As Bethany Jean Clement points out today in the Seattle Times, the restaurant sector in Seattle is really booming. Here is the heart of her post:
Seattle had 2,696 restaurants as of the first quarter of 2017, according to Department of Revenue data — up 25 percent from a decade ago. (These DOR figures represent all food service businesses, including full- and quick-service places, trucks and carts, and caterers.) Contrary to the oft-quoted “fact” that half of all restaurants fail in the first year, the Seattle survival rate for restaurants has been hovering around 87 percent a year out (up from 83 percent in 2007). And the numbers for Seattle restaurants’ gross annual sales are startling: up 45 percent over the past decade, to a 2016 total of $2.9 billion. Yes, billion.
Of course, this evidence goes against all of that nonsense the University of Washington economists cooked up with their models and called a scientific report of the negative impact high wages have had on Seattle. We must now dismiss that report completely. It has no value in the world we see around us—the world of experience.
But here is something to really think about. Orthodox economists tend to look at an economy from point of view of capital and labor. If a balance is struck between the two, the heaven of an equilibrium is reached. Capital has certain wants, and labor has certain wants. But the thinking in mainstream economics says, again and again, that the wants of capital are pragmatic and the wants of labor are not, which is why there is unemployment. Labor has a tendency of making impractical demands, thanks to unions and government intervention. As a result, wages often do not correspond with the state of a market, which only desires to communicate perfect information to buyers and sellers. But this focus on wages and investments is very misleading because it excludes rent. What is the rent of an office building, a store, a restaurant? The cost of renting a location to conduct business almost gets no attention in the literature of mainstream economics.
And so, we learn from Marc Stiles of the Puget Sound Business Journal about the other side of the boom described by Clement. Rent. It is going up sharply. Stiles: "Downtown Seattle has the 15th most expensive retail lease rates across the Americas." He also explains that high-end spaces have made big gains from 2016 ($75 per square foot last year to $80 now). But this increase in prices for high-end spaces does not exist in a vacuum. It must represent a trend for all business-related spaces. With that in mind, recall that rent contributes nothing to the culture of an economy. It is parasitical. It doesn't generate more chefs, more ideas, more entrepreneurs. Rent is profit drawn from a piece of property and nothing else (and because we have no deep theory of fixed capital, it can hide its lack of justification). I expect you will not find a report from the UW about how rising commercial rents are hurting Seattle's economy.