Welcome to Peak Rent, the blog and the historically unprecedented event. Mortgage Backed Securities, The Credit Crisis and The Bailout are the Top Story Tonight, but these events only preview a much longer show now opening. The peak in the payroll tax surplus, reportedly this year, is possibly more significant, but we aren't discussing it with the same vigor or much relating it to the Story of the Day. We'll discuss it here, even if most people pay little attention to us.
RDavis provides the following chart to motivate our discussion. I repost it here linked to his site and hope he doesn't mind, since I have no clue who he is. I've researched the same figures, and they've been widely discussed, so you can believe the chart, and even if you don't, the wonders of the internet enable you to verify them yourself.
Why Peak Rent?
It's like Peak Oil, only even more inevitable.
Wikipedia defines "rent seeking" well enough. We'll use the term a lot here. I associate the term with Smith, Ricardo and classically liberal economics, but let's not crowd the boat too much. We're all in it. My libertarian bias will be plain enough, but this blog invites a broad, civil discussion of the issue.
Demography is destiny. The ratio of retirees (persons over 64) to workers (persons between 20 and 64) in the United States will nearly double over the next two decades. The number of workers per retiree will fall to the unprecedented level of roughly 2.5 by 2030, but we'll feel the effects much sooner. The thesis of this blog is that we're feeling them now, but the curtain is only now rising. The show has hardly begun.
Let's talk about it.
6 comments:
I followed your link from Cafe Hayek. I'm glad you're developing this concept because I don't have a sense about where it may lead.
I haven't developed my own thoughts on this matter, but it seems that the concept of Peak Rent boils down to whether the lion's share of returns accrue to labor or to capital, and the circumstances that make one or the other more profitable. I assume you have thought along the same lines given your comments about demographics, large numbers of would-be retirees, and the likelihood that folks will end up working their whole lives (i.e. enjoying high returns on their labor rather than lousy returns on their capital).
I'd be interested if you would flesh out the progressive consumption tax concept here, especially since it would seem to accelerate the arrival of Peak Rent by pushing returns lower and lower as capital takes refuge in the market to avoid confiscation. I also wonder about the incentive effects of a consumption tax and would like to see more on that topic.
At any rate, this is all very interesting stuff. I'm not sure it will actually lead anywhere humans haven't already been; on the other hand it could be transformative. Thanks for opening the blog and for the work you've done so far.
Martin,
I have read or heard a few demographics folks. They all conclude that the US is headed toward socialism as a result.
Do you concur?
I'd say yes, without knowing what actually constitutes "socialism". Still, I haven't totally ruled out the possibility that the country can kick the can a few more decades through legal and illegal immigration. But ultimately I do believe the fate of any democracy is for the majority to prey on the minority, which is the very function of socialism.
Having said that, I wouldn't think the connection between socialism and peak rent should be that strong. Socialists have operated for decades without running into peak rent, and it seems clear that peak rent can precede socialism (at least in theory).
kz, Sorry for the delay. Usually, people pay no attention to me. :)
I'll add a post detailing more precisely what I mean by "rent". Sam Grove at Cafe Hayek is helping me to clarify the idea in my head. Classical "rent" is more like "tax" than modern usage of "rent", but the distinction is always blurry, because statesmen can game the system to drive up house prices, for example, and thus effectively direct people to transfer more income to rent seekers.
I try not to emphasize a conflict between labor and capital, because labor is a means of production itself, so this dichotomy is theoretically confusing. The conflict is more intergenerational. The retirees don't much care whether they tax the marginal value of your labor or the marginal value of your horse's labor or the marginal value of your plow or your acre of farmland, as long as they can tax something. I often use this agrarian metaphor, but you can bring it up to date easily enough.
Yes, longer working lives is the inevitable outcome, and since we live longer, it's not such a terrible outcome. Organizing rewarding, part-time work opportunities for the semi-retired is a huge growth industry. I'd like to discuss how we can all profit from that too. We've focused on health care, travel and tourism for the burgeoning population of retirees, but I don't see the same opportunities there.
I'll add a post on the progressive consumption tax, because I hope its time is coming in practical politics. Unfortunately, it'll be added on top of the income tax rather than replacing the income tax, but it's coming.
I'm glad you made the point about a progressive consumption tax driving yields lower. If we organize capital more productively with income withdrawn from the state, it doesn't drive down yields, but if we only using it to bid up the price of existing entitlements, it does. In theory, withdrawing income from the state frees resources for less central authorities to reorganize. That's why the Bush tax cuts were such a joke. Cutting taxes accomplishes nothing if state resources aren't also freed to be reorganized.
I agree that "socialism" is hard to pin down, but we're definitely expanding the central government in the U.S. at this time. I hope the trend reverses, but maybe that's wishful thinking. In the second post, I say, "The next Black Swan could be red.". That's a not so subtle reference to revolutionary change. If it takes us in a more centralized direction, it's not encouraging, but maybe it's a state seceding. Maybe it's the Free State Project. Maybe it's the bankruptcy of California. Black Swans are supposed to be predictable.
Black Swans are not supposed to be predictable.
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