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Progress and Poverty at Amazon HQ2

(Mark Lennihan/AP)

As has sometimes been noted, one can buy a castle in some parts of Europe for less than a modest condo in San Francisco.”

In the nineteenth century, the expansion of the railroad promised vast economic opportunities. Towns lived or died by where the track was laid, a fact that some unscrupulous companies used to extort bribes as they planned their routes. But, as the first transcontinental neared completion in 1868, there was at least one prominent naysayer. That year, Henry George published “What the Railroad Will Bring Us” in Bret Harte’s Overland Monthly. George argued that the railroad might well make his home of San Francisco “the first city of the continent.” These changes however “will not benefit all of us, but only a portion.” With the development of San Francisco, the city would grow wealthier, but also less egalitarian. At the time, George was a solitary voice in a sea of boosterism, but within a decade the city would witness a series of riots led by an angry, xenophobic “Workingmen’s Party.” By then, George seemed to have been a prophet.

In 1879, George formulated his ideas into a book entitled Progress and Poverty. From Adam Smith to John Stuart Mill, liberal economists had argued that land was a monopoly and that the landlord could claim in rent any financial advantage it offered. George’s epiphany was that the economic value of land was no longer just a function of how much grain one could grow on it. Whether one could afford space in the city determined access to a vast array of economic advantages of scale and proximity that were inconceivably greater than anything in the countryside. Furthermore, the city offered opportunities for culture, education, and socialization that far outstripped the offerings of small towns. If classical economists were right when they asserted that the value of land was proportional to its advantages, then the price of urban space would grow in tandem with the development of the city. That meant that every step forward for the community would be a step back for its tenants.

Today, Alexandria Ocasio-Cortez is playing the role of Henry George by attacking Amazon’s decision to locate its headquarters in Queens. Her criticism of the tax subsides granted to Amazon are cogent and uncontroversial—even conservative commentators like Tucker Carlson acknowledge that it makes little sense to fork over billions of tax dollars for a company to relocate to a city it would have moved to anyway. But she has also expressed concerns much closer to those embodied in George’s critique of the railroad. The economic opportunities offered by Amazon, will, she suggests, hurt her constituents by driving up rent.

Ocasio-Cortez styles her brand of socialism the “Green New Deal,” but it is hard to overemphasize how much her position departs from wheeling and dealing tradition of old-school urban liberals like Richard Daley. These figures traditionally believed it was their job to bring as much money as possible back to their districts. The singular goal of the New Deal was full employment. So, it testifies to the stark differences between our own economic problems and those of the 1930’s that no one bats at eye when a representative protests new jobs in her district. Today, we have full employment and are pretty sure that it isn’t what we need. Note recent headlines like “Americans Want to Believe Jobs Are the Solution to Poverty. They’re Not” and “The U.S. economy doesn’t need more Amazon jobs. It needs higher wages.”

Ocasio-Cortez’s pessimism isn’t unfounded. One study found that, when the housing market is tight, rising income among high earners can negatively impact the poor by pushing up housing costs. While George’s prediction that rising land values would consume all economic progress was clearly overstated, there is some truth to the idea that urban space becomes more valuable in proportion to the benefits it offers. Citylab found that the cities with the highest economic mobility in America were also consistently the least affordable. Wherever they chose to locate, young people are saddled with an impossible choice between pursuing opportunity or affordability. If George were to visit “The City by the Bay” today, he would feel justified in his conclusion that no advances in the labor market would improve living conditions until the rent question is settled. Business Insider ranks San Francisco and San Jose as the two best urban economies in the country. Most residents of the Bay Area, however, don’t feel so wealthy. That is because, as HUD concluded, any residents of San Francisco who earn less than $100,000 can be classified as “low income.”

Although they both highlighted the paradox of “progress and poverty,” the differences between George and Ocasio-Cortez are more important than the similarities. George believed that rising rents were the inevitable cost of progress. Halting improvements in urban life that sparked rent was neither possible nor desirable. The goal was not so much to reduce rent, as to redistribute it. Conversely, Ocasio-Cortez, opposes “gentrification,” a cultural and social phenomenon that purportedly inflates housing costs.

For example, Ocasio-Cortez suggested in her critique of Amazon that “luxury housing” built in the Amazon boom would negatively impact her constituents. I have my doubts about this. I am old enough to remember when people who moved into warehouses were perceived as desperate refugees; now the warehouse aesthetic is incorporated into luxury apartments in every part of the world where the name “Brooklyn” is known. Our valuation of architectural style is subjective and historically contingent. There is no evidence that any particular architectural style positively corresponds with higher rents. As has sometimes been noted, one can buy a castle in some parts of Europe for less than a modest condo in San Francisco. If inflated real estate prices are constituted primarily by location rather than the building itself, controlling the quality of housing is no solution to the affordability crisis.

The concept of “gentrification” focuses the discussion of rent on the displacement of ethnic communities. Because of the cultural orientation of this discourse, we assume that cultural and aesthetic changes are not just results, but also causes of high real estate values. However, many of the prime examples of gentrification—for example, Greenpoint, the Mission District, and U Street—have garnered so much demand precisely because of the commodification of their ethnic culture and cuisine. Ben’s Chili Bowl—Washington D.C.’s famous historically black restaurant—drives up values in the U Street Neighborhood considerably more than the Target does in Columbia Heights. According to Professor Sharon Zukin, this “Disneyfication” of ethnic community is not an isolated instance, but part of a pervasive trend in the development of American cities.

Problematically, this means that halting “gentrification” wouldn’t just require blocking totems of white bourgeois culture like Whole Foods; it would mean suppressing the culture of existing ethnic communities. If one wanted to turn around the Mission District in San Francisco, they’d need to tear down not just Ritual, but also La Taqueria. The only way to stifle demand for a neighborhood is to guarantee that no one wants to live there. This would be a truly pyrrhic victory; it would mean creating a desert and calling it peace. 

George, in contrast, argued for a tax on land on land values that would fund programs like free higher education and public transit. Today, George’s “land value tax” is practiced in Taiwan and Denmark—a recent study of the latter found that as the tax increased, the price of property declined proportionally. Many experts, including the editorial staff at the Economist, think highly of the tax. Land value taxation might or might not be the best solution to the high cost of urban life today, but it is hard to deny that George’s general approach to rent is more practical than what prevails today.

In 1908, the Georgist Benjamin C. Marsh was asked to organize an exhibit on rent in New York City. Over 70,000 people visited the exhibit, the centerpiece of which was two cubes, one barely half an inch across, the other four and a half feet. One was a scaled representation of the value of land in Manhattan in 1624 and the other the value in 1907. The display asked simply, “Who created it? Who gets it?” The forces underlying urban rent are too large, complex, and—dare I say—natural, to stop. Marsh’s question represents a better angle for tackling the question. If rent reflects the growth of a community, how do we ensure that the proceeds don’t act as a barrier for entry to the disadvantaged, but rather are leveraged to benefit the entirety of the community that creates it?

Christopher England holds a Ph.D. in U.S. History from Georgetown University and has taught at Georgetown and the University of Wisconsin-Madison.

One thought on “Progress and Poverty at Amazon HQ2

  1. With all due respect to the good doctor’s pedigree, he is a poor correspondent on the subject of both Alexandria Ocasio-Cortez and that of Henry George. For one, to paraphrase former Senator Lloyd Bentsen, and as someone from College Point, within the NY-14th , Rep-elect Ocasio-Cortez’ district, she is no Henry George. For another, George in no way ever predicted “that rising land values would consume all economic progress “. That is a misrepresentation of George’s understanding of the relationship between property rights in the gifts of Nature and property rights in the produce of one’s own labor.

    The statement that Rep-elect “Ocasio-Cortez styles her brand of socialism the ‘Green New Deal,’” is also incorrect. The “Green New Deal” is a plan to change the nation’s power generation infrastructure to so-called “renewable” sources. It is not “socialism” and it is not at all the entirety of her economic policy. I am not a particular supporter of Alexandria Ocasio-Cortez. I think she is too young for her position, with too little experience of the real world, and I think she knows a lot less about economic principles that she seems to believe. That I feel cause to defend her in any way is a measure of how off-the-mark this article has been, in some aspects. I expect better from someone who holds a terminal degree in his field and teaches others, let alone from non-tabloid journalism.

    For better or worse, she’s got the job; however, I also have a lot of hope for her, and I am not her enemy. She, at least, is willing to state the truth that our economic system is designed to leech the poor to serve the rich, and that this must change. As a Georgist, I tend to disagree with her methods, but not with the destination she has in mind. She is a person who shows intelligence and willingness to enact change in the cause of justice, which is not something that can be said of many of her soon-to-be-colleagues. She will learn rapidly.

    “Gentrification,” is not “a cultural and social phenomenon that purportedly inflates housing costs”, it is literally the consequence of rising land values in a society where rent-seeking prevents existing residents of newly-revitalising urban land, to which they fled during the 20th Century, from meaningfully participating in the economic upturn which attracts newer, more affluent buyers and tenants. The claim that “(t)here is no evidence that any particular architectural style positively corresponds with higher rents” is patently absurd. Wealthier tenants can and will pay for lower density development. Contract rents are a function of the number of available units in a given market. Fewer units always equals higher rents. This is basic supply and demand. The author’s repeated misrepresentation of gentrification is disappointing, to say the least.

    George realised that the reclamation of 100% of the rental value of the land while reducing the capital improvement taxes to zero would encourage the “highest, best use” of any given plot. In residential terms, a landlord is thereby incentivised to maximise profits by maximising the number of units they can rent. This encourages density and smaller unit sizes, which incidentally is a major factor in energy consumption and would help meet the goals of the “Green New Deal”. David Owen does a very good job of pointing out that urban living is the most “green” type of living arrangement. Encouraging density relives pressure on ex-urban land, preserving agricultural land, wilderness land, and brings farms closer to city centres.

    I lived for a time in downtown Seattle. Amazon is Seattle’s largest occupant of real estate, by far. Amazon should not be discouraged from moving to Long Island City, though it certainly does not deserve tax breaks for doing so. To the contrary, it should be taxed according to the value of the land it occupies. Land values cannot be hidden overseas. I am, I suppose, glad to see that the author at least appears to agree with me on that point.

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