Joel Kotkin: Oligarchal Socialism — aka the Gig Economy — How Could It Affect Real Estate?

 

I adore Joel Kotkin and agree with most everything he writes. In fact, I have written for him, and wish I had time to do more.

By the way, don’t ever let anyone tell you that blogging is fast and easy. It’s not. All writing sucks up an inordinate amount of time. When I visited Joel in California, his wife told me he is always, always at the computer writing. Pretty much the same here now.

Like most of us, I have been struggling to make real estate sense of the crazy reality show our White House has become, balancing that with the extreme weirdness — and intensity — of the coming elections. There are many examples, but Texas governor! A former Dallas County Sheriff who didn’t pay her property taxes on time (“better to offer low rent than pay taxes on time, she says“) is running against a staunch conservative incumbent governor. The Ted Cruz vs. Beto O’Rourke race is just war, and in these two, as many races across the U.S., you could not find more polar opposite candidates.

Middle-of-the-road, centrist politics was buried with John McCain, it seems.

Where will this take our country and what will it do to the housing market, already whiplashed from the new tax law?

Will the new tax law, which limits the mortgage deduction to $750,000 worth of debt and limits your property tax deduction to $10,000 (about a $700,000 home in Dallas) force more to sell their homes and become renters? Dallas is only second to New York City in apartment starts, and 2017 brought in 30,000 units with more than 50,000 under construction. (Dallas rents are actually now beginning to recede.) I am seeing some stunning luxury apartments the likes of which we have never had, that I would move into in a New York minute (stay tuned). Then I see luxury listings lowering prices to sell, while the under $500,000 market remains on steroids. What gives? Where are we going with all this?

Oligarchal socialism, says Joel. It allows “for the current, ever-growing concentration of wealth and power in a few hands — notably tech and financial moguls — while seeking ways to ameliorate the reality of growing poverty, slowing social mobility and indebtedness. This will be achieved not by breaking up or targeting the oligarchs, which they would fight to the bitter end, but through the massive increase in state taxpayer support.”

Bingo.

What Joel is saying here is that the extreme polarization of our society and the shrinking of the middle class, is really based on the incredible extremes of wealth we are experiencing. And these oligarchs are so incredibly wealthy, we really cannot control them any longer. Take Amazon’s Jeff Bezos. Today it was reported that Amazon’s market value is $1 trillion. (What even IS $1 trillion?)

But Amazon is only the second U.S. company to be valued this much — last month, Apple’s market value hit $1 trillion. Amazon captures 49 cents of every e-commerce dollar in the United States. It employs more than 550,000 people and generates $178 billion in annual revenue. Founder and chief executive Jeff Bezos is worth as much as Bill Gates and Warren E. Buffett put together. That kind of extreme wealth is so hard to wrap my head around. And yet half of those 550,000 workers make only about $28,000 a year. Bernie Sanders says Bezos increases his wealth by $260 million every day… just for being alive: 

“The taxpayers in this country should not be subsidizing a guy who’s worth $150 billion, whose wealth is increasing by $260 million every single day,” said Sanders. “That is insane. He has enough money to pay his workers a living wage. He does not need corporate welfare. And our goal is to see that Bezos pays his workers a living wage.”

But Joel says, in his Labor day editorial, that subsidy is exactly what is going to happen: the rich will stay rich, because they are so hugely wealthy they can well afford to circumvent tax laws or loopholes or buy lobbyists or, as in Bezo’s case, just fly to a new planet. Some are wealthy enough to have bought their own islands. Bernie Sanders’ interest in Bezos comes because he is working on legislation aimed to make companies like Amazon, owned by mega billionaires like Bezos, pay employees better wages. Oh and this article appeared in Techcrunch, not the New York Times. Sanders says that, at the lower end of the spectrum, we are subsidizing these employees through tax dollars (health care, food stamps, or public housing assistance) and the emphasis is on WE because Bezos ain’t paying:

We know that the median salary for Amazon employees is about $28,000,” the Senator told TechCrunch. “And about half the workers who work for Amazon make less than $28,000 a year.”

It’s easy to see why the company has become a prime target for Sanders. A recent SEC filing put the median salary at $28,446 — less than owner Jeff Bezos makes every 10 seconds.

“We have every reason to believe that many, many thousands of Amazon workers in their warehouses throughout the country are earning very low wages,” Sanders explained. “It’s hard to get this information. Amazon has not been very forthcoming. From what information we’ve gathered, one out of three Amazon workers in Arizona, as we understand it, are on public assistance. They are receiving either Medicaid, food stamps or public housing.”

It does make you stop and think, why should we be so excited about Amazon coming to Dallas?

But Kotkin says that is the formula of the future: the oligarchs don’t want anyone to starve or be homeless, they see massive government spending as a means to a guaranteed wage, to keep minimal housing for all and the pitchforks away. But though they themselves might found a reading foundation or two, in general, they won’t ever feel the higher taxes:

Historically, liberals advocated helping the middle class achieve greater independence, notably by owning houses and starting companies. But the tech oligarchy — the people who run the five most capitalized firms on Wall Street — have a far less egalitarian vision. Greg Fehrenstein, who interviewed 147 digital company founders, says most believe that “an increasingly greater share of economic wealth will be generated by a smaller slice of very talented or original people. Everyone else will increasingly subsist on some combination of part-time entrepreneurial ’gig work‘ and government aid.”

Numerous oligarchs — Mark Zuckerberg, Pierre Omidyar, founder of eBay, Elon Musk and Sam Altman, founder of the Y Combinator — have embraced this vision including a “guaranteed wage,” usually $500 or a $1,000 monthly. Our new economic overlords are not typical anti-tax billionaires in the traditional mode; they see government spending as a means of keeping the populist pitchforks away. This may be the only politically sustainable way to expand “the gig economy,” which grew to 7 million workers this year, 26 percent above the year before.

The “gig economy,” by the way, includes Realtors, who are independent contractors.

Handouts, including housing subsidies, could guarantee for the next generation a future not of owned houses, but rented small, modest apartments. Unable to grow into property-owning adults, they will subsist while playing with their phones, video games and virtual reality in what Google calls “immersive computing.”

Rented, small apartments  — the kind we are seeing going up everywhere. And the shrinking middle class may well be living in the more luxurious of those apartments, perhaps condos, all on smaller lots. Because there will no longer be solid tax reasons for home ownership. 

The other thing dying: employer-based benefits. The gig economy means you find these benefits for yourself, and we know healthcare is at the top of everyone’s list, including Real Estate agents:

Such subsidies would help millions of gig workers, as well as the vastly underpaid production workers at Amazon’s warehouses, erratically paid workers at the Tesla car factory or the contract labor who clean the tech firms’ buildings and provide security. As historian Jeff Winters has pointed out, the oligarchy, representing basically the top .01 percent of the population, are primarily interested not in lower taxes but in protecting their market shares and capital; they have been at least as brilliant in avoiding taxes as developing innovative products. He points out the very rich have maintained their share of assets even in welfare states such as Sweden and Finland.

Oligarchs of today, says Kotkin, have zero “interest in their workers become homeowners or moving up the class ladder. Their agenda instead is forever-denser, super-expensive rental housing for their primarily young, and often short-term, employees.”

Ironically, it was the U.S. government that expanded the nation’s housing supply by offering government-backed loans to the thousand of GIs returning home from World War II … as Kotkin says, the “liberals.” But that enabled what was perhaps the best chapters in our American Dream home history: the U.S. home ownership rate in 1960 was 62.1 percent , a tad lower than what it is now. With house prices rising and single-family homes almost unattainable on both coasts, experts predict the U.S. home ownership rate to continue dropping.

But Kotkin is onto something: the kind of wealth these oligarchs possess is mind-blowing. And look what they have done to real estate — driven up home prices. In the Bay Area of San Francisco, you now need to earn $333,000 a year to buy a small home.  That’s one reason why socialists in California want stronger rent controls and subsidized housing, things we are now (gasp!) talking about in North Texas.

There’s surely a compelling logic for oligarchic socialism. The tech moguls get to remain wealthy beyond the most extreme dreams of avarice, while their allies in progressive circles and the media, which they increasingly own, continue to hector everyone else about giving up their own aspirations. All the middle and upwardly mobile working class gets is the right to pay ever more taxes, while they watch many of their children devolve into serfs, dependent on alms and subsidies for their survival.

Look at the City of Dallas, where the northern sector basically supports the southern. Some say that’s because the old oligarchs here want it that way.

I think Joel nailed it, what do you think?