For decades, idealistic twenty-somethings have shunned higher-paying and more permanent jobs for the altruism and adrenaline rush of working to get a candidate to the White House. But the staffers who have signed up for the Clinton campaign face a daunting obstacle: the New York City real estate market….
Mrs. Clinton’s campaign prides itself on living on the cheap and keeping salaries low, which is good for its own bottom line, but difficult for those who need to pay New York City rents….
When the campaign’s finance director, Dennis Cheng, reached out to New York donors [to put up staffers in their apartments], some of them seemed concerned with the prospective maze of campaign finance laws and with how providing upscale housing in New York City might be interpreted.
Here are some words that don’t appear in the article: rent control, regulation, zoning.
New York City and State have instituted policies that severely distort the dynamics of housing supply and demand. Only 30 percent of the city’s rental units, for instance, are subject to market prices.
These distortions — coupled with Rube-Goldbergian environmental and zoning regulations — have denied New York the kind of healthy housing market enjoyed by most other major cities.
And a report by Edward Glaeser and Joseph Gyourko for the Federal Reserve Board of New York Economic Policy Review suggests that “homes are expensive in high-cost areas primarily because of government regulation” that imposes “artificial limits on construction.”
As I’ve said in other contexts: This is the business you have chosen. If you want the government to control rents and impose regulatory costs on the building of housing, then you can expect to see less housing and thus more expensive housing. Welcome to your world, Hillary Clinton staffers.
Related: Jim Epstein notes that fully one third of Manhattan, and 33,000 buildings and 114 entire districts across the city, are “encased in a life-sized historical diorama,” unable to be modified or demolished thanks to the city’s “landmark preservation” law.
Last winter, I was getting ready to put insulating plastic on all of my windows to keep the cold out. I quizzed my Facebook friends to see if they could use the economic way of thinking to predict which room’s windows I would insulate first. They had some good suggestions. Maybe the coldest room? Maybe the kitchen, because it gets the most use? Maybe the room with the largest windows?
They were all wrong, and they were wrong because I don’t really do economics. I do momonomics. Momonomics is the particular kind of economic thinking engaged in by parents. (All parents use momonomics, even dads. I just think momonomics sounds better than parentonomics.) If you practice momonomics, you know that the windows that get covered in plastic first are the ones in the kids’ rooms, because you can do that in the half an hour the kids are spending watching Phineas and Ferb and then get the rest done while they’re in bed and not in the way. Also, the children are tiny and cold, and you feel sorry for them.
The factor, in other words, that makes momonomics different from other economic ways of thinking is that children are the primary binding constraint. Here’s an example of what I mean.
Economics says that all goods have substitutes, but momonomics knows this is nonsense. Momonomics says that sometimes you’re going to have to turn the car around and drive two hours back to the hotel where you stayed last night in order to rescue one very special doll from the hotel laundry. (Thanks, btw, Mom and Dad. I still have her.) Economics says that ablanket may have a substitute, but momonomics says that the blanket does not. Sometimes demand curves are vertical, and price is infinite.
Economics takes preferences as given and explains why actors behave the way they do. Momonomics knows that preferences are mysterious and behavior cannot be explained, especially when the actor is under three feet tall. In fact, the job of the momonomist is often to restructure given preference sets and to alter behavior. We want you to eat your vegetables first, even if they don’t taste as good as tater tots.
Sometimes momonomics helps to reveal hidden economic secrets. We all know economics values efficiency. So some people might think that because the gas station is between the office and the day care, you should stop for gas on the way to pick the kids up. Momonomics knows this doesn’t make sense if the kids go out of their minds if they aren’t picked up at their usual time, and they really like to help put gas in the car. So momonomics schedules that trip in a way that makes momonomic sense and that, once the constraints are fully understood, makes better economic sense as well.
Economics thinks expressed preferences are important, but often mysterious. People want strawberry Pop-Tarts after natural disasters because they do. It’s not particularly important why. Momonomics can help unpack those preferences, reminding us that strawberry Pop-Tarts are a kid-friendly food that provide a burst of energy and a comforting familiarity; also, they don’t require any cooking, and they don’t make a mess.
Just as frequently as momonomics challenges economic theory, momonomics helps to confirm the practical applicability of economic thinking.
Economics reminds us that we live in an environment of scarcity. Momonomics agrees and says that because your sister finished the cinnamon Life cereal, you have to have peanut butter Cheerios for breakfast.
Economics reminds us that, just like every other resource, time is subject to scarcity constraints. Momonomics agrees, and wouldn’t sell you the hours between kid bedtime and grown-up bedtime for a gold nugget.
Economics knows that because time is a resource, sometimes the order in which you use other resources matters. Momonomics agrees. That’s why we’re having salad for dinner tonight, and frozen peas at the end of the week. And take a banana for a snack while you’re at it — they’re starting to get brown.
Economics knows that capital is heterogeneous. So does momonomics. That’s why if you don’t take the banana today, there will be banana bread tomorrow.
And when it comes time to slice up and share that banana bread, momonomics agrees with economics. You cut it up, but your brother gets to pick his slice first. (Momonomics comports to some degree with Rawlsian political philosophy). And don’t forget to wrap the leftovers in foil.
There’s a more serious point behind all this silliness. People who don’t know any technical economics use economic and momonomic ways of thinking every day to make decisions, both large and small. Lenore Skenazy is doing an excellent job of demonstrating the good things that can happen when moms start thinking about risk and uncertainty the way that economists do. And economists in classrooms everywhere are using momonomics examples to clarify arcane principles and connect economics to their students’ lives.
We would all make better decisions if moms thought more about economics and economists thought more about moms.
https://drrichswier.com/wp-content/uploads/cherios-fee-e1434646517448.jpg317640Foundation for Economic Education (FEE)http://drrich.wpengine.com/wp-content/uploads/logo_264x69.pngFoundation for Economic Education (FEE)2015-06-18 12:55:382015-06-18 12:55:38How Moms Both Challenge and Confirm Standard Economic Theory Or, the “Principles of Momonomics” by Sarah Skwire
Baltimore’s recent riots are not surprising in a city that has long been plagued by both police brutality and one of the nation’s highest murder rates. Though numerous government policies and the rampaging looters deserve blame for the carnage, federal housing subsidies have long destabilized Baltimore neighborhoods and helped create a culture of violence with impunity.
The U.S. Department of Housing and Urban Development was created in 1965, and Baltimore received massive subsidies to build housing projects in the following years. Baltimore’s projects, like those in many other cities, became cornucopias of crime.
One 202-unit sprawling Baltimore subsidized housing project (recently slated for razing) is known as “Murder Mall.” A 1979 HUD report noted that the robbery rate in one Baltimore public housing project was almost 20 times higher than the national average. The area in and around public housing often becomes “the territory of those who do not have to be afraid — the criminals,” the report said. Baltimore Mayor Kurt Schmoke in 1993 blamed maintenance problems at one public housing projects on drug dealers who refused to let city workers enter the buildings.
HUD and the city housing agency presumed that simply moving people out of the projects was all that was necessary to end the criminal behavior of the residents. Baltimore was one of five cities chosen for a HUD demonstration project — Moving to Opportunity (MTO) — to show how Section 8 could solve the problems of the underclass.
But the relocations had “tripled the rate of arrests for property crimes” among boys who moved to new locales via Section 8. A study published last year in the Journal of the American Medical Association reported that boys in Section 8 households who moved to new neighborhoods were three times more likely to suffer post-traumatic stress disorder and behavioral problems than boys in the control group.
A 2009 research project on Section 8 published in Homicide Studies noted that in the one city studied, “Crime, specifically homicide, became displaced to where the low-income residents were relocated. Homicide was simply moved to a new location, not eliminated.”
Ed Rutkowski, head of a community development corporation in one marginal Baltimore neighborhood, labeled Section 8 “a catalyst in neighborhood deterioration and ghetto expansion” in 2003.
Regardless of its collateral damage, Section 8 defines Valhalla for many Baltimoreans. Receiving a Section 8 voucher can enable some recipients to live rent-free in perpetuity. Because recipients must pay up to a third of their income for rent under the program, collecting Section 8 sharply decreases work effort, according to numerous economic studies.
Last October, when the local housing agency briefly allowed people to register for the program, it was deluged with 73,509 applications. Most of the applications were from families — which means that a third of Baltimore’s 241,455 households sought housing welfare. (Almost 10% of Baltimoreans are already on the housing dole.) Section 8 is not an entitlement, so the city will select fewer than 10,000“winners” from the list.
HUD’s Federal Housing Administration also has a long history of destabilizing neighborhoods in Baltimore and other big cities. A HUD subsidized mortgage program for low-income borrowers launched in 1968 spurred so many defaults and devastation that Carl Levin, then Detroit City Council president and later a long-term U.S. senator, derided the program in 1976 as “Hurricane HUD.”
In the late 1990s, more than 20% of FHA mortgages in some Baltimore neighborhoods were in default — leading one activist to label Baltimore “the foreclosure capital of the world.” HUD Inspector General Susan Gaffney warned in 2000: “Vacant, boarded-up HUD-owned homes have a negative effect on neighborhoods, and the negative effect magnifies the longer the properties remain in HUD’s inventory.”
The feds continued massive negligent mortgage lending in Baltimore after that crisis, creating fresh havoc in recent years. In late 2013, more than 40% of homes in the low-income Carrollton Ridge neighborhood were underwater. Reckless subsidized lending in Baltimore and other low-income areas helped saddle Maryland with the highest foreclosure rate in the nation by the end of last year. One in every 435 housing units in Baltimore was in foreclosure last October, according to RealtyTrac.
President Obama said the Baltimore riots showed the need for new “massive investments in urban communities.” What Baltimore needs is an investment in new thinking. The highest property taxes in the state and oppressive local regulation often make investing in jobs and businesses in Baltimore unprofitable. Only fixing that will produce a stable community. Shoveling more federal money into the city is the triumph of hope over experience.
https://drrichswier.com/wp-content/uploads/baltimore-slum-e1432831780893.jpg317640Foundation for Economic Education (FEE)http://drrich.wpengine.com/wp-content/uploads/logo_264x69.pngFoundation for Economic Education (FEE)2015-05-28 12:50:592015-06-12 08:47:54How Government Turned Baltimore into Pottersville by James Bovard
Everyone has a theory of the way the world works, a way of connecting cause and effect. Without it, we wouldn’t know how to start the day: “If I wake up at 7:00 a.m. tomorrow, I should make it to work on time. And then…”
Our theories, the rules and principles by which we interpret the world, help us to think and plan, but they also constrain our thinking and planning to some degree. That can be a good thing, as long as our theories conform reasonably well to the real world. We understand, for example, that the best way to exit the 10th floor of a building is not necessarily to step out of the nearest window.
For economists who study human action in the real world, one of the principles we cannot ignore is that scarcity exists — to get more of one valuable thing, you will have to give up some of another valuable thing. In fact, you could say that not understanding the nature and significance of scarcity is the hallmark of someone who isn’t an economist, or is a very bad one.
In everyday life, it’s usually impossible to ignore the existence of scarcity. For most of us, it’s pretty obvious that time and money aren’t unlimited, and that if we want a bigger house we’ll probably need to earn more by giving up some leisure time and working more. In a free market, one without arbitrary political power and aggression, the economic reality of scarcity is a “hard constraint” that’s always good to keep firmly in mind when making plans.
Economics versus politics
But tracing out the more subtle and far-reaching implications of scarcity in a given set of circumstances is a skill that takes a lot of training and practice, which of course not everyone has done or, really, needs to do.
It is no crime to be ignorant of economics, which is, after all, a specialized discipline and one that most people consider to be a “dismal science.” But it is totally irresponsible to have a loud and vociferous opinion on economic subjects while remaining in the state of ignorance.
Unfortunately, politics sorely tempts us to act irresponsibly. Politics is essentially about acquiring and using political power — the initiation of physical violence. If the first principle of economics is that “scarcity exists,” then far too often the first principle of politics is, “ignore the first principle of economics!”
In the absence of legal privilege or persecution, people in a free market have to deal with scarcity’s hard budget constraint. But in the world of politics, people can try to immunize themselves against scarcity by making others pay for the things they want for themselves or for their cronies. Politics is the realm of the “soft budget constraint,” which may have prompted Margaret Thatcher to say, “The problem with socialism is that you eventually run out of other people’s money.”
Unfortunately, the same could easily be said for garden-variety politics almost everywhere today.
Principles versus consequences
This suggests perhaps another way of differentiating libertarians from the progressives of the left. For libertarians, economic principles constrain ourthinking. For progressives, economic reality constrains their outcomes.
What I mean is that when progressives, for instance, demand that people pay ever-higher minimum wages to those who work for them, they ignore the hard reality that someone, often unseen, must bear the cost of their “compassion,” and that those others are mostly young and unskilled workers that employers will now find too costly to employ. Or, an employer may cut back on nonwage payments they previously used to compensate their employees, making the employees worse off.
But because libertarians from the outset tend to be more mindful of economic principles, they are better able to shape their proposals, at a minimum, so as not to harm the very people that progressives aim to help. Libertarians are less likely to be disappointed when their policies confront economic reality. As someone once said, “Economics is the art of putting parameters on our utopias.” Scarcity is one of those parameters.
Faced with poverty, unhealthy working conditions, criminal violence, and a host of other persistent socioeconomic problems, we’re often admonished by the left to think beyond capitalism, to think creatively “outside the box.” Why not try to change those parameters or remove some of them altogether?
Well, even musical geniuses from traditions as different as classical, jazz, and rock must learn the rules of their genre before they can break through and go beyond them. Before he pioneered bebop, Charlie Parker had first to master the saxophone and the musical conventions of his day. Only then could he push outside mainstream jazz. To color outside the lines, you need to know where the lines are.
Moreover, scarcity is not a man-made thing that can be unmade purely by human willpower or by wishing it away. We have to account for it when we confront the real world. Otherwise, we risk personal failure or perhaps much worse. None of this means, though, that we can’t dramatically reduce scarcity and address those problems.
Sometimes there are free lunches. It’s possible to push that constraint outward and reduce scarcity through efficiency (getting more out of less) or, more importantly, through innovation (creating something of value that didn’t exist before). Henry Ford, Estee Lauder, and Norman Borlag significantly reduced the scarcity of cars, cosmetics, and food — to a world of ordinary people within the constraints of physics, chemistry, and economics.
We can get to where we want to go faster when we can see the road.
Sandy Ikeda is a professor of economics at Purchase College, SUNY, and the author of The Dynamics of the Mixed Economy: Toward a Theory of Interventionism.
https://drrichswier.com/wp-content/uploads/empty-shelves-e1432830088911.png317640Foundation for Economic Education (FEE)http://drrich.wpengine.com/wp-content/uploads/logo_264x69.pngFoundation for Economic Education (FEE)2015-05-28 12:22:482015-06-12 08:48:03Who Ignores the Principle of Scarcity? Progressives and Politicians by Sandy Ikeda
The desert scenes — filmed in Namibia and Australia — remind me of Lawrence of Arabia. So peaceful. At first. Then, in the first scene, Mad Max, who is forced to live off the land, eats a two-headed lizard whole and raw. Blech. But actually this sets up the whole atmosphere of extreme privation that dominates the film. The absence of material provision leads everyone to act in egregious ways.
Then the action starts. Huge and crazy looking cars, motorcycles, and trucks guzzling massive quantities of gas (who makes it all?), racing around the desert blowing each other up.
There are punks, zombied-eyed workers, disgustingly dirty workers and peasants, haggard women warriors, a gross-me-out dictator, a strange economy that seems to live off blood transfusions and mother’s milk, a tireless heavy-metal band with a flame-throwing guitar player riding around on a war truck, and many more wacky things.
The whole film is loud, eye-popping, jaw-dropping, crazy, insane, high-anxiety fun from first to last. It leaves you breathless. Then it turns out to be substantive in a philosophical sense, and even inspires with a message of triumph over despotism.
And yet, I was also reminded of my first experience watching the old Mad Maxin my youth. I had recently become convinced of the case for the free society. I had daringly embraced the conviction that it is not the state that holds society together and builds civilization.
Society itself — Bastiat and others convinced me — contains within it the capacity for its own ordering. Markets, property rights, and even law are emergent institutions that allow the creation of the good society. Accepting that meant departing from both right and left.
Somehow, and I’m not entirely sure why, the first viewing of the original film shook my convictions. Is this what freedom looks like? Yikes. I walked away from the film somehow fearing that I had embraced a political vision that would lead straight to the grim, chaotic — let’s use the word anarchic — world of Mad Max. There are no rules, only a vague semblance of morality, and social norms are made up on the spot.
Truly, is this what libertarianism is all about? It’s just an impulse, and one that actually makes no sense, though I can imagine many viewers would come away with that same fear. If this is the way the world looks without powerful central control, no thanks.
But think about it. The setting is usually described as “post-apocalyptic.”
Who destroyed the world (a question one character in the new version asks)? We don’t know for sure, but it’s a good bet that it is the same crew that, in the 20th century, blew up whole cities, dropped bombs on millions of innocents, slaughtered whole peoples in famines, gulags, work camps, death marches, and gas chambers.
I’m speaking of the state. That’s the only institution with means and the will to destroy civilization. So if I had to guess the answer to the question, I would guess: politicians and bureaucrats destroyed the world.
Plus, there is in fact a state, or at least a ruling class with power, in Mad Max.
His name is Immortan Joe. He wears a weird mask and has some strange breathing contraption on the back of his neck. He both controls all resources (including the most precious resource of all, water) and heads a religious cult in which all his followers think that perfect obedience will lead to eternal salvation. He commands them completely and totally.
He is also utterly lawless — any means to the end of keeping his power. That’s his one and only concern. He also happens to inhabit the only green spot in the whole region, monopolizing and devouring the earth’s most valuable resources.
Sounds like a state to me.
As for the rest of society, true, there is no law and nothing like stable property rights. Morality is pretty much out of the question. Even if you believe in right and wrong, the material privation is so intense that acting on moral postulates is out of the question. This is not society. This is society destroyed, a society reset, all norms and institutions for human cooperation erased.
The viewer can’t help asking the question: What would I do if I were in the situation?
Well, I would have to learn not to be squeamish about eating two-headed lizards raw. I would have to learn to be a good driver. I would have to learn how to stab and shoot to kill. I would have to get used to the sight of blood.
But most of all, if I wanted to play some part in improving this ghastly world, I would have to contribute my efforts to unseating the grotesque and loathsome Immortan Joe.
There are plenty of challenges in the Mad Max world. Extreme conditions of scarcity is just the most conspicuous. To solve that problem requires property rights, markets, capital accumulation, and long-term investment. These are great ideas. But they can’t be realized so long as there are thugs extant that will rob you of property the instant it starts to create wealth.
In other words, the problem in the Mad Max world is not too much freedom. It is that freedom is never given a chance to work due to the presence of tyranny. This is the source of the disorder, chaos, non-stop violence, and overall poverty and insecurity.
Until the tyranny is overthrown — until the head of the ruling class is dislodged from perch of power — there can be no hope whatever. In the end, the effort to unseat this jerk is led by women who escaped his clutches to live far outside the capital. They long for the freedom to put together something like a life.
To see that requires you look a bit below the surface.
The film does, in fact, reveal something important about sex/gender and politics: namely, that a consciousness of universal human rights and dignity is the product of civilization. A might-makes-right society of poverty and power will be highly exploitative of women. This much we know from history, and the film gets this right.
Finally, for an economist, there is a clever insight here concerning the ancient problem of the diamond/water paradox: Why is water, which is more necessary for life, cheaper than diamonds? Mad Max reveals the answer: It all comes down to marginal value and relative scarcities. In this society, people will do anything for a drop to drink. Or eat.
Thank you, thank you, freedom and trade, for rescuing us all from the world of Mad Max and Immortan Joe.
Jeffrey Tucker is Director of Digital Development at FEE, CLO of the startup Liberty.me, and editor at Laissez Faire Books. Author of five books, he speaks at FEE summer seminars and other events. His latest book is Bit by Bit: How P2P Is Freeing the World.
https://drrichswier.com/wp-content/uploads/mad-max-2015-e1432402510809.jpg318640Foundation for Economic Education (FEE)http://drrich.wpengine.com/wp-content/uploads/logo_264x69.pngFoundation for Economic Education (FEE)2015-05-23 13:35:452015-05-23 13:37:46Is Mad Max the End of Freedom? by Jeffrey A. Tucker
To someone ignorant of economic reasoning, rent control seems like a great policy. It appears instantly to provide “affordable housing” to poor tenants, while the only apparent downside is a reduction in the income flowing to the fat-cat landlords, people who literally own buildings in major cities and who thus aren’t going to miss that money much. Who could object to such a policy?
First, we should define our terms. When a city government imposes rent control, it means the city makes it illegal for landlords to charge tenants rent above a ceiling price. Sometimes that price can vary, but only on specified factors. For the law to have any teeth — and for the politicians who passed it to curry favor with the public — the maximum rent-controlled price will be significantly lower than the free-market price.
The most obvious problem is that rent control immediately leads to a shortage of apartments, meaning that there are potential tenants who would love to move into a new place at the going (rent-controlled) rate, but they can’t find any vacancies. At a lower rental price, more tenants will try to rent apartment units, and at a higher rental price, landlords will try to rent out more apartment units. These two claims are specific instances of the law of demand and law of supply, respectively.
In an unhampered market, the equilibrium rental price occurs where supply equals demand, and the market rate for an apartment perfectly matches tenants with available units. If the government disrupts this equilibrium by setting a ceiling far below the market-clearing price, then it creates a shortage; that is, more people want to rent apartment units than landlords want to provide. If you’ve lived in a big city, you may have experienced firsthand how difficult it is to move into a new apartment; guides advise people to pay the high fee to a broker or even join a church because you have to “know somebody” to get a good deal. Rent control is why this pattern occurs. The difficulty isn’t due to apartments being a “big-ticket” item; new cars are expensive, too, but finding one doesn’t carry the stress of finding an apartment in Brooklyn. The difference is rent control.
Rent control reduces the supply of rental units through two different mechanisms. In the short run, where the physical number of apartment units is fixed, the imposition of rent control will reduce the quantity of units offered on the market. The owners will hold back some of the potential units, using them for storage or keeping them available for (say) out of town guests or kids returning from college for the summer. (If this sounds implausible, consider just how many people in a major city consider renting out spare bedrooms in their homes, as long as the price is right.)
In the long run, a permanent policy of rent control restricts the construction of new apartment buildings, because potential investors realize that their revenues on such projects will be artificially capped. Building a movie theater or shopping center is more attractive on the margin.
There are further, more insidious problems with rent control. With a long line of potential tenants eager to move in at the official ceiling price, landlords do not have much incentive to maintain the building. They don’t need to put on new coats of paint, change the light bulbs in the hallways, keep the elevator in working order, or get out of bed at 5:00 a.m. when a tenant complains that the water heater is busted. If there is a rash of robberies in and around the building, the owner won’t feel a financial motivation to install lights, cameras, buzz-in gates, a guard, or other (costly) measures to protect his customers. Furthermore, if a tenant falls behind on the rent, there is less incentive for the landlord to cut her some slack, because he knows he can replace her right away after eviction. In other words, all of the behavior we associate with the term “slumlord” is due to the government’s policy of rent control; it is not the “free market in action.”
In summary, if the goal is to provide affordable housing to lower-income tenants, rent control is a horrible policy. Rent control makes apartments cheaper for some tenants while making them infinitely expensive for others, because some people can no longer find a unit, period, even though they would have been able to at the higher, free-market rate. Furthermore, the people who remain in apartments — enjoying the lower rent —receive a much lower-quality product. Especially when left in place for decades, rent control leads to abusive landlords and can quite literally destroy large portions of a city’s housing.
Robert P. Murphy has a PhD in economics from NYU. He is the author of The Politically Incorrect Guide to Capitalism and The Politically Incorrect Guide to The Great Depression and the New Deal. He is also the Senior Economist with the Institute for Energy Research and a Research Fellow at the Independent Institute. You can find him at http://consultingbyrpm.com/
EDITORS NOTE: The featured image is courtesy of FEE and Shutterstock.
https://drrichswier.com/wp-content/uploads/20141110_rentcontroldetail.png313631Foundation for Economic Education (FEE)http://drrich.wpengine.com/wp-content/uploads/logo_264x69.pngFoundation for Economic Education (FEE)2014-11-12 11:13:312014-11-12 11:13:48The Case Against Rent Control: Bad housing policy harms lower-income people most by Robert P. Murphy