Friday, January 17, 2003
Unemployment is the multi-faceted result of a calculated, secretive distortion of the employee/employer market. Just when you thought that Marxism was dead, along comes the parable below. Don’t ask me who “the owner” really is – “capital” is a woefully anachronistic, as well as semantically vague term. All I know is that the tenth tenant and the tenth room are real enough.
The tenth tenant
Imagine if, on a small island, there was only one large house - long since subdivided into the owner’s quarters plus ten small, self-contained apartments. The island also now has ten single, adult residents, in addition to the owner.
Before letting out any of her apartments, the owner thought long and hard about how to maximise her rental return. Due to unique island factors, she could predict with near-certainty that ten people – no more, no less – would come to live there. Knowing this, she consciously decided to board up and hide the existence of one of her ten apartments.
Why did she do this? In economic terms, she was cornering the market, creating an artificial shortage/sell-out, one that would drive up the prices paid by those “lucky” enough to be buyers. Where an amount of product can be physically stockpiled at an economic storage rate, this cornering stratagem is impeccable. But given that a boarded-up room both continuously “leaks” forgone income, and eventually perishes as a capital asset, can it be that the collective rental scarcity premiums paid by the nine “lucky” tenants add up to at least equal this loss?
It would seem so, at least as long as the boarded-up room is kept a secret from them. For the unlucky tenth tenant, homelessness is his/her main option. Homelessness, of course, comes with an extreme visibility that handily compounds – psychologically, if not monetarily – the upward pressure on the rents of the other nine. Note that all ten tenants are dupes in this closed loop – the tenth tenant, homeless only because of a shortage of rooms; and the other nine, who unknowingly pay to prop-up and directly subsidise this shortage, while also shelling-out some small change on the homeless tenth tenant-cum-beggar, on a regular basis.
Is there a way out? Can the secret apartment be found out (or volunteered up) and un-boarded for occupancy? If so, the most likely resolution is not the obvious, equilibrium one – ten apartments for ten tenants. By cutting a grey-market, cheap rent deal with the homeless tenth tenant, the owner should be able to finally successfully exploit the empty room (albeit for half-market rent only), and yet at the same time retain the shortage-era, surcharged rent-levels for the other nine tenants.
The owner, then, is able to (almost) double-dip, by renting the room out an effective one-and-a-half times. The opprobrium directed forcefully and personally by the nine original tenants against their new neighbour (“bludger”!) forecloses any rational consideration of the situation. Monetarily, they are slightly better off by the homeless tenth tenant’s being taken in and therefore no longer begging, but psychologically, they feel utterly cheated. As they should, of course, only not looking at the tenth tenant. Even if it is accepted that they subsidise half the tenth tenant’s rent, double this amount is concomitantly being paid over to the owner, as a spurious shortage subsidy. But this latter subsidy remains effectively invisible, with none of the nine ever really questioning the “shortage” status quo.
As the nine original tenants get angrier and angrier over time with the “bludging” tenth tenant, the “shortage” seems to become more acute. The nine’s rents start to spiral up exponentially, even though underlying supply and demand on the island have not changed a jot. The owner becomes immensely rich. The social outcast tenth tenant, eventually tiring of fruitless pleading with the owner to be able to pay full-rent, one day boards themself in their room, from the inside – and dies, at least until the next one comes along.
That is the end of the story, really, and yet it is also just the very beginning. It is only when the existence of the tenth tenant no longer matters, so that the person seems to merge with the physical existence of a boarded-up room, about which … well, who really cares? The nine original tenants would themselves agree that they are better off not knowing about any of this, in the first place. “Nine rooms for nine tenants” – it sounds neat, tidy, and means that they all get on so-o-o well with the owner.
The tenth tenant
Imagine if, on a small island, there was only one large house - long since subdivided into the owner’s quarters plus ten small, self-contained apartments. The island also now has ten single, adult residents, in addition to the owner.
Before letting out any of her apartments, the owner thought long and hard about how to maximise her rental return. Due to unique island factors, she could predict with near-certainty that ten people – no more, no less – would come to live there. Knowing this, she consciously decided to board up and hide the existence of one of her ten apartments.
Why did she do this? In economic terms, she was cornering the market, creating an artificial shortage/sell-out, one that would drive up the prices paid by those “lucky” enough to be buyers. Where an amount of product can be physically stockpiled at an economic storage rate, this cornering stratagem is impeccable. But given that a boarded-up room both continuously “leaks” forgone income, and eventually perishes as a capital asset, can it be that the collective rental scarcity premiums paid by the nine “lucky” tenants add up to at least equal this loss?
It would seem so, at least as long as the boarded-up room is kept a secret from them. For the unlucky tenth tenant, homelessness is his/her main option. Homelessness, of course, comes with an extreme visibility that handily compounds – psychologically, if not monetarily – the upward pressure on the rents of the other nine. Note that all ten tenants are dupes in this closed loop – the tenth tenant, homeless only because of a shortage of rooms; and the other nine, who unknowingly pay to prop-up and directly subsidise this shortage, while also shelling-out some small change on the homeless tenth tenant-cum-beggar, on a regular basis.
Is there a way out? Can the secret apartment be found out (or volunteered up) and un-boarded for occupancy? If so, the most likely resolution is not the obvious, equilibrium one – ten apartments for ten tenants. By cutting a grey-market, cheap rent deal with the homeless tenth tenant, the owner should be able to finally successfully exploit the empty room (albeit for half-market rent only), and yet at the same time retain the shortage-era, surcharged rent-levels for the other nine tenants.
The owner, then, is able to (almost) double-dip, by renting the room out an effective one-and-a-half times. The opprobrium directed forcefully and personally by the nine original tenants against their new neighbour (“bludger”!) forecloses any rational consideration of the situation. Monetarily, they are slightly better off by the homeless tenth tenant’s being taken in and therefore no longer begging, but psychologically, they feel utterly cheated. As they should, of course, only not looking at the tenth tenant. Even if it is accepted that they subsidise half the tenth tenant’s rent, double this amount is concomitantly being paid over to the owner, as a spurious shortage subsidy. But this latter subsidy remains effectively invisible, with none of the nine ever really questioning the “shortage” status quo.
As the nine original tenants get angrier and angrier over time with the “bludging” tenth tenant, the “shortage” seems to become more acute. The nine’s rents start to spiral up exponentially, even though underlying supply and demand on the island have not changed a jot. The owner becomes immensely rich. The social outcast tenth tenant, eventually tiring of fruitless pleading with the owner to be able to pay full-rent, one day boards themself in their room, from the inside – and dies, at least until the next one comes along.
That is the end of the story, really, and yet it is also just the very beginning. It is only when the existence of the tenth tenant no longer matters, so that the person seems to merge with the physical existence of a boarded-up room, about which … well, who really cares? The nine original tenants would themselves agree that they are better off not knowing about any of this, in the first place. “Nine rooms for nine tenants” – it sounds neat, tidy, and means that they all get on so-o-o well with the owner.
