Why Aren’t We More Prosperous?

Earlier this month, a friend of mine posted something on the Bujold list, about how college leads to debt, blue collar jobs lead to poverty, and running your own small business means slaving 24/7 for not much reward. She asked, “Where is all this value we’re all producing actually GOING, these days?”

I reply that it isn’t all going to capital, as such. If possessing capital were enough to let one get rich on the toil of the workers, why is the interest on my certificates of deposit so low? Also, at least before the recent fall in the stock market, stocks were at a historically very high price to earnings ratio, so putting money in the stock market does not usually get you very much return in dividends and retained earnings of the companies in which you invest. However, over the years, the share of GNP going to the FIRE sector (finance, insurance, and real estate) has gone up, and to a large extent, this reflects increases in land rent.

A middle class homeowner does not typically think of himself as paying much in land rent, but if he has a mortgage, it is likely that he paid a substantial price for the land, tens or even hundreds of thousands of dollars, and in consequence, his monthly mortgage payment is hundreds of dollars higher than it would be without the land purchase; he would be able to pay off the mortgage in fewer years and at less per month if he had only needed to buy the house. Furthermore, he still has to pay taxes to pay for the local schools, police and fire protection, road maintenance, etc., without which the land would not be so valuable. “Homes” in many areas are much more expensive than they were thirty or fifty or seventy years ago, even taking general inflation into account, and what this chiefly means is that land rents and land prices are much higher.

If we had higher taxes on land rents, then the selling prices of lots would be lower, so people could buy homes more cheaply. They would then have to pay land taxes, of course, but these would be largely instead of current building taxes, income taxes, sales taxes, etc.

Then there’s the two-Income family. I’m not against women having careers, but there are consequences: families with two incomes can bid up the price of real estate, which means primarily the price of land, in nice neighborhoods with good schools and other amenities. Also, if both parents work, the family has to pay for child care, so at least in some ways, the two-income family doesn’t feel richer than the one-Income family decades ago.

College education has become an expensive signaling mechanism. The courses in advanced calculus and Japanese history which I took as an undergraduate (and I’m glad that I took them) don’t have much to do with my current job duties, but the fact that I took them, and got good grades, signals to potential employers that I have intellectual capacity, mathematical and writing skills, and that once I escaped from close parental supervision, I was conscientious enough to study, instead of partying. Someone with a college degree has a leg up in applying for jobs, even if his studies are not directly relevant to the job; whereas a high school graduate or high school dropout, even if he genuinely possesses all the mathematics he needs for a particular job, can speak and write coherently, and has a good work ethic, will have trouble being considered.

In consequence, many young people who are not greatly interested in the life of the mind, and are not attending institutions of tertiary education to acquire specific knowledge and skills which they will need in their chosen careers, are pressured to attend college and rack up debt. They may be able to pay this debt if they graduate and find well-paid jobs, but if they don’t complete college, or do complete college but can’t find jobs (I’ve been there), they will have serious problems.

Also, the costs of attending college have outpaced inflation, partly because people need to go to signal their fitness for middle class jobs, and partly because of the availability of student loans and grants, even if these are not generous enough to satisfy Alexandria Ocasio-Cortez. Universities are able to raise their tuition, room, board, and other fees to absorb pretty much whatever money is available to prospective students. Some of this money goes for genuine academic expenses, some to luxurious dorms, some to sports programs, and some to administration. The number of academic administrators has increased out of proportion to the numbers of students and professors, and at the upper levels, these administrators can be very highly paid. Parkinson’s Laws strike again.

Some college administrators seem to be useless or worse than useless, e.g., those who find occupation in investigating students for politically incorrect opinions. Some, as individuals, may be decent and hardworking, but it is still questionable whether so many of them are needed. On the other hand, it is likely that many are needed to help their institutions cope with increased federal regulation and other legal issues.

I do have at least a partial solution (land value taxation) to the absorption of so much value by the owners of land. I don’t have a good solution to the problems of academia, but I think we would be better off if young people were not steered to college so much. Those with real intellectual interests could go, if they chose, as could those planning to become physicians, lawyers, and engineers. Others could go to trade school or become apprentices.