We should support rent moratoriums—but not because landlords are ruthlessly exploiting a pandemic.
t is a new month and rents are due. This made for one of the first headlines I saw when I tuned into Bloomberg Surveillance yesterday morning. Unfortunately, it also reminded me of a recent tweet claiming that rent, profit, and interest are all forms of theft: “Look, it isn’t complicated. If you are making money that didn’t come from your own labor, then it is coming from someone else’s labor. You are stealing their money.”
This is wrong. Each of these sources of income is an honest source of income. Putting aside the many problems with Marx’s labor theory of theory, as even Nobel economist Kenneth Arrow acknowledged in making a case for socialism, there are two obvious problems with the claim that these sources of income are not. But before getting to them, let me emphasize that I support a moratorium on rents for anyone who has lost a job during the current pandemic—just as I support the suspension of student loan payments for months as part of fiscal stimulus legislation passed in response to the pandemic.
Although real estate is an income-generating investment for many people, it is not without the labor of managing the properties.
Now, why is it wrong to equate rent, profit, and interest with theft? In short, because there is no free lunch. Two points:
First, the claim ignores a general equilibrium framework. This is the idea that the economy is interconnected. Effects in one sector have effects in other sectors. If I don’t pay the rent to my landlord, my landlord cannot meet her mortgage payment. The bank is then denied cash flow, which limits its ability to extend credit to small businesses, which might be seeking short-term loans to operate in these dire times. This is only a hypothetical, but it is a realistic one. It is not hard to imagine many other examples, pertaining to a vast array of sectors throughout the economy, as the pandemic persists. The implication is that rent, profit, and interest are the result of myriad, mutually beneficial transactions that reflect the productive activities of consumers and producers interacting throughout an economy. To assume that rent, profit, and interest are theft is to assume that normal economic activities are based on nothing more than exploitation. It is to assume wrongly that economic activities are zero-sum games, resulting in free lunches for the rich, paid for by the poor.
This leads to the second point. It is not true that wage labor is the only legitimate form of labor. For example, my landlord, in addition to her salaried job, must tend to the responsibilities that come with managing the condominium I rent from her. If the heating unit must be replaced, or the plumbing needs a fix, I must give her a call. As the owner of the unit, it is her responsibility to take care of maintenance. I would be happy to do it myself, but the terms of the contract do not permit it.
My landlord also has to manage the finances of her mortgage. Not just for this one, but also for other properties she owns. Collecting checks, transferring funds, and making sure all accounts add up may not sound like much, but it’s not much different from the hassles any household faces when paying the bills. It requires time and effort, like fixing the plumbing or replacing a heating unit. Although real estate is an income-generating investment for many people, it is not without the labor of managing the properties. Otherwise, the properties go to waste and lose their value. Similarly, profit is compensation for entrepreneurial effort, while interest is compensation for risk-taking.
The point is that there is no free lunch. Yes, it is a good idea to suspend student loan payments. It is a good idea to urge landlords, to the extent possible, to provide a grace period while households wait for checks from the federal government. It is a good idea to urge Congress and the President to increase the amount households receive, since $1,200 is probably insufficient for many households that have been waiting for weeks.
With all that said, let’s not lead ourselves astray by assuming it’s all a zero-sum game, where rent is the tenant’s loss and landlord’s unearned gain. The tenant gets a significant benefit in the form of shelter, while the landlord receives a return on investment. In keeping with the spirit of general equilibrium analysis, none of this means we ignore the problems of slum lords, homelessness, and poorly performing property management companies. It simply means that we get the lessons of economics right. Marx has been ignored by economists for several generations now, and that’s a good thing.
There is no free lunch.
Jonathan David Church is an economist and writer. He is a graduate of the University of Pennsylvania and Cornell University, and he has contributed to a variety of publications, including Quillette and Areo Magazine.