The idea that technology would make all our lives easier is nothing new.
Back in 1930, noted economist John Maynard Keynes wrote that within a hundred years, we’d all be working a 15-hour week.
Well, 2030 is not far away.
And the 15-hour working week seems further away than ever.
So, what happened?
Well if you ask the economists, you’ll get a dozen different answers.
Some say despite all the grumbling, we actually enjoy work. We like being useful and productive in our lives.
Other economists say a shorter work week is problematic…that it would put companies at a disadvantage to those who still chose to work longer hours. And on the global scale, we still need to work longer and harder to face competition from around the globe.
Some point the finger at the corporations. That all the productivity gains wind up in the company’s bottom line and in the CEO’s exorbitant salaries.
Some economists blame rampant consumerism. That technological progress has produced a greater array and quality of goods to buy. The problem now is we’re all working harder to buy those goods.
Another explanation is that we’re all working harder, to keep up with the Joneses. We’re all struggling to keep up with the neighbours next door. The social climber in us, has us all borrowing more, and working longer hours just to keep up.
Now, there may be something to each and every one of these explanations.
But the main reason we’re all working harder is as plain as the ground you’re standing on.
To explain, let’s work through a hypothetical case.
What if, you could wave a magic wand and make everyone instantly $100 richer, every week.
How good would that be!
Maybe we wouldn’t all have to work so hard. Maybe we could afford to do less hours every week. Maybe we could start to see the lost era of leisure that Keynes so teasingly put before us.
The law of competition
But, if everyone was instantly richer, wouldn’t prices on goods and services rise?
Well that’s unlikely, with businesses competing on price to gain market share.
This is Adam Smith’s invisible hand in operation, the law of competition at work.
This is why laptops just keep getting better and cheaper, and why I don’t need to take out a 30-year loan to buy one.
So, if prices on goods and services wouldn’t rise, that still leaves $100 extra in our pocket every week. And a Keynesian utopia of free leisure time before us!
But not so fast…
There’s one area of the economy not subject to the laws of competition.
Why you still have to work a 40-hour week
Land, fixed in supply around the amenities, services and infrastructure we all enjoy, will always sell and rent at the red line of what the economy and locational advantages afford.
At the end of the day, that extra $100 every week, would simply feed into the rent and the selling price of land. It’s only those that already own, that would feel and see the benefit.
This is the main reason why we never got to see Keynes new era of leisure.
And here’s a graph I came across that rams it home for me. It’s tracking the national average rent in the US…
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Source: RENT Cafe |
As the US economy came out of recession and started to recover around 2010, look what steadily rose with it.
Better economic conditions bring higher land prices and rents. It can’t be any other way.
This is why you still have to work a 40-hour week.
Despite all the inventions and productivity gains over the last 100 years, all of us are still working as long as our grandparents did.
And house prices are as expensive as they have ever been.
The reason is in the Rent. Make sure you are collecting some.
No individual can create that rent.
It is a value created by the community itself.
And because we as a community fail to collect that value, it ensures we must have a real estate cycle.
Regards,
Terence Duffy