Marketing and Artificial Profits are Huge Factor in US Inequality

New Orleans       When I first read an email about Washington University’s law Professor Gerrit De Geest’s book, Rents: How Marketing Causes Inequality, I thought, right on!  Soaring rents for tenants are absolutely driving inequality in city after city.  Actually, looking at the book was different, but perhaps more important.  When De Geest is talking about “rents,” he’s referring to the artificial profits that would not exist in a free, competitive market.  The term “rents” original did refer to tenants of course but as the term has aged from economist David Ricardo’s initial argument rents are now a major economic distortion.

Professor De Geest and I talked at length about his argument on Wade’s World recently. These rents or artificial profits in his calculations have grow from 20% of the US economy in 1970 to more than one-third of the economy now.  Most of those artificial profits have been collected by corporations and the rich, and they have put the mechanism to drive these fake profits in overdrive making the economy a rigged game to put it kindly.

De Geest points the finger at business schools and the dominance of their constant refrain about marketing.  It would not be too far to state that past simple communication about the existence of a certain product, everything else is designed to created artificial profits for products that are virtually the same.  Certainly, this is the heart of branding as a process of convincing consumers that identical soaps, detergents, cars and so forth worth more or less depending on the marketing.   We shared examples from both of our brief experiences working in grocery stores and food supply businesses in our youth.  Working at Luzianne Coffee Company in New Orleans in their warehouse and shipping dock, it was easy to see the exactly same blend of coffee being relabeled for the local market and plain labeled for shipment on a contract to provide coffee to our soldiers in Vietnam.  De Geest talked about a weekly “bonus special” at the store where he was a clerk.  There were no price reductions.  They just moved the items from one part of the store to another.  These are rents or artificial profits, and once you start looking through De Geest’s lens, they are obviously everywhere.

Part of De Geest’s case is that business schools promoting marketing have overwhelmed law schools undergirding regulation and economic fair play.  In leveling the playing field, he is not a fan of taxes, unions, or other potential economic actors because he believes in conditions for an ideal free market, so he’s jaundiced on rebalancing what he sees as one problem for another.  He advocates expanding the country’s anti-trust laws to put some sharper teeth in curtailing some of this, and generally stepping up the role of law and regulation in the economy.  Good luck with that with Congress and the President where they are today.

Regardless, De Geest’s arguments deserve a hearing, and, importantly, they give some names and faces to why inequality is continually expanding and making a myth of any arguments about so-called “free enterprise” being fair.


The Census and Contracts-for-Deed

Little Rock       One somewhat nagging problem the ACORN Home Savers Campaign has confronted over the last several years, especially when we looked at the frequency of “contracts-for-deed” was the lack of definitive data.  Sure, we knew in Detroit that more contracts-for-deed were being registered under real estate transfers in recent years than were any form of traditional mortgages, but such information was local, not uniform, and decidedly not national.  For some inexplicable reason during the aftermath of the Great Recession in 2008, the Census Bureau under President Obama dropped the question from the 2010 census creating a black hole on a gnawing problem.  We can guess why, but we don’t know definitively.

My comrade and friend, the filmmaker Charles Koppelman, joined ACORN’s “volunteer army” when we were hitting the doors in Pittsburgh in the spring of 2017 trying to get to the heart of these issues with the Home Savers Campaign.  He had his camera rolling when a local Pittsburgh ANEW member and I were visiting with a woman, as she lay on her couch recovering from back surgery, in her home.  At first, she said she didn’t have a contract-for-deed, but the more we talked the clearer in became that she had a 30-year contract with a subsidiary of Harbour Portfolio, that was absolutely a contract-for-deed.  The interest rate was 12%.  The terms were onerous.  The contract was precarious.  If she missed a payment, they could take back the house, and she would lose everything.  Harbour, a Dallas-based hedge fund, had flaunted the fact that it was using such contracts to flip thousands of properties it had acquired at foreclosed property auctions conducted by Fannie Mae and Freddie Mac.  She was ready to organize with the campaign once she got back on her feet.  Charles learned more in talking to us about the situation so knew the information gap created by the Census that was preventing a full understanding of how widespread the return of such contracts might be.

Charles lives in the Bay Area of California.  He sent me a screen shot of something very interesting yesterday.  He had received a Census form to fill out in the mail, and darned if it didn’t have a question – once again – asking whether the household was under a contract-for-deed.  Voila!   Some bureaucrat deep in the bowels of the Census Bureau must have seen the smoke signals about the fact that this often-predatory product is back, and slipped the question back into the queue.

It will help, but it’s no panacea of course.  The visit in Pittsburgh 18 months ago provides that answer.  Too often given the desperation that pushes many families into these kinds of agreements as they search for affordable housing in almost any condition also leaves them uncertain of the details, including what to call the agreements they have signed.  The brokers are often very loose lipped in the way they encourage people to see such agreements as mortgages.  Others agreements that are only different in degree, like Lease-Purchase-Options, Rent-to-Own, Lease-to-Own, etc, etc, aren’t contracts-for-deed that are now actually monitored by Dodd-Frank but should earn a “check” in that Census box as well.

The data won’t be perfect by a long shot, but magically we are somehow back to where we were in 2000 when the numbers were last counted, so on the 2020 Census the inclusion of the contracts-for-deed question is at least something to put in the good news column.