Last week, we got the jump on a really misleading “report” that, once again, somehow, a relatively small number of real estate transactions are distorting the entire housing market. The Stranger felt compelled to respond with a flailing post that mentions my name 8 times but really doesn’t show how around 1,600 units of expensive units can “worsen inequality.” I can just see the author, Charles Mudede reading the Seattle Times and hurling his copy of Discipline and Punish at his Karl Marx poster. “Roger Valdez knows next to nothing about economics!” Maybe I don’t. But I didn’t see anything to convince even an economic illiterate that some luxury apartments in town “worsen inequality.” The truth is that some otherwise really smart people have locked into the foreign buyer conspiracy explanation for why housing prices rise. It simply isn’t true.

The theory goes something like this: foreigners, especially Chinese people, have lots of ill gotten cash from graft or theft and in order to launder that money they are buying up real estate in Seattle and other “hot” real estate markets. As one commenter in The Stranger post asserts,

A property purchased in (for example) Seattle will be able to be sold and render US dollars to a noveau-riche person who had his Chinese bank accounts seized in a Communist Party crackdown on corruption (look up the corruption thing over there). They don’t care about rental income because they bought the thing outright, and it’s a pain to manage from afar.

But let’s look at one of Mudede’s strangest (it is The Stranger) paragraphs. The jumping off point for Mudede’s post was my quote in the Seattle Times story about the report: “It’s easy to imagine that there are millionaires lined up around the block waiting to buy high-rise condos. But the fact is that most of the builders in the city are building small and medium-sized apartments, houses and townhouses.”

The left (or real-world reasoning) is then forced to say dumb things like: Billionaires and their forms of consumption do effect all members of their society. Why? We must let the stupidity continue by stating what is right there in front of every nose: Because the value system that measures the rich is not different from that which measures the working and not-working poor. The wealth of the wealthy is dependent on the fact that wage earners agree that the value of those at the top, those who park their money in luxury condos and live on income from financial speculation, is valid. In the way that capitalism can’t survive without a belief in the value of the surplus extracted by socially necessary labor (the ultimate social contract, which is temporal); it can’t exist without an agreement that the value in the pockets of a person sleeping on the street is the exactly the same as that in Bezos’s bank account. You know this. I know this. We all know this. But Valdez wastes our fucking time by telling the public that there is no connection between luxury condos and the rest of the property market.

“Because the value system that measures the rich is not different from that which measures the working and not-working poor.” If I was grading this paper back in my days as a teaching assistant in graduate school, I’d have to write in the margin, “what does this mean?”

Mudede seems to be making the argument, best articulated in Capital, Volume I. Chapter 1: The Commodity, Section 4, The Fetishism of Commodities and the Secret Thereof, one of Marx’s best and most complex works. Marx’s notion is that,

The mode of production in which the product takes the form of a commodity, or is produced directly for exchange, is the most general and most embryonic form of bourgeois production . . . How long is it since economy discarded the physiocratic illusion, that rents grow out of the soil and not out of society.

I quoted this because it gets at the socialist idea that prices are not a reflection of supply and demand, but a construct of society. Hence the, “the value in the pockets of a person sleeping on the street is the exactly the same as that in Bezos’s bank account.” That value isn’t about the money its about where the person is sleeping and where Jeff Bezos is; price simply reenforces a social construct set by the powerful and through the exchange of money for things like a place to sleep and even setting a person’s worth in society.

I’m trying to help Mudede out. “You know this. I know this. We all know this,” Mudede says. Well, most people don’t have any theoretical concept of commodification. As I pointed out in my post linked above, most of the people stomping around mad about “luxury condos” don’t have the vaguest notion of Marx’s argument that the means of production when controlled by one group forces others without that means to sell their labor. That sale helps pay the bills, but it drains the life out of the seller. What’s worse, is that the deliberate commodification of things like housing, goes the theory, means that poor people are always struggling to stay ahead by selling the only thing they have, their very essence, their bodies and minds to generate cash to pay the rent.

I guess this what Mudede is somehow getting at.

But that’s just a guess. I suppose the fact (I’m pointing at the dog again) that some people can spend a million dollars on hundreds of square feet of apartment illustrates the idea that those square feet have value assigned by society, and that assignment of value means the person on the street will never have access to those square feet. How valuable is an apartment? The billionaires decide, and they’ve set such a high value on that square footage as to keep you poor.

Fine. And I’d even concede that part of what people will pay for an item, say a Rolex watch, is not about the utility of that thing, but its social value. But what  a market does is create the option for some people to buy a Rolex and for some to buy a watch at Target for $15. The very notion of a market is that people arrive there from all over with needs and assets. I need an orange. You have one. You need tomatoes. I have some. We exchange them and walk away, maybe, satisfied. If satisfaction isn’t achieved, we try again — and innovate if need be or find a different seller or seller.

As FA Hayek points out in The Road to Serfdom, “Our freedom of choice in a competitive society rests on the fact that, if one person refuses to satisfy our wishes we can turn to another” (page 96).

However, if my ability to produce those tomatoes is constrained, I have less to offer. If others in the market are limited by fines, fees, and the kinds of taxes Mudede supports to “fix” inequality, them our choices and our freedom evaporate.

When we allow more production, we eliminate scarcity and inflation and give the person on the street more buying power. That’s how we solve housing disparity. Mudede fails to show how the luxury condos do anything other than make some people resentful at the extravagance, certainly not how, quantitatively, their existence hurts anyone.

The odd thing about these theories is that they rely on the notion of supply and demand. This is truly the demise of the argument about luxury condos,  especially when the argument is made by doctrinaire socialists who claim there is no supply and demand, just social constructs. The reason that the socialist might offer as the link between the condos and the price of an apartment on Capitol Hill is that, wait for it, the foreigners leave those units vacant. That, they say, leaves more and more apartments in town empty, reducing the supply and then prices go up. That assumes, again, an odd behavior for people smart enough to make hundreds of millions of dollars: buying up things then emptying them out and leaving them vacant. This simply isn’t happening, and if it was happening, as I have pointed out before, many thousands, like tens of thousands, of units would have to be purchased, vacated and abandoned for us to feel it. But worse for the socialist is that the argument about creating vacancies as a ploy to push up value by decreasing supply fundamentally, and fatally, wounds their argument that value is a social construct; they’re admitting the truth of price being the quantitive measure of supply and demand. And that, the lack of supply in the face of rising demand, is why prices go up

And every time my name gets mentioned in The Stranger, 100 units are, purchased, vacated, and abandoned by shadowy foreigners in the city. I don’t think Charles knows that.