Serf Nouveau

The traditional notion of a serf (originally a French word, so my title is OK) is a person bound to a landowner’s land, and in whose labor the landowner has property rights. Serfdom in its traditional form is now illegal, and so new mechanisms have had to be invented to capture property rights in people’s labor. The principal mechanism chosen was debt, structured in a such a way as to make it very difficult to discharge or avoid payment. People are persuaded to voluntarily monetize a property right in their future income – labor – and transfer it to the ruling class in exchange for some overpriced good or service.

The most obvious of these new serfdom structures is the student loan. Universities noticed that their graduates earned significantly more over the careers than those who did not have the benefit of a university degree. This difference in earnings was, to their mind, the value of the university degree. They decided that, since they had provided that value – the difference in lifetime income – they were entitled to price their services based on that value, rather than the cost of service. This decision was implemented by raising prices and introducing the notion of a non-dischargeable student loan to pay the higher prices, which constituted a property right in the labor of the student for the rest of his or her life, in most cases. The net consequence of this structure is a wealth transfer from students who are paying far in excess of any reasonable cost for the piece of sheepskin to the sheepskin printers.

The other well-known form of serfdom is the mortgage (another French word – funny about that). In this model, the proletariat is encouraged by freely available credit to speculate in property, driving up the prices of land. Property transactions contain two elements – the bricks and mortar structure and the underlying land. The mortage business is too familiar to restate, but essentially landowners are enabled to convert their property into a long-term income stream that is valued at far more than the original cost of the land. The new property owner is shackled to the property the moment that prices stop going up, because he or she is now unable to repay the loan by selling the property. Obama’s new refinance program is obviously intended to reinforce the shackles, by making it less relatively attractive for owners to do the sensible thing and walk away. “Beneficiaries” may pay less in interest, but the loan balance is not adjusted, leaving them, after fees, deeper underwater than they were before.

These financing transactions, and others, transfer the fruits of people’s lifetime earnings to others, turning them into a a new version of serf, with no realistic ability to escape from the manor. Thanks to the lenders who turn income streams into lump sum payments, the 1% gets the money upfront, leaving the 99% burdened for the rest of their lives. Sad. Don’t be a serf.

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