Stealth Attacks on People’s Lives via Boring Economics

Posted in: Tax and Economics

Is there an affordable housing problem in major American cities? Of course there is. What is the solution? If you are a conservative who never thinks beyond the first chapter of your Economics 101 textbook, the answer is “too much regulation.” For everyone else, this debate provides an important lesson in how conservatives use boring economic arguments to dress up policy proposals that are truly harmful to non-wealthy people.

To repeat, there is a problem with affordable housing in New York City, Washington, DC, many California cities, and a few other places. The glaring manifestation of that problem is that there is a large and growing gap between what middle-class people can afford and the housing that is available where they live.

There are many schools of thought in economics, and it is truly rare that there are simple answers to any intractable problem. Even so, my years as an economist have taught me over and over again that far too many of my colleagues are willing to say—and many seem actually to believe—that there are “obviously correct” economic insights that are not being adopted only “because of politics.”

The problem is that the phrase “because of politics” often means nothing more nor less than “because these seemingly simple economic solutions are justified only by assuming away complications that politicians refuse to assume away.” And a large part of the universe of issues that these economists are willing to ignore has to do with the distribution of wealth, advantage, and power.

The Alluring Idea That Economics Is Simple

There is, as I noted above, a core group of economists who are willing to peddle the idea that their field provides simple answers. They continue to push this idea in large part because there is an audience of non-economists who truly do seem to think that the first couple of weeks of their basic economics course is all they need to know to understand how the world works.

As it happens, that group of wannabe-economists tends to lean hard to the right, because the simplifying assumptions that are made in the basic economics course have a strong tendency to support rigid conservative orthodoxy. For example, a conservative colleague once said to me: “We don’t have to teach our students all of the nuances, because they only need to know the basic truths: minimum wages are bad, money creation leads to inflation, and regulation costs too much.” It ought to go without saying (but it does not, unfortunately) that none of those statements is anything more than political cant.

One particularly telling example of how this kind of thinking finds its way into wannabe-economists’ writing is a column by a recently hired conservative op-ed columnist for The Washington Post. There is no reason to call her out by name here, because there is nothing about her arguments that distinguishes them from what one can find anywhere on the internet where motivated conservatism meets overconfident libertarianism.

The column in question purports to explain how the affordable housing problem can be solved. The “tell” is obvious early in the column: “[T]o an economist, the solution is simple: Just make it easier to build more stuff.” She then summarizes some economic studies that claim that housing prices are double or even triple what they would be in “an unregulated market.”

So all we have to do is ignore those foolish politicians who defend these damaging regulations, and the problem will be solved. Simple, right? But every market is necessarily going to have regulations, because there have to be rules about what can be built, if for no other reason than to protect people from investing money in a home only to discover the next day that the block across the street is going to be razed and replaced by a factory spewing toxic chemicals.

Or, for an example that is both more and less dramatic, consider New York City. “Just make it easier to build stuff” there would have to mean allowing developers to build where they currently are not allowed to build. If so, then why not Central Park? That is 843 acres of prime real estate, and current law—that is, regulations passed by politicians—prevents it from being turned into high-rent housing.

I am not saying that the opposite of the simplistic right-wing answer is an equally simplistic left-wing answer. The point is that there are no simple answers, and any economist—real, wannabe, or otherwise—who claims that there are is either dishonest, illogical, or gullible.

The Real Agenda of Simplistic Economics: Attack Protections for the Non-Rich

Most people who have spent any time in New York City would agree that Central Park is a jewel and should not be plowed under in the name of privatized profit. Even so, noting that one major regulation makes sense does not mean that every other possible rule and restriction makes sense. Maybe there are regulations that could be changed or eliminated. What might those be?

According to our intrepid Post columnist, the problem is simple: Democrats coddle too many people:

Coastal cities, after all, don’t suffer from onerous real estate regulations because their bureaucracies were afflicted with some mysterious fungal blight. Most of those rules have some powerful Democratic constituency behind them, one that wields a substantial bloc of votes and maybe even a good argument about why these rules are necessary.

Yes, the problem is that there are “powerful Democratic constituencies” behind various rules. Even though those constituencies can muster “maybe even a good argument,” they are still somehow wrong, apparently because they do not understand the unchallengeable truths of economics.

Who are those intractable constituencies? Unsurprisingly, it is the right’s usual list of villains.

“Prevailing-wage laws to keep union members happy.” Right, we do not have prevailing wage laws to allow workers to earn a middle-class income but only to keep union members happy. Why should politicians in a democracy that is devoted to the pursuit of happiness be so weak-kneed as to prevent workers from being paid subsistence (or worse) wages?

What is even worse than unions, in the conservative mind? “Strict environmental review, and generous rights to sue, to please conservationists.” Again, note the dismissive word choices (and the two-fer, with “generous rights to sue” invoking anti-lawyer bias). Just as union members are being infantilized for supposedly being obsessed with mere happiness, Democratic politicians are doing nothing more than trying to please conservationists—not to address genuine environmental concerns, but apparently because conservationists have some whimsical emotional desire to impose costs on the world, and politicians want to please those dilettantes.

Although The Post’s columnist opportunistically tries to appropriate the language of the left to condemn rules that “give affluent communities the ability to limit economic diversity,” she quickly reverts to form by complaining that regulations “let gentrifying neighborhoods extract concessions from developers for long-term residents,” as if long-term residents should simply be cast aside and the political system should allow that to happen.

Weirdest of all, the list ends with this parade of supposed horribles: “Health and safety codes. Earthquake-proofing. And so on down the line.” I must say that this is one of the most inexplicable “yada yada yadas” that I have ever come across. Question: Why are rents too high? Answer: Regulations. Question: Which regulations? Answer: Health, safety, earthquake-proofing—ya know, all of that silly stuff that liberal politicians make such a big deal about. Somewhere, George Costanza is shouting, “If she actually mentioned earthquakes, what the hell is she yada-ing?”

Supply and Demand

All of those arguments are supposed to support the claim that “this is one of the rare issues on which economists seem to be pretty much unanimous: American cities need to trim back the legal restrictions that constrain housing supply.” I am not saying that there are no areas where large swaths of economists agree. (The insanity of Republicans’ threats not to increase the debt ceiling come to mind.) I am saying, however, that there is an awful lot hiding behind the words “trim back” and “legal restrictions.”

What is especially odd about all of this is that The Post’s columnist purports to be channeling simple, solid economics, yet she soft-pedals the big demand-side problems in these housing markets. Even someone who dropped out of Principles of Economics after the first week would know about supply and demand.

Consider again the columnist’s casual slam on unions. If the problem is that middle-class people are having a hard time staying in cities because of affordability problems, maybe it is more than a matter of pleasing workers to prevent them from ending up with even less money from their hard work.

If not everyone can live in a city, giving more people more resources at least partially levels the playing field. As the columnist herself admits: “Fundamentally, prices in these places are going up because there are more people who want to live in these areas than there are housing units. In the resulting bidding war, low-income residents lose out to people who have more resources.”

But is it not true that supply has to go up to prevent this from being a zero-sum game? Not really. A lot of housing in desirable cities is taken up by extremely rich people who demand larger living spaces than most people would ever need, pushing out everyone else.

In other words, the deeper issue here is that we live in a world of extreme inequality. The Post’s columnist writes: “As long as landlords have a preference for affluent market-rate tenants over families that are economically struggling — and they do — then there is no housing policy that can keep struggling families in their homes, or slow the pace of gentrification, without fixing supply.”

That is the worst kind of half-truth. If—but only if—we implicitly take redistribution off the table, then we must apparently sit by impotently while landlords exercise their economic preference for rich tenants. But that merely rigs the game. “I refuse to consider any changes in rules that have distorted demand, so I will only consider changing rules that have an effect on supply. Oh, and by the way, my solutions will reinforce the cause of the problems on the demand side.”

Even worse, many rich people are often using their oversized pieds-à-terre on a part-time basis. There are areas of London and New York that are well known for being essentially ghost towns with maintenance crews awaiting the occasional visits from the owners. Why should we continue to ignore the fact that many of the housing areas that exist are being underused?

Even more fundamentally, however, ignoring the demand side and focusing only on the supply side is ultimately a fool’s game. Because we cannot build enough housing units in a city to make rents go to zero, we are necessarily talking about how to set up the rules of non-free urban housing.

If the argument is that rich people are always going to win fights over economically limited resources, then what is the point of the analysis? The hook on which these right-wing arguments ultimately hang is in fact a distributional one. Affordability, after all, is fundamentally a comparative—that is, a distributional—question. No matter how many new units are built, poorer people will still have a harder time competing with people in a world of extreme inequality than in a world of relative equity.

Clearly, the affordability problem includes rich people keeping out poor people, which is why it is good that, as our conservative columnist admits, “[h]ousing activists have had some success using state governments to override local opposition to building low-income housing.”

Which brings us to another big surprise about the false conflict between crass politics and hard-headed economics. “The government” is not one thing. “Politicians”—even Democratic politicians—are not of one mind. There are many overlapping and contradictory concerns that even the most well-meaning person must take into account. Being told that economists are “pretty much unanimous” in saying that it is all about misguided politicians ignoring the dictates of the free market is sophistry built upon careful choices about what is thinkable and what is beyond the pale.

Economic analysis has a lot to offer, but we do no one any favors when we pretend that it is simple and that there are no value judgments hiding behind the supposedly neutral analysis. That is true of all policy questions, most certainly including housing availability.