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Paradigm Shift – Part II: Housing Un-affordability May Be Just Beginning

Karl Marx famously wrote,

"Workers of the world unite; you have nothing to lose but your chains."

In the mid-1700s, when the Industrial Revolution began, approximately 90 percent of Americans were farmers. By the time Marx wrote his manifesto, in 1848, farmers were less than 50 percent of the population, the job skills were changing rapidly, and urban populations were booming. This, in turn, spawned the Labor Movement with workers demanding improved in working conditions, shorter work weeks, and a living wage. Capitalism itself was seen by many as an irredeemably bad socioeconomic system.

In the following decades, workers formed labor unions but the loss of traditional trades was increasingly unstoppable as the innovations and technologies of the day – railroads, electric power, assembly lines, manufacturing automation, and the switch from coal power to burning oil – changed everything.

The Industrial Revolution deconstructed the traditional relationship between labor and capital, much like computer technology, robotics, the Internet, and generative AI are doing today.

As a result, the 50 years leading up to 1900 came to be known as the Gilded Age; a time when the wealth disparity between the average working-class family and the “Robber Barons” of American industry (John D. Rockefeller, Andrew Carnegie, Cornelius Vanderbilt, J.P. Morgan, et al) had grown to ridiculous proportions. You might say that this was America’s great era of “un-affordability.”

Subsequently, the first decades of the 20^th century saw financial panics, World War I, the Spanish Flu Pandemic of 1918, and the Roaring 20s, the election of Herbert Hoover (who ran on cutting government assistance and reducing the size of government), culminating in the Great Depression, which was the biggest economic collapse in modern history and America’s worst un-affordability crisis, ever. This roller coaster of events in the early decades energized political radicalism, and ideologies like communism and socialism, which eventually gave rise to fascism.

At the same time, avant-garde movements like the Futurists embraced machines, efficiency, speed, technology, and the wholesale rejection of cultural norms and conventions. Mark Zuckerberg’s famous line – “Move fast and break things” – would have been cheered on by the Futurists.

Futurists celebrated anarchy and nationalism. The movement’s founder, Filippo Marinetti, glorified violence, militarism, and eventually fascism. This was a time of headlines about bomb-throwing anarchists, mass killings in public places, and the murders of government officials and prominent businessmen.

Does any of this sound familiar? Mark Twain supposedly said, “History doesn’t repeat itself but it often rhymes.” I’ll let you draw your own conclusions. But as we move into the 21^st century, it seems like it’s “Déjà vu all over again.” (~Yogi Berra)

Like today, the early 20^th century was a time of intense and rapid “creative destruction,” a term coined in 1942 by economist Joseph Schumpeter in his book, “Capitalism, Socialism, and Democracy.”

Marx was, of course, right about the injustices he saw around him and the dangers of unfettered capitalism. But he was arguably the worst economist in history, since his solution, communism, has proven beyond any doubt to be a complete failure. Today, communism exists in name only, with Russia having devolved into a failing authoritarian kleptocracy and China operating as a gigantic, state-run corporation headed by a dictatorial CEO... and then there's Cuba.

Marx failed to understand human nature, the desire for merit-based rewards, and that innovation and wealth result from competition and self-interest. He never imaged that a capitalist system would evolve to include social security or paid disability benefits or that everyday people would be able to participate in the economy by trading shares of stock in their retirement accounts, or that the rise of entrepreneurial “animal spirits” would re-shape every aspect of the modern world.

It might be appropriate to re-phrase Marx, today, by saying,

“Workers of the world quit your job or start a side-hustle: you have nothing to lose but your lousy boss.”

Marx’s biggest mistake was his conviction that we had to throw the baby out with the bathwater. He failed to recognize the essential ingredients for any socioeconomic system to thrive; individual freedom and regulated markets within a functioning democracy - a combination that has proven to be the most durable wealth creation engine, ever.

Yet, as we enter the 21st century, we find ourselves engulfed in another “Gilded Age” and a socioeconomic system failing to share wealth equitably. And our new Robber Barons argue, as their predecessors did, that all it takes is to pull yourself up by your bootstraps, to a growing number of people who can’t afford boots.

Resentments about unfairness and complaints that the “system is broken” are rising again and the wealth divide between the haves and the have-nots has, once again, become unimaginable. As it was a hundred years ago, the definition of work is changing dramatically and traditional jobs are quickly vanishing. Sustainable wealth-creation seems out of reach for more and more people and polls show more Americans than ever now believe the “American Dream” is a cruel hoax.

So, as the “Roaring 2020s” roll on (named by economist Ed Yardini), anti-establishment anger is fueling a new version of “tear it all down,” because so many people feel they have little to lose. At the same time, this has provided an opening for a new oligarchy of billionaire grifters to stick their snouts in the trough, self-assured that they’re the smartest guys in the room, at all times, about all things, and only they can fix the world.

Meanwhile, un-affordability is corroding our great democratic experiment and our traditional “work hard and you’ll get ahead” mantra that has brought us so much prosperity and more importantly, social cohesion. So, it is ironic then that the most fundamental principle of Marxism, financial equity, may be the best way to save free-market, capitalism and address housing affordability in a sustainable way.

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For more, see;

Paradigm Shift: Rethinking Housing Affordability

Unaffordability - Part III

Paradigm Shift - Part III: How Affordable Housing Need Powered the Modernist Movement

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