A Radical Solution to the Economic Crisis

It seems I am quite out of the mainstream on the most fundamental issues of the day. Way out of the mainstream, actually. If you look at my solution to the problem of inflation, you’ll see that I am a fan of both freedom and changing the fundamental rules of the game. So, here goes:

The economic crisis has mainly been caused by the housing bust. House prices are dropping to below what people owe, so the loans that were made to those people became “toxic,” with massive defaults looming. Banks started failing, and companies and people stopped being able to get loans, which means businesses failing and fewer people being able to get housing.

One way to get out of this crisis is to increase consumer spending; this is very hard to do. The government often tries to do this with a tax rebate, and it might do so again. But what if we could have a stimulus as big as a tax rebate every month and it would cost the government nothing? That’s what I’m proposing.

But first, let’s get a little more background. There is only a finite amount of land in the world to live on. Back in the middle ages, it was parceled out among the nobles by the king; this was feudalism. If you lived on the feudal lord’s land, you had to pay him for that privilege, even if he didn’t net you anything. This tradition continued into the American colonies: many of the states were land grants by the European courts to individuals: Pennsylvania to Penn, Maryland to Lord Baltimore, and so forth.

This tradition continues to the present day in the form of titles. Government grants deeds and titles to the land and that piece of paper allows its holder to do whatever they want to those who live on it regardless of whether they have ever even seen the place, or been there, or done any maintenance on it, or anything! Just like those feudal lords back in the day.

There are other standards that could be used to determine who owns the land that are much more just. The one I am offering to you today is called “occupancy and use.” If someone lives on a piece of land, takes care of it, and improves it with their own labor, they are the owner of that parcel. This standard allows more freedom than the old feudal system and it is actually more just, as well.

What would be the implications of changing our standard from government titles to occupancy and use? After a short adjustment period, no one would be required to pay rent or a mortgage! This is the monthly stimulus I was talking about before. In most areas, people are paying between $300 and $3,000 a month JUST TO BE ENTITLED TO LIVE; to have a home. If we switched over to an occupancy and use system, that money would be going into the pockets of consumers instead; they could start saving more *and* spending more.

This would be quite a shock to the economy. Some of the implications would be plummeting house prices and failing banks. But those things are happening already! Why not channel those destructive tendencies into constructive outcomes? More people will be secure in their living situations, gain confidence in the markets, and have tons more money to spend!

There would be some winners and some losers with this system:

Losers –

People who have paid off their homes. Essentially these people will be no different than than they were before, but if they were using their home as a store of value for their retirement, it will dramatically lose most of that value (though not all; if there are people willing to pay for the house without taking out a loan, they could compete to buy it). Their retirement should end up a lot cheaper as well, though, so this might balance out.

Landlords. These people would lose their properties to their tenants, although, if they are really excellent, they will probably be able to get some of their tenants to continue paying (though much less) for their services of fixing things and being responsible for problems. Some renters rent because they don’t want to be responsible for these things and they would probably continue to do so. The fact that I am (sort of) about to become one of these means I’m not just writing this post in self-interest.

Banks. A bunch more of these would fail, which would suck in the short term.

Winners –

The poor and the middle class. Huge portions of the budget of these groups is made up of housing; often between 40 and 50%. All that money would be freed up to save or spend on things people want.

American retail and manufacturing. Think of what all that extra money will be used to buy! Think of all the improvements renters will make!

The future. We would be moving away the old feudal way of doing things and toward a more just and free society. If these changes were coupled with other freedom-enhancing reforms, America could lead the way into the governmental and societal structures of the future, just like it did in 1776. Our children and their children would have places to live, be motivated to improve them, and be able to provide for their families even more easily.

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2 Responses

  1. Hi Gregorus,

    Glad to see that you are thinking in this direction. Please take a look at http://www.SwapRent.com and the SwapRent Blog for the SwapRent-based economic policy proposal to fix the current financial crisis. Thanks.

  2. Hey Mr. Gregorus, good article. I posted an attempt at a Chinese translation here:

    http://forums.englishchineseblog.com/viewtopic.php?f=2&t=679

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