In understanding the motivations of various actors in a social economy, the mantra “follow the money” is used by analysts of many political and economic persuasions. After all, both Karl Marx and Adam Smith were materialists who saw the basic economic relations within a society as the best predictor of behavior. The corollary is that actions inspired by faith, love, loyalty, or other belief systems are less important.
Acting with cupidity
Now, we all know that you can manipulate a whole collection of belief and identity systems to get people on one political side or another in defiance of their own economic interests. That’s not what I want to talk about, because the endgame there is a political point and I want to follow the money, especially when it leads us away from the fantasy of the false dichotomy.
Money or Culture You Decide
The false dichotomy is of course the free market versus the state, and as a historian I can promise you that the one NEVER happened without the other. Indeed, following the money usually means massive private investments are following huge public investments which can occur in the form of land grants, subsidies, tax breaks, or, most commonly, infrastructural investments. Two hella ginormous examples in American history are the construction of the railroads by giving away tons of government land and the construction of the highway system by the government, which amounted to a massive subsidy of both automobiles and the trucking industry.
Land grants also funded “public” universities, many of which were subsidized by state governments, although interestingly those percentages have dropped so low at places like the University of Michigan it is hard to consider them public anymore.
They all had ag schools, which were a subsidy to the dominant industry
When we follow the money behind the recent proliferation (over 200% from 1998 to 2008) of for-profit universities the subsidy becomes obvious – student loans. These institutions are basically created to capture government investment in students, with 80 percent of their revenues coming from taxpayers and their students borrow at a much higher rate than traditional not-for-profit universities.
So what got me thinking about this was the decision this week that Northwestern University football players could unionize because they are effectively working for the university. And if you look at that famous map of the highest paid public officials in every state, you realize that it is mostly university football coaches. So here you have a massive industry that is subsidized by a.)student loans, b.)possibly state money(not at NU), c.)gate receipts from football games, d.)other receipts from said football, and e.)free labor.
Now of course the not-for-profit universities also have another subsidy – their not-for-profit status. They share this with churches, which are also subsidized, despite our Constitutional amendment that prohibits the establishment of an official religion. You ever wonder why you see so many storefront churches in the inner city? Because everyone is real religious? Because no one else is courageous enough to set themselves up there?
Follow the money. It’s because it is a lot cheaper to run a tax-free church in commercial space than an actual commercial enterprise, even though money changes hands in both scenarios.
So much of art history was crafted for churches, not because the artists were especially religious or not, but because that’s where the money was. Before the Europeans figured out ways to enslave Americans and Africans on haciendas they enslaved their own at monasteries, the plantations of the Middle Ages. Sure Henry VIII needed to get divorced and hence quit the Roman Catholic Church, but if you follow the money it was not love nor faith but the vast assets of the monasteries that made the dissolution worthwhile.
Besides they look a lot cooler as ruins. Ruins that inspired 19th century Brits to invent heritage conservation
Tax exemptions and incentives have been huge for historic preservation, although it is important to note that the incentives were crafted because the actual real estate market was biased toward new construction, a byproduct less of the nature of construction or even supply and demand, but the peculiarities of financing, especially that most revered of economic principles: certainty.
I certainly know the market. I can certainly predict the cost of the middle building, but the flankers may present unknowns
In this case the historic preservation tax incentives helps older buildings by offsetting the deficit caused by the difficulties of getting financing on the same terms as new construction. Form follows Finance, which follows subsidy, like student loans, and highways and sewers and so forth.
I live in Silicon Valley, which the economist Ed Glaeser (my blog on his book is here) called one big City of Ideas covering some three dozen municipalities over 60 miles of the Bay Area. Glaeser plays to type by whining about regulation, but he has a point in this autoclave of a real estate market, since the vast reserves of open land, parks and forests has pushed prices up in the most attractive parts of the Bay Area.
So, are the parks and climate externalities that drive up the price instead of place you could build, thereby driving down the prices? Or are the high prices in part a result of this being a really nice place to live, thanks to the parks and climate? I have often blogged before about the fundamental middle- and upper-class desire to control the environment you live in, or at least have a say in the process. The money is following the climate, and it is following the public subsidies of Big Basin and Windy Hill and Vasona Park.
Not hard to take on a daily basis
We were looking for souvenirs for our Japanese student guest last weekend and the postcards included one that pictured a wrecked wooden shack and the postcard says “Bay Area Fixer-Upper, $996,000” which is true down here in Los Gatos but probably underpriced for Palo Alto.
this one’s in good shape, but would command more than 996k
But the Bay Area market is not driven simply by supply and demand nor even by regulation and climate. The key for Glaeser is the face-to-face encounters, the logic of concentration which is in fact the logic of capital. People crafted the 21st century economy here and still do so daily with their company-subsidized lunches and their Save The Shire t-shirts. That’s why Zuckerberg came here, even though he invented Facebook in the midst the the second-greatest concentration of technology in North America. Success breeds success and money follows money.
Drones are illegal in California but this Google car has been following me for 21 months. I suppose I should be happy someone is following me, even if that someone isn’t money…
Tags: Preservation tax incentives, Silicon Valley; real estate economics, subsidies, unionizing college football
Time Tells 
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