Mortgages Are The Best Part Of Democracy

This question about AI was asked to me yesterday:

"AI is going to take my job away. AI is certainly going to be a labour saving invention. But who will own that saving? Will it be those who hold the patents or those whose labour is no longer needed. That seems to me to be the vital political question.  And seems a rational basis for concern."

This question always comes up when technology delivers a new labour saving device. And because it seems strange and unfamiliar, the first reaction is always to recommend reactions induced by fear. This is a terrible mistake and signals the wrong attitude towards our world where democracy reigns.

Who will end up with all the gains from AI?

It will be homeowner who gets a large share of the gains, "the one whose work is no longer needed" as the questioner suggests. As a nice tax free windfall. In rents. Ultimately these rents(location values) will capitalise into a selling price. 

In every economy, across all times and places, the results of increased productivity, beyond the costs of a bare living and the incentive to start work or startup a new business, end up in location values ... in the end. It must be so. 

Why must it? Because I cannot produce anything, in this universe, without exclusive rights to a location to do it on. And the most valuable plots are where the most productivity takes place. And its the towns and cities where this is most intensive. I want to rent those locations more than any other for obvious reason. 

The digital age merely intensifies this effect. If you say, "well I could move my digital site to North Yorkshire where the value of land is nearly zero". I would say "Bingo! That land will immediately rise in value now the demand for it has increased. And if you succeed, others will quickly follow, yet further intensifying the effect". 

And so it goes, all the way to infinity.

I am not in the least proposing a new fiscal policy or similar to fix this. I think that would be a terrible mistake because that does not demand a change in my attitude which I need to make to secure my household in the best possible way, under the present circumstances I must live within. That would be simply more political meddling. I am showing you economic cause and effect within a democracy. And why AI is just the latest labour saving device which will make no difference either way to the distribution of all the extra wealth it does create. Neither improving it nor making it more unjust.

"We sail through space as if on a well-provisioned ship. If food above deck seems to grow scarce, we simply open a hatch — and there is a new supply. And a very great command over others comes to those who, as the hatches are opened, are permitted to say: "This is mine!"

Using the power of attitude to secure the future of my household 

This observation is extraordinarily hard for me to accept. Because it makes me complicit in the most prominent activities which make our democracy spin.  It's so easy for me to blame the bankers, wealth and power or a conspiracy of masons in a castle atop a hill somewhere - to escape. Likewise, certainly no politician will be electable for 20 years if they mention it - the lifetime of a mortgage, long enough for me to have forgotten the last time that rare brave soul made a stand and lost his seat for it.

Much better for me to accept my world, our democracy with all its gains and all it losses, as they all are, in actuality. To change my attitude to what is actually happening and act deliberately and authentically from there.

I am right to be worried about AI - But why?

Too many times I've not gained from increasing productivity. But why not? 

What vehicle is used to distribute the extra wealth being created in a democracy? Banking! Banks are where all financial transactions take place ultimately. Banks are the ultimate clearing house.

Now as a side note if anyone starts telling me Bitcoin is then the solution because it does not require banks, I would say "OK, will it be big blocks, billion per second scale, with point to point transactions and micropayments?" For if not its another form of the same kind of old banks except this time run by anarchists who believe they are doing something new. Another terrible mistake due to a bad attitude to the world.

Location value represents nearly 70% of the value of every nation. 50% of all locations are mortgaged. Mortgages are 85% of all bank assets. So I know in which direction I must look.

Mortgages are the vehicle society chooses to distribute the economic rents(location values)

All I need to fear about AI is that it delivers increased productivity. Am I still scared about something that is so good for me!

I should only be scared because of my poor attitude. And my family should be scared of me too for the same reason.

What is economic rent?

Economic rent is a historic term used to describe the returns to a factor of production - a thing involved fundamentally in the production of wealth. Rent is what I can get if I own any form of monopoly. By right, I can receive that income stream in rent and the law will protect me fully.

The biggest monopoly of all, by a very long way indeed, is real estate. Or location value. Location, Location, Location, heard it before? And they're not making any more of it, so each plot is unique and in limited supply - a monopoly, nay, the mother of all monopolies, because as we've said, you cannot produce any new wealth, even with AI, without a valuable plot to do it all on.

The value of banks and other monopoly powers such as corporations and owners of intellectual property all gain their value from the economic rent which accrues to a monopoly, which they all have the same legal right to thanks to democracy and the law. But these classes of monopoly are tiny in comparison to real estate.

The beauty of rent is that once started it requires no additional inputs, such as my hard work, or my savings to keep receiving the outputs as an income stream in rent. This is astonishing because it is the only economic thing which has this quality. All other things, which an economist would call capital, always depreciates over time and needs large inputs of savings and work to maintain. Rent always rises over time and requires no further inputs.

Another unique quality is that government of all parties will bail out these economic rents before all other things too. So during hard times you will see government unusually quickly changing policy to support the value of rents. We can see this daily in the media. Likewise, during good times, all parties will pump the rents and only the rents, causing a spectacular boom where people feel great and be one obsessed with getting on the ladder. Even the planet savers will bail out the rents first and pump prices. Especially them. We can see this very clearly in the scale of the renewable energy scam.

Finally rent, in the end, is tax free. Don't make the mistake of thinking the income tax you pay on rental income is all there is to it. This tax and much more, several times more, is all clawed back in the increased capital gain you get by owning the asset which receives rent - without requiring further inputs of your work and savings.

Remember, ATTITUDE. Don't let your weaker inner self delude you. By aligning my worldview with the actuality of all this I'm not being negative as the gatekeepers will say. By facing up to the real world I am planning in the most positive way for the security and prosperity of my household. 

Mortgages - The primary vehicle used to transfer the rents

Inflation can be higher than interest rates. Thus discounting the value of the mortgage over time. A very nice tax free gift indeed for the homeowner. Certainly a vote winner.

Remember we used to have tax relief on mortgage interest(MIRAS). Isn't that the same kind of thing as inflation discounting the cost of the debt, just in a different form? And before that in the early 60's Schedule A tax was abolished, which again was yet another way to transfer the economic rents from the producers of wealth to the homeowner.

Today, mortgages are the best vehicle for transferring the economic rents. The very thing every voter wants before all other things we vote for. The trick for the voter is to assure themselves they can remain above water for the duration. It is also of utmost importance for the skilled politician to keep ahead of policy messaging wise.

After ten years the loan will have depreciated by 50% even if interest only. And the selling price will have doubled in price. So 75% of your asset will now be an imputed economic rent - you will effectively be receiving an imputed cashflow - even if not directly as cash. Your arse sitting on that location means you are receiving the identical benefit a tenant would get from the cash they pay in rent. So what you now do not pay in rent can be spent freely on other stuff. It's cash, absolutely.

And never let the pundits scare you into thinking climbing interest rates are even a problem. Historically, interest rates have always been higher when house prices are booming. Sure, higher interest rates will have a dampening effect. But the demand for housing has far more speculative power than a minnow interests rates policy. Government of all parties realise this - they are trying to win votes so will not mention it to us directly.

Also stamp duty land tax is another way to boost house prices, in spite of the tax reducing price to some extent. As we've pointed out, they're not making any more land. Every form of taxation kills the incentive to produce and exchange the thing being taxed. So a tax on a housing transaction will mean fewer transactions will take place, to the extent of the tax - the higher the tax, the fewer the transactions. Thus limiting the housing supply yet further and boosting the price well beyond the tax. Again this is just another hidden government home owner bail out.

There is plenty more where this came from. Suffice to say that government of all parties, even the greens/socialists, looks after homeowners as a first duty. Not bankers. Banks are just the vehicle democracy uses to bail out homeowners and pump prices. Sure, brainwashing hides this by blaming bankers helping the homeowner feel like I am escaping complicity. It's a fascinating and highly successful illusion.

The mortgage renders social reform efforts, impotent

The mortgage turns a planet saver, activist and charity feeder into no more than recipients of medieval indulgences too!

Remember: there are 27 million homeowners in the UK alone. And each household has at least 2 willing voters on average, ready to step up to the ballot and declare my vested interest very clearly indeed.

For a planet saver, social activist or reform movement, I as a mortgagor am your worst enemy. There is nothing I will not do to stop you taking away the benefits I get from my mortgage. This is why all social reform movements, even if they are authentic, worthy and virtuous - which would be quite a surprise - always end up being mere signals to virtue and never succeed. They are an escape route for the mortgagor to make me feel like I'm doing the right thing, indulgences, while I continue with my democratic right.

Sure. I care about the environment and the poor. But I care about my household 90% more. 

Transferring the rents from the banks to the homeowner

During the early life of a mortgage, the banks will be getting nearly all of the rent, as mortgage interest. The early days of a mortgage lifecycle are usually the least risky, a large consideration for a bank making risky loans.

As the probability of the homeowner defaulting grows over time, and the value of the rent from the interest diminishes though inflation, the bank will allow the asset to slowly transfer to the homeowner and reestablish their focus on newer more fruitful mortgagors. The tendency will be for the bank to sell the debt anyway to an institution more comfortable with the higher risks. Why cling on to an increasingly risky asset which is also losing value when there are new ones readily available by the million.

Real estate is a very liquid asset. Ignore the financial advisors.

Imputed Rent - As a fully fledged mortgagor, I am now using up the community created value of a location which if I were paying rent for would cost me that much in liquid cash. The cash I no longer have to find is imputed making what I do have spendable elsewhere. So it is money I would normally pay to live there, I now do not have to pay, while still getting the benefit of it. Making it a very liquid thing. 

Rising prices - are a capitalisation(creating a selling price) of the rent. Not only am I receiving an imputed rent if owner occupier. Not only am I receiving additional de facto rent in liquid cash if its a second home. For all my homes I can double up the value of all the rents I already get as cashflow into an increased selling price. Few realise that the selling price of a home is 20 years of rent. Or put another way capitalised at a rate of 5% annually. Or put another way still, the selling price is me buying the rental stream, forever! Test it yourself on your own home if you either rent or own. The calculation can be done in reverse. So I can remortgage on the back of this easily, making it a yet more liquid asset, cash-like without the cash!

Mortgages ARE democracy!

So, if I can get rent, I and my family will never suffer economically. Politicians are doing exactly the right thing supporting my household in this way. By upholding mortgages as a foundation of democracy, politicians are protecting me as a homeowner in the biggest possible way. Can I think of any bigger way politicians are using democracy to help and protect me - police, health, armed forces, education, authentic media? Look at the record of these institutions over the past few years and have a good long think about it.

If I can get a lot of rent I will no longer need to do work

Thank goodness. Every labour saving device across all of history has delivered an increase in productivity for the economy which utilises it well. AI is just another form of the same kind of thing -  the newest form of labour saving device. There is nothing more special about AI than that. Yes, it seems strange because we are not yet familiar with it as we are already with fire, the wheel, steam, electricity and the Internet.

I fully sympathise with the worker or business owner worried about AI "taking my job". But AI has nothing to do with it. AI is just a ship passing in the night. Our laws, which legalise the mortgage, and which I the mortgagor uphold every time I go to the ballot, are all - democracy!

OK, I could go ahead and blame AI for my troubles. I could escape temporarily from the consequences that way as a small child would. But is that the attitude of a fecund homeowner seeking to protect my family. What are the consequences of decisions rooted in a denial of reality on my family, in the end?

If I can change my attitude to the inevitable, and make better decisions because I'm looking at it with deadly seriousness,  I'll receive the consequences of that - more safety and prosperity, compared to the alternative. I will now be able to watch the great masse of tenants or mortgage interest payers do all the work, instead of me. If I also happen to get joy out of my work, then fantastic. I will proceed with that too with the additional gains thrown in.

Homeownership - the manic dash for a mortgage

THIS is how the redistribution of the increase in productivity from AI technology etc etc, plays out. Through the mortgage. Its a fools escape for me to support the common media AI narrative which tells me to fear it and that it will take my job away. When all it has the power to do is to increase productivity. As a wise old man all I need to do is ask the deadly serious question:

"who is getting all the additional wealth I create with my startup, small business and sheer hard work, if not me!"

And take my analysis from there, not stopping until I find out exactly why -its going into location values, which end up in rents or selling price. AI is merely the capital I use to increase my productivity, like all other forms of capital before it. If I can ask this question, meditate on it for a few days, then I can understand my manic dash to get on the housing ladder, is my right. I will eventually see that all increases in productivity in every economy over all time always end up in the location value of real estate, which is cashed in through rent.

It is designed into democracy today. And has been developing since the turn of the century when house prices started their long term assent relative to earned incomes, or as is commonly termed today 'wage rate multiples', which regularly over the past century have been more than 8 times multiples. It is nothing new and cycles to its heights during boom times.

Why are all political party's no different to each other?

Simple. Which political party will be the fool by making a stand against mortgages or proposing policy which reduces house prices? That is all. 

I may well be able to point out other differences between each of the parties. But these will be superficial compared to the one policy which harmonises all parties - mortgages and home ownership for everyone. 

So What do I do now? 

Its all a matter of my attitude. If I succeed, the results will belong to me, by right. I will have earned them, by right.

No matter the circumstances, I always have the last of the human freedoms: to choose my attitude

Now I have this knowledge, I can proceed confidently. While remembering there are no guarantees on earth. Every householder will have our own way of handling it all, it is not for a teacher, guru or pundit to tell me what exactly to do now. How can a teacher possibly know the internal factors my household best uses to make way on the sea of my own future and fortune?

This free choice is driven by my attitude to the inevitable consequences of the democracy I partake fully in. So I must decide how I proceed, how big my mortgage is, how long I can survive during hard times, and for any uncertainties I must hedge my bets against them... in the way I know best.

And it is this knowledge about mortgages and getting on the ladder which is the foundation of my success and the security of my family, within this world of democracy.