The Bay Area and the FIRE Economy

At the recommendation of Robert Stark, I checked out his interview of Bay Area housing activist Laura Foote Clark. Listen to it here. Needless to say, the lack of affordable accommodations in the Bay is a blatantly obvious problem, one that has a full third of Bay Area residents contemplating moving. I myself know people who have departed the Bay for greener (or should I say cheaper?) pastures.

Clearly, we know that there are problems, but what are the solutions? While I don’t entirely agree with Laura Foote Clark’s vision, I think she does raise several good points.

For starters, I endorse her proposal of having Silicon Valley become more urbanized. I confess, this is partly selfish since I live in the Peninsula region near SF. Therefore, I welcome most solutions that relive congestion in my part of the Bay – and get these conceited techies out of my vicinity!

I also concur that a lot of political resistance to development stems from NIMBYism, and I acknowledge that I’m one of the “lookists” that she criticizes. Having attended college in Southern California for four years, I feel absolutely no shame in admitting that the last thing I want is for the Bay to become like SoCal: an environmental eyesore characterized by track housing and strip malls.

Overall, I enjoyed listening to Laura discuss the politics of Bay Area housing. However, I’m primarily going to focus on Laura’s analysis of Prop 13 and the business community’s stance on housing development.

Before I proceed, I highly recommend checking out my review of Michael Hudson’s book Killing the Host. The reason is because what I write from here on out will presume that people are familiar with concepts such as the FIRE economy, asset inflation, debt deflation, and other key points from the book.

Anyway, regarding Prop 13, I wholeheartedly agree with Laura’s argument that this regressive proposition has eroded California’s tax base, along with amounting to a huge subsidy for old homeowners. This means that newcomers who aren’t loaded have to assume large debts to buy a home. Since property values rise due to new bank loans against real estate, this only makes housing even more expensive. As Michael Hudson has demonstrated beyond a shadow of a doubt, the end result is not pretty. One could even go so far as to say that by shifting the tax burden from established property owners onto new businesses and workers, Prop 13 has created California’s – and by extension the Bay Area’s – version of the “Spanish Syndrome” (albeit far less extreme).

As Laura notes, this syndrome results in Bay Area employers – particularly in tech – having to pay their workers more money just to ensure that they can meet rent (although wages for STEM workers have been stagnant, so I’m not sure about employers paying more). In turn, these workers paying large rents to the FIRE sector have less money to buy goods produced by tech companies, which hurts demand and shrinks markets. If you want to see how asset inflation and debt deflation play out in real life, look no further than the Bay Area’s housing crisis.

Therefore, it’s not entirely surprising that the business community is lobbying for more affordable housing. While I am generally skeptical of American business, I do believe that freeing employers and employees alike from having to pay large rents to the FIRE sector will restore what Hudson calls the “circular flow” between producers and consumers. For that reason alone, I would support a moderate degree of development.

Besides building more housing, another way to restore equilibrium is to restrict immigration, which didn’t come up at all during the show. While I understand that closing the borders in a place like the Bay is politically unfeasible, basic common sense dictates that the last thing we need right now is yet more people putting a strain on housing and other living spaces. That’s why I disagree with Laura’s liberal attitude towards population growth; frankly, the Bay just has way too many damn people. One of the best things that could happen is if the third of Bay Area residents who are thinking of leaving actually followed through on their plans.

Unfortunately, since we can’t count on that happening anytime soon, we might just be stuck with an intractable housing situation for years to come. The good news is these problems are mostly political in nature, which means the right combination of organization and energy can help resolve these issues.

In conclusion, if you’re a concerned Bay Area resident, or simply interested in learning a thing or two about the pathologies of an asset-based economy, I strongly recommend checking out the interview.

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One Response to The Bay Area and the FIRE Economy

  1. cynthia says:

    I think prop 13 gets blame too much, the group that benefited the most is dying off. So, Libs blame 13. Unlike you I don’t like high rise housing it sounds to leftist. In fact low interest rates and foreign buyers are more to blame than prop 13.

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