| | | |  | The New Road to Serfdom
An illustrated guide to the coming real estate collapse
By Michael Hudson
Michael Hudson is Distinguished Professor of Economics at theUniversity of Missouri, Kansas City and the author of many books,including Super Imperialism - New Edition: The Origin and Fundamentalsof U.S. World Dominance.
Nigel Holmes was the graphics director of Time magazine for sixteen years and is the author of Wordless Diagrams.
Even men who were engaged in organizing debt-serf cultivation anddebt-serf industrialism in the American cotton districts, in the oldrubber plantations, and in the factories of India, China, and SouthItaly, appeared as generous supporters of and subscribers to the sacredcause of individual liberty.
- H. G. Wells, The Shape of Things to Come
Never before have so many Americans gone so deeply into debt sowillingly. Housing prices have swollen to the point that we've taken tocalling a mortgage–by far the largest debt most of us will everincur–an "investment." Sure, the thinking goes, $100,000 borrowed todaywill cost more than $200,000 to pay back over the next thirty years,but land, which they are not making any more of, will appreciate evenfaster. In the odd logic of the real estate bubble, debt has come toequal wealth.
And not only wealth but freedom–an even stranger paradox. After all,debt throughout most of history has been little more than a slightvariation on slavery. Debtors were medieval peons or Indians bonded toSpanish plantations or the sharecropping children of slaves in thepostbellum South. Few Americans today would volunteer for such anarrangement, and therefore would-be lords and barons have been forcedto develop more sophisticated enticements.
The solution they found is brilliant, and although it is complex, itcan be reduced to a single word–rent. Not the rent that apartmentdwellers pay the landlord but economic rent, which is the profit oneearns simply by owning something. Economic rent can take the form oflicensing fees for the radio spectrum, interest on a savings account,dividends from a stock, or the capital gain from selling a home orvacant lot. The distinguishing characteristic of economic rent is thatearning it requires no effort whatsoever. Indeed, the regular renttenants pay landlords becomes economic rent only after subtractingwhatever amount the landlord actually spent to keep the place standing.
Most members of the rentier class are very rich. One might like to jointhat class. And so our paradox (seemingly) is resolved. With the realestate boom, the great mass of Americans can take on colossal debttoday and realize colossal capital gains—and the concomitant rentierlife of leisure—tomorrow. If you have the wherewithal to fill out amortgage application, then you need never work again. What could bemore inviting—or, for that matter, more egalitarian?
That’s the pitch, anyway. The reality is that, although home ownershipmay be a wise choice for many people, this particular real estatebubble has been carefully engineered to lure home buyers intocircumstances detrimental to their own best interests. The bait is easymoney. The trap is a modern equivalent to peonage, a lifetime spentworking to pay off debt on an asset of rapidly dwindling value.
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