Watching the rise of global capital in Seattle.
Watching the rise of global capital in Seattle. Charles Mudede

Council member Lisa Herbold's recent efforts to obtain hard data about the impact of foreign money on our housing market have hit wall after wall. And when she tried to determine if such buyers could be taxed, so hot money could be cooled, she was informed by the King County assessor that "such taxes are unneeded and could stoke anti-Asian sentiments." That assessor, John Wilson, refused even to work with Herbold on a system to determine how often foreign buyers use straw companies to park cash in Seattle real estate. That means Wilson has dismissed the necessity of a speculator's tax without first investigating how much foreign money is entering and inflating the local market.

This is exactly what happened in Vancouver B.C. until it was too late. The real estate industry did everything it could not to blame foreign money. It claimed, again and again, the foreign buyers only accounted for four percent of annual home purchases in the region; it claimed the problem was purely a matter of consumer demand. The city did nothing for a decade but listen to this one story (all economic theories are stories). And it was only after housing values had totally no relation to local incomes, and therefore could not be explained by the story of supply and demand, that the government panicked and tried to defuse a politically explosive situation with taxes. (The housing crisis in Vancouver eventually played a major role in the downfall of the moderate Christy Clark and the surprising surge of the Greens and B.C. leftist politics—the pattern of this downfall and rise has similarities with the current mayoral race, with Jenny Durkan fitting the part of Clark and Moon that of the Greens and their allies.)

Vancouver's leading real estate reporter Kerry Gold explained to me during a discussion concerning the Seattle Times article, "Vancouver, B.C., home prices resume stubborn climb to fresh record," which was posted in June, and whose main points (taxes have done little, it must be about supply and demand, so on) were repeated in today's article, "Taxing foreign home buyers in Seattle would be illegal, could stoke anti-Asian prejudice, officials say":

This is what happens when government fails to act on foreign speculation until it's way too late. Our 15 per cent foreign buyer tax did little. The new provincial government is talking about doubling the foreign buyer tax to 30 per cent, but nothing is for sure yet. They're also talking about a speculation tax. They're struggling to get control of the situation, but there is too much foreign capital already in the market.

What's important to understand is it's not, in principle, a matter of Chinese capital. It is a matter of global surplus capital, which over the decades has taken many national forms. A lot of Americans know next to nothing about economic history or heterodox economics and so have no idea that the rise of Wall Street is recent (the late-1970s) and was not sparked by simply deregulation but the recycling of surplus capital from oil producing countries, most notably Saudi Arabia. (The former Finance Minister of Greece, Yanis Varoufakis, provides a great explanation and description of the history of recycling global surpluses in his 2016 book And The Weak Suffer What They Must.) What happens is American consumers buy products from foreign producers, and the foreign capitalists, who hold all of this cash with nothing to do (though they could invest it in their economy or raise the standard of living for their citizens), send it right back to the US where it inflates equity markets or buys American debt. Because US debt is valuable, the purchases sustain its chronic current account deficits. In a normal world, a world without repatriating capital, trade imbalances would result in massive and often painful social and economic adjustments.

Now, there are two reasons to export surplus capital. One, the home market is saturated (not many investment opportunities with high yields), and, two, the home market is not considered safe because it is still developing or is politically unstable or uncertain. Germany is a classic example of the former, and this is why it exported its surpluses to countries like Greece. The investment opportunities in poorer countries are much greater than those at home. China is a classic and current leading example of the latter. But ultimately the problem is not the nation, but this capital and how it is managed and where it goes.

In the case of Seattle, a popular city with a growing economy and stable political system (despite the pussy grabber in the White House), investors desire nothing more than to flood its commercial, apartment, and housing markets with yield-hungry capital. It can do so in a number of ways: directly with hard cash or indirectly through loans or partnerships. Also, do not think of this money as persons or nationalities. Think of it as absolute surplus, which in our age constantly suffers from low interest rates, and so is desperate to enter any stable/safe market whose values are rising above the rate of inflation. At present, if absolute surplus sits around, it loses value because interest rates are below inflation rates. This is the global situation and Seattle is now a major node in this global economy.