There Is No Free Lunch: Landlords Are Not Leeches

We should support rent moratoriums—but not because landlords are ruthlessly exploiting a pandemic.

It is a new month and rents are due. This made for one of the first headlines I saw when I tuned into Bloomberg Surveillance yesterday morning. Unfortunately, it also reminded me of a recent tweet claiming that rent, profit, and interest are all forms of theft: “Look, it isn’t complicated. If you are making money that didn’t come from your own labor, then it is coming from someone else’s labor. You are stealing their money.”

This is wrong. Each of these sources of income is an honest source of income. Putting aside the many problems with Marx’s labor theory of value, as even Nobel economist Kenneth Arrow acknowledged in making a case for socialism, there are two obvious problems with the claim that these sources of income are not. But before getting to them, let me emphasize that I support a moratorium on rents for anyone who has lost a job during the current pandemic—just as I support the suspension of student loan payments for months as part of fiscal stimulus legislation passed in response to the pandemic.

Although real estate is an income-generating investment for many people, it is not without the labor of managing the properties.

Now, why is it wrong to equate rent, profit, and interest with theft? In short, because there is no free lunch. Two points:

First, the claim ignores a general equilibrium framework. This is the idea that the economy is interconnected. Effects in one sector have effects in other sectors. If I don’t pay the rent to my landlord, my landlord cannot meet her mortgage payment. The bank is then denied cash flow, which limits its ability to extend credit to small businesses, which might be seeking short-term loans to operate in these dire times. This is only a hypothetical, but it is a realistic one. It is not hard to imagine many other examples, pertaining to a vast array of sectors throughout the economy, as the pandemic persists. The implication is that rent, profit, and interest are the result of myriad, mutually beneficial transactions that reflect the productive activities of consumers and producers interacting throughout an economy. To assume that rent, profit, and interest are theft is to assume that normal economic activities are based on nothing more than exploitation. It is to assume wrongly that economic activities are zero-sum games, resulting in free lunches for the rich, paid for by the poor.