE

* The most important reason for the significant drop in filings was passage in 2005 of the Bankruptcy Abuse Prevention Act, which made filing for bankruptcy a more involved and expensive process.