Gentrification is the result of powerful economic forces. Those who misunderstand the nature of the economic forces at play, risk misdirecting those forces. Misdirection can exasperate city-wide displacement. Before discussing solutions to fighting gentrification, it is important to accept that gentrification is one symptom of a larger problem.
Anti-capitalists often portray gentrification as class war. Often, they paint the archetypal greedy developer as the culprit. As asserted in jacobin magazine:
Gentrification has always been a top-down affair, not a spontaneous hipster influx, orchestrated by the real estate developers and investors who pull the strings of city policy, with individual home-buyers deployed in mopping up operations.
Is Gentrification a Class War?
In a way, yes. But the typical class analysis mistakes the symptom for the cause. The finger gets pointed at the wrong rich people. There is no grand conspiracy concocted by real estate developers, though it’s not surprising it seems that way.
Real estate developers would be happy to build in already expensive neighborhoods. Here, demand is stable and predictable. They don’t for a simple reason: they are not allowed to.
Take Chicago’s Lincoln Park for example. Daniel Hertz points out that the number of housing units in Lincoln Park actually decreased 4.1% since 2000. The neighborhood hasn’t allowed a single unit of affordable housing to be developed in 35 years. The affluent residents of Lincoln Park like their neighborhood the way it is, and have the political clout to keep it that way.
Given that development projects are blocked in upper class neighborhoods, developers seek out alternatives. Here’s where “pulling the strings” is a viable strategy for developers. Politicians are far more willing to upzone working class neighborhoods. These communities are far less influential and have far fewer resources with which to fight back.
Rich, entitled, white areas get down-zoned. Less-affluent, disempowered, minority areas are up-zoned. Politicians appease politically influential neighborhoods through limited growth. They then appease developers in less influential neighborhoods. Thus, less-affluent neighborhoods become the only viable places for new construction.
Fight Gentrification by Fighting Development?
Too often, the knee-jerk response is to fight development in gentrifying neighborhoods. The consequences of fighting development are two-fold. First, economics 101 tells us that capping supply will only cause prices to rise. Instead of newcomers filling newly-constructed units, they will quickly flood the existing stock of housing. This then quickens gentrification. Second, thwarting development shuts the release valve that alleviates housing price pressures that caused gentrification in the first place. Politicians prefer to funnel new construction into disadvantaged neighborhoods instead of letting it happen where there is stronger market demand. Development suppressed where needed most, gentrification swiftly captures one neighborhood after the next.
Only 2 Solutions to Fight Gentrification
When considering gentrification, we must accept a plain fact: rich people don’t just vaporize by prohibiting the creation of housing for them. If housing desires cannot be met in upscale neighborhoods, the wealthy can and will outbid less affluent people elsewhere. With that in mind, there are only 2 solutions to stem the tide of gentrification: The first solution is widespread liberalization of zoning. Up-zoning is particularly needed in already desirable locations where incumbent residents have effectively depopulated their neighborhoods over several decades.
The only other solution is to eradicate rich people altogether. This, I hope, is not what people have in mind when they declare class war.
mikecherepko saysJanuary 28, 2015 at 4:11 pm
There’s a third way–make the neighborhood worse. Cut it off from subways. Promise that police won’t investigate crimes that take place in the neighborhood. Turn parks into parking lots.
dzleprechaun saysJanuary 28, 2015 at 10:12 pm
Actually, I’m pretty sure Option #2 is precisely what Jacobin Mag et. al. would prefer.
You seem to have missed their logic: by restraining development, the pressure will continue to build, until such time as the displaced and disempwered masses rise up and vaporize the rich people themselves.
anonymouse saysJanuary 28, 2015 at 10:54 pm
Well, if we’re going to be vaporizing anyone in the name of class war, it should be the rich. As it is, the rich have managed to pit the middle class against the poor, and laughing all the way to the bank from their mid-city mansions in Brookline and the like.
Dennis Allard saysJanuary 29, 2015 at 1:55 am
Adam Hengels’ original post ignores other solutions and ignores the ultimate cause. The ultimate cause is Capitalism and how it works, by those who own things becoming wealthy by virtue not of what they do but of what they own. Extreme example: Bob Hope, an outstanding well paid comedian. He did not become a billionaire (the fourth richest American when he was alive) due to his talent. It was because he bought real estate in the mid 1900s that went up enormously in value.
I agree with Adam Hengels that rich people are not bad. For example, I am a hard working well paid software engineer and am a good person and my property in Ocean Park is now worth far more than I can afford. I co-own it and cannot even afford to buy out my partner. My house is now worth 1.4 million dollars and it is a tear down! Why is it worth so much? Because a developer would pay that much to come in, destroy it, and replace it by three luxury condos (It is triplex and zoned for up to three units). By they way, I am seriously considering taking up those offers, but have not yet succumbed.
If the argument is that increasing density will enable the creation of more affordable housing, I disagree. Paris has 55,000 people per square mile but can hardly be termed “affordable” (average rent is $50/10 square feet – so $3250 for a 650 square foot apartment). They banned rent control in 1988 and it has been a land lord heaven since then, including many foreigners who buy up real estate and become land lords. Paris is going down the road of reintroducing some rent control to put a cap on the situation. (Reference: http://goo.gl/fgmkQs)
This of course hints at a partial solution, not mentioned by Adam Hengels, who appears to be of the Free Market Fundamentalist persuasion based on his belief in “supply and demand”. That partial solution would be strong rent control restored. Strong rent control means that a rental unit’s rent cannot be increased to Free Market rates when occupants change. The rent limit is on the unit and stays with the unit. I would like to see strong rent control not only on housing but on commercial real estate. My argument is as follows…
First, density (which, by the way, I do not oppose, unlike many of my liberal friends — I just don’t think it has anything to do with affordability), does not solve the problem of high rent, as mentioned above.
Second, strong rent control on housing obviously provides more affordable housing.
Third, strong rent control reduces the value of rental properties, enabling people with less wealth to purchase rental units and become land lords (I am not arguing for continuing the medieval concept of having “lords”, but I am recognizing that we are still stuck with lords for another few hundred years or so and may as well allow people with less wealth to become lords).
Fourth, the ownership of property is the main reason people become land lords. It is not because they are producing anything. They are, in fact, sucking money right out of the economy into their pockets. BIG CAVEAT — it is really only the first land lord who gets the money – after that, the banks collect the inflated mortgage being charged by the new land lord who bought the property at the inflated value determined by the “Free Market”. For large corporations that own multiple buildings, economies of scale make that profitable even though it is still the banks that “earn” most of the rental income. Strong rent control puts a damper on that form of exploitation (to use a Marxist term) and enables normal people to be land lords.
Fifth, this is all the more true for small business owners. I would actually like to see the City buy up property over the next hundred years or so and convert to a concession model (Cf. Perry’s on the beach), enabling small business owners to exist on Main Street without having to pay feudal lords a large cut of their gross income just in order to eek out a living. The Main Street News Stand closed because they could not afford the rent. Joe’s Diner likewise. There are many examples.
Sixth, I need to counter the argument that having strong rent control will result in properties being sold so that developers can convert them to condos, removing rental stock from the city. Yes, that is a problem that has to be addressed. My argument here is that there would need to be some form of limitations on converting rental housing to non-rental housing (ironic, since my ultimate political platform would be to ban rent and convert all rent payers into owners, but that will have to be a subject of a future diatribe!). Note, we already have such limits. Example, I own a triplex. Even though I use it as a private house (we are thinking of starting to rent one or two units), I had the idea of converting it to a condo precisely so that we could subdivide our property so that one of us (my co-property owner) could sell her half. No can do. The City of Santa Monica will not allow us to convert our triplex into condos. As a further irony, the City of Santa Monica *would* allow a developer to scrape the existing multi-unit building and build new luxury condos. So, even though I am arguing against my own self interest, I am actually proposing that the limits on converting multi-unit rental housing be enforced and, in fact, strengthened.
Finally, this myth about the “Free Market” and supply and demand religion… For those Libertarian Fundamentalists out there, let me say this to you. I AM NOT SAYING THE SUPPLY AND DEMAND DOES NOT WORK. Of course it works. That is utterly trivial. What I am saying is that we need to CHANGE THE RULES OF THE GAME. We install strong rent control. You don’t like that? Don’t blame supply and demand or some religious notion of use infringing on your precious liberties. The proposal puts in new rules that you have to play by. Within those rules you are as “free” as you are in the current set of rules, which result in oligarchs owning everything and “earning” money not by virtue of what the they do (work, productivity) but by virtue of what they own. Yes, there is a productive function required to manage and sell and buy and maintain property. but that productive function costs WAY less that what the current rents are in Santa Monica. The rest of it is charity to the rich based on a system of rules that protects the wealthy and enhances their fortunes.
January 29, 2015
George Carty saysJanuary 29, 2015 at 3:36 am
Instead of heavy-handed government control of rents, wouldn’t a land value tax be a better idea? After all, the problem is not private property in general, but private ownership of LAND and other assets that cannot be competitively produced.
George Carty saysJanuary 29, 2015 at 3:40 am
Sounds like the Terrorist Strategy 101 of playing both ends against the middle.
Michael Lewyn saysJanuary 29, 2015 at 9:23 am
Rent control? Like in Santa Monica? That doesn’t seem to be working out very well. http://patch.com/california/santamonica/study-santa-monica-has-highest-average-rents-in-socal
anonymouse saysJanuary 29, 2015 at 11:07 am
Sure, rent control provides more affordable housing, but does it provide more affordable housing? By which I mean, it obviously makes some housing cheaper. But does it provide any incentive to create more housing? My guess is that no, it doesn’t, and all you end up doing is creating a privileged class of those who have apartments and will never ever move out, and an underclass of people who will never be able to live in Santa Monica. Though I suppose that’s fine if you already live there.
MarketUrbanism saysJanuary 29, 2015 at 11:22 am
Supply and demand isn’t Free Market Fundamentalism, it’s just plain old economics.
I do appreciate the time you took to write a well-thought-out comment, but we just aren’t going to be able to have a constructive dialogue if you are going to poopoo an entire social science…
Rent Control has thoroughly demonstrated to be one of the most destructive policies ever conceived, and has been considered “worse than bombing” even by socialist economists. Here are some of my writings on the matter:
Dennis Allard saysJanuary 29, 2015 at 11:32 am
I don’t poopoo supply and demand which is a trivial concept that simply explains how prices change. I do poopoo Libertarian Fundamentalists who religiously believe that the Free Market is equivalent to supply and demand and that having laws and rules that affect prices somehow violates the law of supply and demand. No, having various rules and laws that affect prices affects both demand and supply but does not change the basic fact that prices are determined by the supply and demand curves. I poopoo the Libertarian religion that the right best point in the space of possible economies is to not have any rules or laws that limit the control of resources by the oligarchy. Allowing the so-called Free Market to reign without any government rules or laws to influence economic activity is simply one choice in the set of all possible economic systems. The Libertarian choice maximizes profits for the owners of resources. That is just one possible economic system and one thing to optimize. As the current global economic system is showing, the Free Market tends to transfer wealth from the working population to the upper few per cent of the population. That is what is happening for the past 30 years.
I’ll make more comments about Rent Control proper in another reply below.
MarketUrbanism saysJanuary 29, 2015 at 11:41 am
As tempting (and hilarious) as it is, I wouldn’t be so cynical to give them credit for harboring nearly godlike forethought, while simultaneously exposing profound economic naivety.
Dennis Allard saysJanuary 29, 2015 at 11:52 am
First, in Santa Monica (I saw this post originally in a Facebook link within a local Santa Monica Facebook discussion), the residential population has not changed since the mid 1980s. Strong Rent Control was eliminated in 1999 and the current system has vacancy decontrol (when a tenant moves out, the land lord can raise rent to market value). Overall, the city is becoming more gentrified. What is happening is that some old buildings are being removed and replaced by higher cost more luxury dwellings that command higher rents. I do not argue that rent control should prevent building new buildings. The rents should be high enough to cover the cost of constructing and maintaining new buildings and renting at rent-controlled levels. And some permits should be given for luxury units as well.
I both agree and disagree with a one of your points…
Yes, having strong rent control (rent on a unit stays the same even if a tenant moves out) only in Santa Monica without having it in all of Los Angeles tends to make people stay in their units and never move out. But that would NOT be true if we had strong rent control everywhere. Think about it. Normal rent control causes residents to stay put even more, since now, in both Santa Monica and all of Los Angeles, there is rent control (not strong rent control). I would argue that if you have strong rent control everywhere then people would be able to more freely move since they would know that the rent they have to pay will be reasonable since the rent on units is not allowed to go up to Free Market (inflated) values when the previous tenant moves out and the unit goes back on the rental market.
To summarize, yes, “normal” rent control (where the rent of a unit inflates to “Free Market” prices when a tenant moves out) does result in people staying in their units (and that is already true in most of Los Angeles where there is normal rent control). But “Strong” rent control would solve that. It would prevent rent inflation.
An issue becomes how adjust rents so that land lords make a reasonable profit and that there is incentive to improve buildings and create new housing. As long a rents are set such that a reasonable profit can be obtained, there is, in theory, no reason that strong rent control would not work. In fact, the pure Free Market approach is only one point in the space of economies. It is that point that maximizes profit for the owners or land and land lords. I argue that strong rent control introduces a much wider set of economic spaces that result in less transfer of wealth from working people to the land owners.
January 29, 2015
Dennis Allard saysJanuary 29, 2015 at 11:58 am
That article documents the (fairly obvious) fact that “normal” rent control (where a unit rent inflates to Free Market inflated prices when a tenant moves out) results in less affordable rental units. My argument is to put “strong” rent control into effect and do it everywhere (both In Santa Monica and all of Los Angeles). In this way, a tenant could move knowing that their rent would not inflate do to Free Market inflation, whose primary function is to transfer wealth to land owners and land lords. I provide more detailed arguments in other replies above in this thread.
January 29, 2015
Guest saysJanuary 29, 2015 at 12:03 pm
I actually oppose property taxes. Yes, me, socialist Dennis Allard, opposed property taxes. I think progressive income taxes should be the only taxes. No property taxes, no sales taxes. When the U.S. economy was booming in the 1960s the upper tax bracket was close to 70%. In 1942 FDR actually proposed a 100% tax on all income above $350,000 (adjusted to 2014) (http://goo.gl/VwbCiy). Congress compromised and set the maximum income tax rate to 92%. The result was a few decades of massive economic growth as the U.S. became the empire it is today. I not saying that the maximum income tax of 92% was what caused the growth, but I am observing that is certainly did not prevent it.
Dennis Allard saysJanuary 29, 2015 at 12:06 pm
I actually oppose property taxes. Yes, I, socialist Dennis Allard, opposes property taxes. I think progressive income taxes should be the only taxes. No property taxes, no sales taxes. When the U.S. economy was booming in the 1960s the upper tax bracket was close to 70%. In 1942 FDR actually proposed a 100% tax on all income above $350,000 (adjusted to 2014 dollars) (http://goo.gl/VwbCiy). Congress compromised and set the maximum income tax rate to 92%. The result was a few decades of massive economic growth as the U.S. became the empire it is today. I am not saying that the maximum income tax of 92% was what caused the growth, but I am observing that it certainly did not prevent growth.
January 29, 2015
EC saysJanuary 29, 2015 at 12:31 pm
“Rent Control has thoroughly demonstrated to be one of the most destructive policies ever conceived”
This is silly. I totally agree with the main thrust of the OP. Supply and demand, in relation with overly restrictive zoning, are the main drivers, and rent control is a side issue. I agree, rent control is not particularly helpful, but it is hardly “one of the most destructive policies ever conceived. Dumb zoning might be a contender, though.
lunartree saysJanuary 29, 2015 at 2:34 pm
At least that’s what people get deceived into believing. That’s only a temporary way to hold out. Prices still increase, but development slows. This both increases the speed of price increases elsewhere while increasing evictions in the neighbourhood where they are resisting improvement until the people resisting aren’t there to fight anymore.
anonymouse saysJanuary 29, 2015 at 2:38 pm
It sounds like what you want is for the government to basically take over the housing market, not directly by actually building or owning housing, but indirectly by setting prices. Which is valid, but it also moves the decision of who gets to live in Santa Monica even further into the political realm and away from the market realm. As for the issue of people never moving out of their apartments, it’s not just a matter of what they can afford elsewhere or whatever, it’s also just the fact that Santa Monica is a pretty nice place to live, and under a socialist waiting list/political connections system of allocation, once you give that up, you’ll probably never get it back. Just ask anyone with experience of advanced Eastern European socialism.
anonymouse saysJanuary 29, 2015 at 2:42 pm
The Libertarian choice also has huge benefits in that your money is as good as anyone else’s, no matter who you are. Under socialist allocation, resources still end up under the control of an oligarchy, except you can’t even buy them unless you know the right people. In the case of obtaining a place to live in Santa Monica, that would be great for you, since you already have one, but pretty terrible for me, since I don’t know anyone on the Housing Allocation Board who’d be able to move me up a few places in the 100 year long waiting list for an apartment.
MarketUrbanism saysJanuary 29, 2015 at 3:28 pm
Assar Lindbeck: “”next to bombing, rent control seems in many cases to be the most efficient technique so far known for destroying cities”
MTBinDurham saysJanuary 29, 2015 at 4:27 pm
Oh, dear, we have another libertarian (or, before someone gets prickly, someone with some very libertarian-like ideas) who needs to go back and read Orwell. Really, there’s been a lot of good work done since then, but there’s not much missing from Orwell’s response to Hayek for getting the basics.
I apologize if this sounds testy, but this conversation gets old after a while with the same bad ideas coming up over and over again. The problem is not the government. The problem is not evil rich people. The problem is a fundamental imbalance of power between the rich and the poor. Until libertarians get it through their skulls that wealth inequality is a form of power inequality, we’re going to continue to get these misbegotten calls for radical liberalization of zoning regulations, which have been repeatedly demonstrated to only make housing and urban issues worse. This is empirical, not theoretical.
At the end of the 19th century, we had horrific urban housing problems. People were living in incredibly unsafe dwellings, people living in poverty were concentrated into ghettoes (often of an ethnic nature, as ethnic community connections were one of the only ways people could get access to housing), and crime was out of control in those areas due to a lack of communication between police and community and due to a state which was heavily influenced by powerful and monied interests and did not put any emphasis on justice in poor neighborhoods. The response, under the Keynesian management state, was the HUD/public housing solution, which was on the one hand highly effective at constructing new, decent housing and provisioning it to people for whom it was a radical improvement on their lives, but on the other hand was a staggeringly heavy-handed and overly bureaucratic solution. Further, with no natural powerful constituency to defend it, maintenance and operations of public housing complexes was, over the subsequent half-century, inept, corrupt, underfunded, overlooked, and in all but a few cities where the public housing residents were a large and organized enough body to make noise, a failure.
The response was (and depressingly continues to be) more of this “market urbanism,” born out of Hayek’s disciples, convinced that the removal of the state from the housing market will invite in the market fairy to fix everything. The repeated failure of this to happen (to say nothing of the ignorance of the conditions which preceded the HUD era), with worsening housing conditions, increasing racial and economic segregation, white flight, gentrification, and all the rest now has us scratching our heads and some people (like Jacobin) trying to point this out. No, the HUD era was not a success in the end. However, what’s replacing it in the neoliberal world (for those who might be confused, this is the term many academics use to refer to the concepts behind libertarianism and market-centric thinking, and was coined by Hayek) is even worse than the world it’s replacing.
To his credit, Mr. Hengels here has correctly identified that the power imbalance at the level of the state and in the crafting of zoning ordinances and regulations perpetuates many of the worst forms of housing displacement and disruption that we see. Good for him! Unfortunately, he commits the classic neoliberal mistake of failing to notice that those forces not only operate in the marketplace, but do so with even less constraint on them than they do in the world of the state. (Again, Orwell nailed this in 1944 in a few paragraphs.) The state in the Western world, at the very least, can be disciplined partially by democratic means, while private capital cannot (at least not without involving the state, which neoliberals hate). So, accelerating the movement of control of housing from the state to the market will not improve poverty and inequality. Quite the contrary, it will worsen it significantly.
This is the core value that the “free market,” inasmuch as it exists, does not acknowledge: that every person deserves decent housing regardless of his or her ability to pay for it. In fact, as a very large and growing pile of studies continues to show, we’re all better off when all people have access to decent housing. It doesn’t cost that much and improves gross productivity so much and reduces so many social issues that we all have a major stake in making that happen. However, the “free market” will never, ever, of its own device, provision sufficient housing for everyone. It doesn’t now, it never has, and it never will, because it acknowledges no inherent “right” to housing beyond ability to pay, and ability to pay not universal. To reiterate one more time, we won’t solve the housing issue without violating “free market principles” — it can’t be done. However, the housing market is far too big a piece of the economy for effective direct provision from the government — we learned that from the HUD era.
So, we’re left searching for other solutions. There are some good ideas involving small-scale, voluntary, democratized collective enterprises — cooperative housing ownership, among other ideas, works remarkably well when organized efficiently — but these are tricky to pull off in practice. If we could actually start thinking towards ways of provisioning housing for everyone, outside of the rules of “free market principles,” we might get somewhere. Unfortunately, the conversation is currently dominated by, on the one hand, various anti-state forces (be they libertarian or anarchist), latter-day Marxists, corporatist reactionaries, and a vapid “middle” that seems to want nothing more than to stop thinking altogether. Fortunately, there is a small but growing conversation which acknowledges a world between totalized society and atomized individualism and that multiple economies possible, often simultaneously.
Ross saysJanuary 29, 2015 at 4:36 pm
Supply and Demand is a real force, but what is a total myth is the general equilibrium Supply and Demand is supposed to cause. No serious marxist economist questions that prices change along the laws of Supply and Demand, but it is market fundamentalists who naively believe in the existence of equilibrium, and it is this belief which puts Supply and Demand into such an outsized importance in the field of economics and in policy planning. It is interesting and useful to understand how pricing can change by Supply and Demand, but in real life the causes of these changes are near infinitely complex (gentrification is certainly a good example of this) and the changes themselves nearly constant, thus precluding anything even approximating an equilibrium. Rather than an equilibrium point of maximum utility, prices tend toward levels which benefit those with the most political power in the economy, a concept which is virtually ignored (poopooed, to use the technical term) in classical economics.
This is a serious contradiction in how the economy functions. Market economies produce political power in the form of influence-buying wealth (it is of utmost importance to remember that property ownership itself requires government and thus wealth is by nature a political condition), distorting the market, while an economy which is politically blind (or undistorted by political forces, the ideal fantasy of market fundamentalists) requires a level of government intervention against wealth-based power which also distorts market principles. But government is run by those with economic power, indeed government is economic power. The market cannot deliver a solution to this problem, because it is fundamentally a political problem, a question of how rather than whether to distort the market (as “leaving the market alone” will lead to its own political distortions). We can’t approach a solution to this dilemma so long as economics as a profession largely ignores or misunderstands the fundamental role of political power in the economy (the sway of neoclassical economists is still very great in the classroom), which is at least as immutable a force as Supply and Demand.
Dennis Allard saysJanuary 29, 2015 at 4:45 pm
I am not proposing setting prices directly. I propose limiting rents.
And, the decision as to who rents is still entirely up to the land lord. In a way, it will be better for the land lord, since he or she will have more choices of people and more interesting people (not just gentrifying rich folks) to choose from to rent to.
I admit that your Libertarian choice filter solves the who-gets-to-rent problem via selling to the maximum bidder. That is a solution, but it is not the only one. Under my proposal, (a) property values will be lower (since rents are lower) so more people can afford to be land lords, and (b) more people can afford the rent so the land lord will have more freedom to choose better tenants (I am sure you agree that someone being richer does not mean they are a better choice of tenant).
The only “problem” with my choice filter is that you have many more prospective tenants to choose from. You could do first-come-first-serve or you could base it on credit worthiness or, given equality of the above criteria, do a lottery of those who pre-qualilfy. I see nothing less fair there than with the Libertarian choice filter of selling to highest bidder.
January 29, 2015
anonymouse saysJanuary 29, 2015 at 5:54 pm
Even if you keep rents at a given level, though, I imagine the landlords will have a very strong incentive to pick the wealthiest tenants, since they’re most able to pay. And if you don’t increase the total amount of housing stock, you still end up with gentrification, just a version that won’t affect you personally since you’re not likely to get evicted, since you look like someone who’d be able to keep paying the controlled rent.
The other problem is that your rent control scheme creates a VERY strong incentive toward condo conversions, since those become comparatively much more profitable. Possibly even to the point of tearing rentals down and rebuilding as condos, depending on how big the price pressure is. And of course there’s a strong disincentive to rent out your condo, since you a) won’t get much profit from it, and b) will have a hard time if you change your mind but your tenants don’t want to move out (and why would they, given the great deal they’d be getting).
anonymouse saysJanuary 29, 2015 at 5:57 pm
Market economies produce political power in the form of influence-buying wealth, distorting the market
That is literally exactly what we (the Market Urbanists) are saying here. And we’re saying that the market that is MOST distorted by wealth is generally the one where that wealth is concentrated the most: the one with the richest people who get SFR zones passed to protect their mansions (e.g. Hancock Park, for an LA example).
RealFakeSanFranciscan saysJanuary 29, 2015 at 6:48 pm
That certainly seems to be the way of choice in some parts of SF now, with a Mission merchant’s association trying to block improvement of the streets. Seems pretty insane to complain about neighborhood improvements after years of complaining that the city neglected that same neighborhood, though.
RealFakeSanFranciscan saysJanuary 29, 2015 at 6:50 pm
“The problem is a fundamental imbalance of power between the rich and the poor.”
In a general, sense, sure. But the rich routinely use political means to turn their neighborhoods into gated communities and shut out further development near them, and inflate their own property values in the process, at others’ expense. How is that not both an expression of, and fuel for, that fundamental imbalance? That’s the point here.
MTBinDurham saysJanuary 29, 2015 at 8:09 pm
It is, of course, an expression of and fuel for that fundamental imbalance, as I acknowledge. The difference between the state and the open market is not that the market removes those imbalances — it actually exacerbates them. The difference is that in a representative democracy, the poor actually have a chance to organize and vote in a manner which restrains that, as has happened repeatedly in this country’s history, which is where a lot of these zoning regulations actually come from.
Which illustrates a key point — organization isn’t an unalloyed good. Working class neighborhoods which organize to retain coherence often also organize to exclude others, which is why we have a judiciary and anti-discrimination laws. The point remains, though — in the arena of the state, democratic power counts for something. In the arena of the market, one dollar equals one vote, which can be kind of “democratish” if inequality is minimized. However, if inequality gets too strong, the market becomes a tool of tyranny.
So can a municipal government be repressive and tool for reproduction of inequality? Sure — and I don’t disagree with neoliberals on that point. What I disagree with is that the market is any better in that regard, and that “radical liberalization” is going to do anything for inequality or gentrification.
MTBinDurham saysJanuary 29, 2015 at 8:12 pm
We can keep saying this over and over again, but there’s no disagreement that power imbalances play out at the state level. The disagreement is whether they’re any better at the market level.
I argue that the empirical evidence is overwhelming — they are worse at the market level. This isn’t good news for anyone — there’s no easy panacea that says, “so, because of this, we just have to do XXX to fix it.” The point is, market neoliberalism takes the dynamics you’re pointing out and makes them worse, not better.
MTBinDurham saysJanuary 29, 2015 at 8:13 pm
“The Libertarian choice also has huge benefits in that your money is as good as anyone else’s, no matter who you are.”
So it helps everyone, so long as everyone has plenty of money, right?
MTBinDurham saysJanuary 29, 2015 at 8:15 pm
I’ve seen the land value tax proposed a lot of places in leftish circles. I’m not fully convinced, but it’s certainly an interesting argument, and directly tackles wealth building by equity holding and rent seeking.
anonymouse saysJanuary 29, 2015 at 10:47 pm
I mean, yes, the USSR was in fact pretty effective at constructing lots and lots of housing relatively cheaply. Are you suggesting that federal/state/city governments should embark on a similar massive construction program? If so, well, at least you’re trying to solve the problem at hand, using the third alternative, which wasn’t mentioned in the article. I should note that you might have some diificulties, given a very popular location like Santa Monica (or Moscow) where lots of people want to move to, because the government may not be able to keep up with housing construction. The USSR solved this with restrictions on internal migration (via the propiska system), which is almost certainly not an acceptable solution for the US.
MTBinDurham saysJanuary 29, 2015 at 10:57 pm
You’re really, really stuck on there not being any space between a 100% government provided and managed provision of housing on the one hand and an entirely “free market” world on the other, aren’t you?
There is an awful lot in between them. Some of it comes down to how we finance housing and how that financing is underwritten by government policy. (The revenue foregone with the mortgage interest deduction radically dwarfs all other government housing programs put together.) Capping the mortgage interest deduction, or better yet, converting it to a tax credit and capping that, would save money and get the government out of subsidizing mansion construction. Inclusionary zoning has been used with mixed success to create significant amounts of affordable housing without generating income inequality. And housing cooperatives tend to encourage long-term residency and allow for equity gain without generating displacement, but are hard to finance — fixing the financing problem would help that a lot. Beyond that, particularly for the disabled — permanently and temporarily, there is a very real place for direct government provisioning of housing.
All of these are in long-standing policy discussions, but they become invisible when you subscribe to absolutist dichotomies and start talking about the only options as radical liberalization and the USSR.
baklazhan saysJanuary 30, 2015 at 4:52 am
“you have many more prospective tenants to choose from”
I imagine there will be one criterion which will stand above the rest: the prospective tenant who is willing to give the largest amount of money in cash, over and above the legally-mandated rent, will be the one to get the apartment.
baklazhan saysJanuary 30, 2015 at 5:04 am
Stockholm (and other Swedish cities) use this system! The downside is that if you want to move there, you put your name in the queue, and in ten to fifteen years, you get an apartment. Or you go on the black market.
http://www.dn.se/sthlm/kotiden-for-bostad-blir-bara-langre/ is an article about it.
anonymouse saysJanuary 30, 2015 at 11:40 am
I’d say what I’m really stuck on is building more housing. As long as we do that, whether by the government allowing more development, or having the government build it directly, everything else is, relatively speaking, minor details. Anything that makes building housing more expensive for the private sector needs to be offset by some amount of government money to replace the housing that is not built as a result. Whatever benefits Inclusionary Zoning may have, encouraging the production of more housing is not one of them.
MiguelinDC saysJanuary 30, 2015 at 12:22 pm
Really enjoyed this comment. That being said, it left me with the question, “how?” I often hear sentiments similar to “If we could actually start thinking towards ways of provisioning housing for everyone, outside of the rules of “free market principles,” and never hear much about what that would mean in practice. Do you know of any case studies that exemplify this third way? Thanks again for your comment and look fwd to learning more.
Ross saysJanuary 30, 2015 at 2:13 pm
“That is literally exactly what we (the Market Urbanists) are saying
here. And we’re saying that the market that is MOST distorted by wealth
is generally the one where that wealth is concentrated the most: the one
with the richest people who get SFR zones passed to protect their
mansions (e.g. Hancock Park, for an LA example).”
Yes but the crucial point you’re missing is that wealth concentration is a product of a functioning, undistorted market, where things are working as they’re “supposed” to. Liberalizing the market would first of benefit greatly those who already have wealth, and secondly would lead to future deliberalization spearheaded by those who won in the liberalized market. This is inevitable and is pretty solid proof, on its own, that a true “market” economy is neither desirable nor possible. But nearly all economics theory pretends this dynamic doesn’t exist and instead that something called an “equilibrium” will make everyone as well off as possible if Supply and Demand are just allowed to do their thing.
It’s really pointless to even talk about policies in housing without addressing a bigger underlying flaw in economics thinking that pervades the economy as a whole, which after all is what determines where people want and can afford to live in the first place.
Dennis Allard saysJanuary 30, 2015 at 3:23 pm
I have addressed your legitimate points elsewhere in this scattered set of replies but will briefly repeat here and add one more point…
The land lords won’t need to pick the “wealthiest” tenants, just those who they like for whatever reason and who, of course, pass credit checks. Yes, they would tend to pick tenants who pass the credit checks by a wide margin.
Condo conversions could be prevented by stature (and are already in Santa Monica – I know because I own a triplex and am not allowed to convert it to condos). (Ironically, if I had deep pockets, I would be allowed to scrape my triplex and totally replace it by a new set of condos. A wealthy developer could afford to do that. I would propose strengthening the statue to require some dwelling used for rental property be required to remain rental property.
The point I with to add is that Libertarians focus on a very small set of possible economies and their “religion” is to believe that other possible economies cannot work. The alternative model I propose is to stop viewing the purchase of rental housing as the purchase of a property that you can then do anything you want with. If the rules are such that you know, in advance, that you are purchasing a rental property and that the rent on that property is regulated, then you can calculate (in very stable manner) what the property is worth, you know what you are getting, and, yes, supply and demand will price that property subject to those conditions. You are buying that package. If you don’t like that, don’t buy it and someone else will (perhaps at a lower price).
Finally, the main problem with strong rent control is that it does not exit everywhere. If it did, much less of the money supply would be going to land lords and banks by virtue of what they own and the cost would be closer to the cost of construction and maintenance and management, without a “rental penalty” imposed by the mere fact of ownership of a desired property to extract rent from someone else to live there. Ideally, I would like to see a time where everyone owns. Think about a system where banks are nationalized (so mortgage profits go to the public) and everyone is a mortgage holder instead of a renter. That is what we should aim for, as opposed to a system of rent being paid to lords, a feudal concept when you think about it.
anonymouse saysJanuary 30, 2015 at 3:54 pm
Yes, that’s exactly what’s happening here, deliberalization spearheaded by those who won, which we can either accept or fight back against. I recommend fighting back, as a better alternative that simply accepting it. What do you propose to do, to address the problem of a) constructing sufficient housing for those who want it where they want to live, and b) allocating that housing among those who want it?
And on a more philosophical note, I think you’re assuming more faith in “the market” on my part than I really have. I’m not saying that The Free Market is the ultimate form of social organization, only that a free(er) market in housing seems like a good way to allocate housing. I’m definitely not saying that free markets are inherently self-maintaining, and indeed democracy and government regulation can both serve as a useful checks to ensure that a market continues to fulfill its social purpose.
EC saysJanuary 30, 2015 at 4:29 pm
You said “thoroughly demonstrated.” There was a lot going on in the South Bronx. Pointing to the SB and saying it proves rent control is like bombing is as silly as pointing to central park west and saying it proves rent control undergirds stable urban neighborhoods. Rent control is not ideal, but it is very far from bombing. Extreme rhetoric is unappealing; you should avoid it.
MarketUrbanism saysJanuary 30, 2015 at 4:46 pm
EC, I’ve written thousands of words on this site thoroughly demonstrating the dangers of rent control. I linked to many of my writing right here in this very thread of comments.
Yes, it’s been thoroughly demonstrated:
*There is no issue in all of economic debate with as much consensus as rent control.*
For the South Bronx, rent control was absolutely devastating. To brush it off as “not ideal” is pretty hard to swallow.
In this light, it hard for me not to take offense to accusations of sidestepping the topic or unfair rhetoric .
EC saysJanuary 30, 2015 at 4:59 pm
I did read a couple of your posts. You do a decent job of covering all the reasonable arguments against RC. But you don’t, in my view, justify the extreme rhetoric. Take offense if you like. I still think it’s silly. And I’m someone who basically agrees with you!
Dennis Allard saysJanuary 30, 2015 at 5:00 pm
Santa Monica had strong rent control until 1999 when the local city rent control laws were over ruled by California legislation (so much for local democracy). The experience in Santa Monica was that there were not long lines but there was a black market of “fees” paid under the table to land lords. Overall, however, the result was a less gentrified population than has since developed.
That does not invalidate your point. The big problem with strong rent control is not strong rent control in one city, it is the lack of rent control in other cities near by. If an entire country to were to make strong control the law, then that argument evaporates (and one has to deal with the other arguments against rent control, as I have attempted to do elsewhere in this thread).
MarketUrbanism saysJanuary 30, 2015 at 5:32 pm
I too get turned off by extreme rhetoric. I appreciate you bringing it to my attention, and I’ll try to reflect on how I may have gone astray.
MTBinDurham saysJanuary 30, 2015 at 6:09 pm
Except that we currently have a housing surplus — it’s just in the wrong places. We have houses in every state in the country that are sitting empty for years, and more that are just foundations, or just unfinished shells, because the speculative builders building them went bankrupt. Yes, there are some cities which are excluding density by zoning, but in each of those metro areas, I guarantee you there are areas with 30% vacancy rates.
The bigger problem we have is that we have a shortage of housing that is in walkable, transit-friendly, mixed use neighborhoods with good public schools. How do you get more of those? You have walkability plans, spend money on public transit, put restrictive covenants on the forms retail can take, and improve your public school system.
MTBinDurham saysJanuary 30, 2015 at 6:18 pm
Thanks for the kind words. I’d love to have a cure-all, but I don’t. As my motto tends to go — it’s not easy, it’s never been easy.
My biggest interest right now is in cooperative forms of economic organization. John Restakis’s book Humanizing the Economy is a fantastic introduction to that. I truly believe that small- and medium-scale, volunteer, democratic organizations focused on collective economic action are a major growth center. For a broader theoretical approach, the Gibson-Graham “diverse economies” hypothesis is a good framework.
Beyond that, the mortgage income deduction is exacerbating the problem in its current form. Converting that to a tax credit and capping it would help stop housing hyperinflation and encourage building more, smaller units.
anonymouse saysJanuary 30, 2015 at 8:05 pm
I definitely agree with your take on the problem. But the solution sounds an awful lot like… gentrification (using the term somewhat loosely), because what you need is not just good schools and walkability, but also access to the economic opportunities in the urban core, and in a lot of places, all the accessible or even potentially accessible land is already built on. Even if you made Victorville a walkable transit-oriented place, it would still be Victorville and hours away from all the good jobs. Wouldn’t it be easier (physically and economically) just to let more people live in places that are already walkable and have good transit and good schools?
MTBinDurham saysJanuary 30, 2015 at 10:31 pm
I don’t know Victorville (or much of anything else about southern California), but providing good services isn’t gentrification. Gentrification is demographic process, not a governance process (although governance can push it, certainly).
Good transit and good schools are note infinitely exploitable goods. Good schools become not so good when they get overcrowded, as does transit. Those things require investment. Most areas with bad schools are that way because of systematic disinvestment, and areas with bad transit are that way usually because of highly liberalized zoning and land use, leading to auto-centric development.
Again, I don’t know much about Victorville other than what Google Maps tells me about where it is, but I’d wager that a couple of stops on a commuter rail system into LA would be a pretty big economic kick in the pants for it.
Ross saysJanuary 30, 2015 at 11:53 pm
The shortage of housing is caused by too many market and government related problems to say there is any kind of workable solution that is simply a “housing” solution. What causes shortages and surpluses of houses? In other words, why do people want to live in certain places, and what allows or forbids them from doing so? Jobs. And where are the jobs? Wherever new companies locate, which usually has a lot to do with government policies, such as sales and corporate taxes, regulations, etc. Simply building more houses, wherever they are and under whatever zone, will either lead to price increases or empty housing if it’s not part of a much more significant reformation of the entire economy, one that is decidedly not market-oriented. Something like a universal basic income (in other words, decoupling livelihood from working) would do a lot more to solve housing issues than housing itself could ever do. Liquidating the rich (liquidating their assets, that is) wouldn’t hurt either.
George Carty saysJanuary 31, 2015 at 4:14 am
I suspect that it isn’t just rich people but middle-class people too who use politics to inflate the value of their property. And politicians are often all too keen to oblige, as they clamor for extra consumer spending (funded by HELOCing) which they can use to goose the GDP numbers.
George Carty saysJanuary 31, 2015 at 12:08 pm
Progressive income tax is a good thing, but a land value tax I s better because it is much harder to evade (income can go unreported, but it is easier to check who owns a given site) or avoid (you can’t use sneaky accounting to attribute your land rent income to a lower-tax jurisdiction).
Also, you can’t stash land in a tax haven or a numbered Swiss bank account.
Alan saysFebruary 1, 2015 at 12:52 am
I rode the school bus through a lot of neighborhoods in inner-city Milwaukee that looked a lot like that in the 1990s, with no rent control in sight.
And, of course, there’s no rent control in Detroit.
Depopulation and disinvestment in neighborhoods isn’t very good for them, regardless of rent control policies.
hcat saysFebruary 1, 2015 at 7:52 pm
“rich people don’t just vaporize by prohibiting the creation of housing for them.” Great line. And neither do poor people, or anyone else for that matter.
EC saysFebruary 2, 2015 at 9:06 am
OK. Thanks for your work!
Guest saysFebruary 2, 2015 at 7:15 pm
Sorry but without rent control most of us would be living on the street. Let’s get real. Stop theorizing and look at the wages.
OnebyOne saysFebruary 2, 2015 at 7:23 pm
I have a question about zoning, I may be late to this but how was #jose huizar a City Councilmen for Boyle Height able to redistrict and also given downtown Los Angeles and part of his district ?
Payton Chung saysFebruary 2, 2015 at 10:22 pm
Removing housing from the marketplace, and thus from market forces, can easily be done, but it does require wiping out a lot of the things Americans like about owning housing (e.g., it doesn’t store value, it doesn’t offer much autonomy). Mass public housing, as exists in Singapore or Vienna, would be one way. Limited-equity cooperatives are another.
Patrick Gerber saysFebruary 2, 2015 at 10:26 pm
After reading this and some of the comments this has got to be the scariest peace of warped trash I have ever read on here.
Jon B (Stuck in IA) saysFebruary 3, 2015 at 8:53 pm
Well, it more helps everyone who is productive. So if you are productive with your piles of money, you will reap a lot in return. If you blow your piles of money on conspicuous consumption (Arrested Development comes to mind), free market libertarian world leaves you just as destitute as the next unproductive fellow.
Jon B (Stuck in IA) saysFebruary 3, 2015 at 8:55 pm
“the point I with to add is that Libertarians focus on a very small set of possible economies and their “religion” is to believe that other possible economies cannot work. ”
Well other economies “work”, the question is whether they work as well. Do they most efficiently allocate scarce resources in order to satisfy unlimited human wants?
MTBinDurham saysFebruary 4, 2015 at 1:18 am
So, I’m reading you as making two assertions here. 1) Only unproductive people don’t have money. 2) Because of that, it’s okay that the wealth inequality warps the market and creates substantial power imbalances, because it’s only leeches like single parents, senior citizens, the disabled, and the structurally unemployed who are pushed out, right?
MTBinDurham saysFebruary 4, 2015 at 1:22 am
Who gets to define what “efficient” means? If an economy is most “efficient” when 3% of its population has no access to food or housing, is that a desirable state? Since when did “efficiency” become the state which we want to attain? I’d kind of prefer an economy that was maximally just, fair, compassionate, respectful, and promoting of dignity, and if that’s a little down in the efficiency category, I’m okay with that.
Jon B (Stuck in IA) saysFebruary 4, 2015 at 8:34 am
I think I was more trying to make the point that just because you start off with a lot of money for whatever reason (inheritance, invention/patent, etc) doesn’t automatically mean that “free market” markets become your plaything. You still have to be productive with your built-up capital in order to reap even more rewards. Warren Buffett is super-rich, but he only makes more money by investing/lending his money to businesses that go spend it on labor/resources in order to create something of more value, of which Buffett gets a cut in the profit.
The problem we have today is that via crony capitalism, many people with lots of money rig the game so they don’t actually have to be productive in order to continue reaping rewards because they’ve eliminated the competition through zoning, business regulations, licensing laws, targeted subsidies, etc. For example, I used to work for a big bank (ironically Buffett is well-invested in this bank’s stock), and that big bank partly makes a profit because it is large enough to absorb the costs of all the mortgage restrictions and laws. Small mortgage companies find it difficult to comply with things like Dodd-Frank and still turn a profit, so they go out of business.
In response to your other points 1) only unproductive people shouldn’t end up money in a “pure” free market. Now nowhere on earth is there a pure free market, but the West generally comes closer to this end of the spectrum than the rest of the world, which is why you should see less of the mob boss/railroad baron with money in the West. Doesn’t mean the rich still don’t rent seek, but it means the problem isn’t with them being rich, but with them using that money to rent seek. So no it is not okay that wealth inequality warps the market via force/favors bought from those in government/power.
As for those who struggle to be productive for one reason or another (let’s say the disabled), that’s what compassion and charity are for. However, I find it hard to mentally grasp an argument for forcing people to be charitable. I think a healthy society will have plenty of charity in order to enable those people to live meaningful, healthy lives, but forcing that not only creates problems in discriminating between the poor who will flourish upon receiving charity vs those who won’t, but also breaks the social feedback loop whereby those who receive charity feel and are accountable for what they do with it.
Jon B (Stuck in IA) saysFebruary 4, 2015 at 8:40 am
“Who gets to define what “efficient” means”.
Well, value tends to be subjective. I think efficient means millionaires shouldn’t spend money on modern art, but millionaires keep disagreeing with me. That’s why efficiency is based on what people of their ow free will are willing to pay, based on their values, for whatever resources/good we are talking about. Efficient is generally described as getting maximum use out of what resources we have access to. For example, we make a lot better use of farmland than they did 1000 years ago, so less people starve. 3% of the population struggling to find food or housing is pretty good, historically speaking. Is it perfect? Is it the final state? I hope not, but it is good and better than most other methods have achieved.
The problem with basing an economy on maximum justice, or fairness, is that whatever costs you impose on those at the top of the economic heap, merely get passed along to those who consume more of their livelihood at the bottom of the heap, because those at the top of the heap aren’t going to give you their time/money/resources without making a profit in return (ruling out instances of charity). So in the end, the economy which allows those producing to maximize their efficiency usually ends up helping those who struggle to “consume” enough to get more of the resources needed to make life bearable- which is the truly compassionate, dignified result we want.
Dennis Allard saysFebruary 4, 2015 at 12:19 pm
Jon B states the Libertarian Fundamentalist mantra: “efficiency is based on what people of their own free will are willing to pay”.
Like when slaves, of their own free will, could decide to run away and ultimately get shot or choose, of their own free will, to stay on the plantation.
Or when todays workers get to choose, of their own free will, which Capitalist they work for so that the Capitalist, who owns their work product can sell it and “earn” money based on what the worker produced. The Capitalist is making money mostly by virtue of what they own, not what they actually do. It’s called leverage. As the company grows the vast majority of the wealth of the company goes to the very small number of Capitalists who own it. They don’t have to work harder or produce more yet they obtain more and more wealth *because* they own the company. Very efficient. For the Capitalist.
All those workers choosing, “by their own free will” to work for the Capitalist. Very efficient indeed, for those who own.
Can anyone do this (become a Capitalist and enjoy the benefits of masses of worker choosing by their own free will to do work to enrichen the Capitalist)? Yes, anyone can do this, it is a free country. But can *everyone* do this? The answer is no! If everyone did it, there would be no workers for the wealty to use to enrichen themselves since everyone was doing it. That would be socialism, where everyone earns money based on what they do and not on what they own, since it would no longer be possible to leverage the work of others in order to enrichen oneself.
Under such a system, you would not need “trickle down” economics (which is really “flood massively up” economics as the past thirty years have shown.
Instead, every worker would own a significant amount of the company they work for. That is NOT what our current economy does. Our current Libertarian-based economy results in a small number of people owning most of the resources and having most of the wealth.
In Bolivia, they are changing this somewhat. They nationalized the oil and power industries, they make it illegal for one person to own vast amounts of land, they are, literally,, trying to spread the wealth. The result has been an important reductiion in poverty, better education,, and overall better lives for more people.
Back to the topic of strong rent control… Having strong rent control on all rental units in a society would not limit the freedom of anyone. It simple changes the rules of the game. A propective land lord has the freedom “of their own free will” to buy any rental property, knowing that the rules of the game are now different. What they are buyinjg is not just “a property” but, rather, “a property with the following law-based limit on rent increases”. I argue this would increase freedom and efficiency since it would prevent property inflation that makes it harder to afford to buy rental property. There is the issue of how to impose rent control that does not prevent construction of new renal units. This can be achieved by zoning some areas to only be allowed to be used for rental properties and by allowing the intial rents after the property is built to be set at market rates.
Jon B (Stuck in IA) saysFebruary 4, 2015 at 1:55 pm
We’re going to compare consumers to slavery in the USA and completely ignore the massive rent-seeking behavior of plantation owners in petitioning to be allowed to have the rights to another person’s labor via force? Look, the free market solution is to get rid of rent-seeking, to get rid of force. If the consumer is getting screwed over by one of those things, then like slavery, it needs to be abolished. I’m not sure how this is an argument against “libertarianism” to point out that yes, forcing people into slavery is wrong. Yes, forcing customers to pay higher prices because you rent-sought is wrong.
If you don’t want to sell your labor to the capitalist, then don’t. Go be self employed (sounds like you are. Congrats!) However, there is a reason why your labor for the capitalist is more productive, and hence pays higher wages. Increased worker productivity is what the capitalist brings to the table, and that’s why the capitalist gets his share of the profits. If the capitalist ever starts to take more than his share of the increased productivity, then you’re free to sell your labor to another capitalist who only profits based on what they put in, or go be self-employed. And considering capitalists have to compete against other capitalists for labor- they shouldn’t (in a perfect world) be able to profit more than based on what their capital brings in increased productivity. Collusion is also a big no-no for free-market thinkers, so if that’s the problem enabling capitalists to profit more than they produce, get rid of collusion.
“Can anyone do this (become a Capitalist and enjoy the benefits of masses of worker choosing by their own free will to do work to enrichen the Capitalist)? Yes, anyone can do this, it is a free country. But can *everyone* do this? The answer is no!”
So I take it you don’t own stock, eh? I am currently both a hourly paid employee and also a capitalist earning money via stock in companies. Yes, EVERYONE can do this- it just isn’t economical (if you get rich enough you decide to no longer work, guess what, you make the price of labor go up. Eventually you’d reach an equilibrium where is it no longer worth it to be the investor because it only pays as well as being the worker)! You also still ignore the point that the capitalist doesn’t leverage the work of others, he actually provides greater productivity though economies of scale, differentiation, specialization, etc. If he didn’t, then mega-corporations would be undermined by self-employed people every day.
“Our current Libertarian-based economy results in a small number of people owning most of the resources and having most of the wealth.”
Yep. That’s because a small number of people (with big ideas) create most of the productivity. A few Microsoft programmers made a lot of people more productive. A few lucky Texans had oil, and cheap energy (of whatever sort- it will be the same for whoever invents cheap, scalable solar energy) makes people more productive. But you kind of have to reward productivity or else people won’t produce. Plus while resources may be limited, ideas on how to use those resources to produce more stuff are infinite, which in turn creates new resources (oil used to be just useless goo).
Bolivians have about the 90th best purchasing power in the world. No thanks. It may be their system just needs time, but I remain skeptical. If the wealthy is just going to be spread, they will never see any big ideas which result in big productivity gains, only little ones that the person who comes up with the idea can actually capitalize upon.
” Having strong rent control on all rental units in a society would not limit the freedom of anyone.”
Uh yes it does. It limits my freedom as a landlord to charge more than the rent controlled price. It limits my freedom as a consumer to offer more than the rent controlled price if I really value that apartment. That’s why rent-controlled places end up on the black market. You are technically correct that one still has a choice to buy a non-rent-controlled apartment instead, and guess which apartments are going to be bought up? The ones which can actually go for market value and make a full profit…
” argue this would increase freedom and efficiency since it would prevent property inflation that makes it harder to afford to buy rental property.”
What? If the value is inflating, that means it must not be too hard for SOMEBODY to buy it. Just not who you think SHOULD buy it. Either that or the apartment uses up more resources of the landlord than it provides value to the tenant and shouldn’t exist.
Rent control will always inhibit construction of new rental units. You’re literally reducing the economic incentive for a landlord taking those efforts, and you expect them to put forth the same effort? Time is valuable. A landlord won’t waste his time and money for a 3% margin. Kind of like above, he’ll just go find a job that brings back more per hour of his time- or spend the money he wants to invest on himself.
Zoning. Because you know what other people need more than they do. If a piece of land is more productive as a storefront rather than an apartment, why not let it be a storefront? The owners and workers will have more money to spend on a house elsewhere. The buyers will save money to spend on a house elsewhere. If the free-market economy (this means no collusion, no rent-seeking) as a whole wasn’t saving enough money/producing more utility by that being a storefront vs an apartment, it would be an apartment.
Oh, and do you really think you know better what people want then they do? Because that’s my definition of efficiency. Getting the most people the most of what they want. And yes, that has to recognize that what people want has to be produced by someone, and so we need to give incentive for people to produce the stuff we all want. If Bill Gates really wanted to give away Microsoft stuff for free, he could. He doesn’t- he still wants to be paid in order to pay other people to make us stuff. And we still want what he produces (or pays people to produce). Same for Apple, and so on. I have no problem with you asking rich people to turn more of their enormous profits in to charity. I just don’t think you can demand it from them without there being less stuff in the world for us all to enjoy.
Jon B (Stuck in IA) saysFebruary 4, 2015 at 2:08 pm
You also seem to think that there are all these market inefficiencies out there (price gouging, underpaying for labor, etc) and so we need to use regulatory force to remove these inefficiencies.
No we don’t. If there’s really an inefficiency out there, and say employees are getting underpaid by $5 an hour, then guess what. Undercut their business. Do the exact same thing, only pay your employees $1 an hour more for their labor, and take their profits and make them yours. Your employees will still be “underpaid” by $4 an hour- but that’s your profit, at least that’s your profit until somebody else realizes there is still wiggle room to take your employees by offering them more pay, while still collecting a profit. And so on and so forth until you can’t offer a higher wage and still make a profit.
Because if you could take the billions going to the Waltons and transfer it to your own pockets merely by doing the same thing, using the same business model, but paying your workers slightly better, and cutting prices ever so slightly, wouldn’t you?
MTBinDurham saysFebruary 4, 2015 at 5:43 pm
We’re getting very close to some very deep rabbit holes here, so I’ll try to back up a bit and say that you’re making a lot of assertions based on a particular brand of economic theory. The problem is that the absolutist position on this — that markets are efficient, that markets lead us to the “best” state, and that “no other system” has done as well — is ahistorical and a-empirical.
The short response to those assertions is, “no, no, and no.” Efficient market theory died a long-deserved death in 2008 among all but the most die-hard believers, and we’re just waiting for everyone to notice the stench. The economic reforms of the 30s and 40s were largely responses to a not-very-good-at-all state that unregulated markets led us to. Margaret Thatcher’s old canard, “there is no alternative” is an erasure of some very real alternatives that have produced, even (or especially) in the US, high rates of economic growth, dynamic economies, low unemployment, plenty of reward for investors and so on.
Is the answer a return to old school management Keynesianism and strong government planning? I don’t think so — I think we’ve seen the weaknesses of highly bureaucratic systems of economic provision and control in the 20th century. Fortunately, there’s some great work being done on how to have forms of collective economic organizing that lack the totalitarian impulses or bureaucratic ossification of old methods, some of which have been around a while and are proven (again, such as cooperatives).
MTBinDurham saysFebruary 4, 2015 at 5:59 pm
In response to your first two paragraphs, it is fundamental to human-constructed systems of power, including those that valorize private property rights and other “first principles,” that they are constructed out of extant power dynamics. You can lament that the powerful twiddle the rules of the game to their own ends, in the same way that you can lament your own mortality, but it’s not going to do much good. The modernist, rationalized state is an attempt to minimize the incursions of that power into the affairs of the state, but given that its power that is continuing to construct the state, that’s a contested process in and of itself. I don’t think you’d disagree with any of this. Where I think the “marketists” go wrong is that they think “the market” is somehow excluded from these dynamics, so that it exists in some atomized, free state, when an examination of how economic relations actually develop and are executed shows that they are anything but atomized or purely rational at base. Indeed, the same forces that are busy fighting over how to construct the state are simultaneously fighting over how to construct the market, and attempting to rig the rules for their own gain. Again, one can lament this, but there is no “market” outside of the human construction of it.
One advantage that the modern state has over the market is that it can be disciplined by democratic means. This isn’t always a great thing by any means, but it does give agency to those not in possession of massive wealth or power resources to impact it. And, we have lots of historical practice in state-craft which has led us here, to the point where a bunch of highly powerful and wealthy forces are intent on market-centric deregulation and are tearing at the state in a contested power play. Pretending that this is a rationalization of the state is, well, a rationalization of another sort.
On the last paragraph, I’m out of time, so the short version of this is that it relies on a lot of really problematic canards, such as a simplistic behavioral relationship between charity and motivation to work, an erasure of the role of society and the state in provision of housing for the “non-productive,” an implicit valorization of private property rights at the expense of other forms of state action as “non-forceful,” and so on. There’s a bit too much there for me to unpack at the moment, but I’ll try to come back to it.
baklazhan saysFebruary 4, 2015 at 7:16 pm
Sweden does have strong rent control in the entire country. The result is that you can get an apartment in “Bakersfield” for a fixed $900 a month, or an apartment in “Santa Monica” for $900 a month. Well, I don’t think it will come as a surprise to you that there are decade-long lines in Santa Monica and no lines at all in Bakersfield.
Jon B (Stuck in IA) saysFebruary 5, 2015 at 10:12 am
In regards to your first two paragraphs, of course the same sources of power are trying to influence the market (rent-seek) just as they try to influence the government. However, as you point out, the way to counter-act this is to democratize the process. This means allowing people to cast votes via their money or labor as to what they actually want, not what the powerful wish to give them. If the non-powerful don’t like what the powerful try to hoist upon them, they can take their money and labor elsewhere or create their own networks. Simply put, it gives those without power choices.
” an implicit valorization of private property rights at the expense of other forms of state action as “non-forceful”
Well of course the state uses force to uphold property rights. Otherwise people would try to attain the ability to force another person to use their property, person, or labor for their own uses. Surely you don’t think the government should allow slavery whether it be through forced labor or forced seizure of the fruits or another’s labor. Property comes from the idea that I am my own person, and I get to choose what I do with my person, and I get to bear the consequences and rewards of my choices. So others don’t get to benefit the rewards of my positive or productive choices. I do.
Jon B (Stuck in IA) saysFebruary 5, 2015 at 10:18 am
Why 2008? You think the housing bubble was due to free market inefficiency?
Better yet, you think the Great Depression was due to free market inefficiency (based on your comment of the economic reforms in the 30s and 40s being responses to unregulated markets)?
The position isn’t really that markets are the most efficient, persay. It’s that we can’t know what is the most efficient use of resources (the problem of knowledge and unintended consequences as laid down by Hayek), so we should let people have the ability to live out their own subjective values.
Jon B (Stuck in IA) saysFebruary 5, 2015 at 11:06 am
Re-reading your comments. Came across this one. Perhaps you could clarify for me and tell me how power imbalances become worse at the market level, or maybe provide an example of how this plays out. Because to my thinking, if someone with power offers a price, either as a buyer or a seller, I have the ability to walk away and find another buyer or a seller. That gives me more power than when power imbalances play out at the state level, and if I break an zoning ordinance I get tossed in jail or pay a fine and have no way of walking away- so to speak- from that ordinance unless I choose to relocate to a different jurisdiction.
Jon B (Stuck in IA) saysFebruary 5, 2015 at 11:08 am
“future deliberalization spearheaded by those who won in the liberalized market.”
It can, but does it HAVE to? Or can we be a nation based on rule of law, not rule of powerful men.
MTBinDurham saysFebruary 6, 2015 at 12:50 am
Making money the only unit of power is not democratizing. Democracy is one person, one vote, not one dollar, one vote.
I am not anti-private property, so calm down. I am anti-assuming that private property is “natural” and a “first principle” then turning around and asserting that taxation and provision of a social safety net is somehow market warping and “unnatural” or a “violation of first principles.”
MTBinDurham saysFebruary 6, 2015 at 12:52 am
Oy, here we go. The housing bubble was created by faulty market models of derivatives trading in the sub-prime market, which the federally backed mortgage corporations stayed out of. I’m expecting you to come back with something about being forced to lend to poor people, which has been roundly debunked so many times I can’t be bothered to do it again.
MTBinDurham saysFebruary 6, 2015 at 1:09 am
To try one more time to keep this from spinning off in me trying to claw my way out of Libertarian fantasyland, let me get back to the core concept of gentrification and the way in which power can be exerted and the market warped through nothing other than “market” forces.
A friend of mine is a former vice president of a major national retail chain which I won’t name to keep him from getting in trouble, but which you all know. Call it Company A. They are in a specific large and growing niche in a major retail market, and are the #1 dominant player in the country. About 15 years ago, a regional chain started to grow in the same niche, buoyed and financed by their phenomenally successful home store. Call that Company B. As Company B established a growing retail footprint and began to expand into new markets, including some unreached as of yet by Company A, the executive team (of which my friend was apart) tried to figure out how to respond. The strategy, in the end, was as the CEO put it, to “bomb the bomb factories.” Company A opened up a gigantic store very close to Company B’s home store, and proceeded to underwrite massive losses in that store for years. Yes, it cost a lot of money, but in the end it undercut the home store of Company B’s profits so much that it completely eliminated Company B’s capacity for new store development. Company A proceeded to do the same thing in every market where Company B had a store that was highly profitable. Years later, with Company B facing losses and looking at closing stores, Company A bought out Company B for a substantial discount over its former market capitalization, but for more than it was probably worth, with the sole justification that it had, at that point, effectively killed off the last challenger to Company A’s status as the only national chain in that market niche, and that’s the way the market stands today.
No state, no zoning, no policing, no monetary policy, no taxation. Just sheer exclusion of a smaller competitor from the market.
This isn’t some fantasy horror story, this is the way actual economic activity works on a daily basis. The notion that you can get back to Hayek’s pristine ideal of everyone efficiently expressing their subjective values in the market is only maintainable if you ignore the way economic relations actually work and the power imbalance and market-based coercion inherent in them. Non-coercive markets as unregulated entities only exist in axiomatic, anti-empirical models.
MTBinDurham saysFebruary 6, 2015 at 1:12 am
Heh — I actually just wrote something that answered this as a second response to the question below. See my Company A/Company B retail story. The other major caveat is that economic exchanges don’t exist in a randomized market, they follow extant social relations, which is why salesfolk can make so much money effectively providing what in an atomized, random market appears to be no actual value.
MTBinDurham saysFebruary 6, 2015 at 1:15 am
Laws are only ever written by men (and women) who have obtained power. That’s how they become laws instead of ideals. We can conceive of good ways and bad ways to write laws, but laws fundamentally emerge from power relations, and wealth is a very potent form of power. Allowing any party to become too wealthy caries exactly the same risks as allowing any party to become too powerful, because it is, roughly, synonymous.
Jon B (Stuck in IA) saysFebruary 6, 2015 at 11:16 am
You do realize that “one dollar, one vote” is simply another way of saying you get “market votes” equivalent to the amount of value you have produced. You can quibble over whether or not a dollar earned actually represents a dollar’s worth of value provided to society, but I’m not sure how that’s going to undermine a free market argument because the essence of the free market is that your recompense represents the actual value of the services/goods/ideas you have created. Free markets oppose rent-seeking, which is where people make more money than they should based on the value they provide.
Because you are basically positing that there are people with lots of market votes, who haven’t actually bestowed any value into the market. While I’m sure that’s true since we don’t live in a free market utopia, doesn’t it make sense that those who put the most inputs in to the community get the most outputs out?
And if you take away the ability of someone to get out in proportion to what they put in, so that you can provide a social safety net to others, that may not be “unnatural”, but it will reduce the incentive to provide input to the society. Unless of course, that person is willing to take from some of their excess claim to outputs and give to those who can’t input as much. In which case, you have charity, not forced redistribution.
Forcing someone to give up outputs from society they earned by providing inputs for society is going to reduce the incentive to input into society. Which means less inputs into society. Wouldn’t that hurt everyone?
Jon B (Stuck in IA) saysFebruary 6, 2015 at 11:41 am
You’re going to tell me the 2001 Recourse Rule had nothing to do with banks over-valuing securitized mortgages based on a government-provided risk weight?
You’re going to tell me that Freddy and Fannie’s credit policies, regardless of whether they were risky or not, didn’t create non-free market competition which lead to other companies having to compete with government institutions.
You’re going to tell me the continual increase in FDIC insurance coverage that made almost all major bank liabilities guaranteed by the government doesn’t change the risk/reward evaluation for banks?
You’re going to tell me that banks, lending for profit, required less downpayments because they actually re-ran risk/reward perimeters and found out they had miscalculated, and that the Housing and Community Development Act of 1992 requires certain levels of borrowers with incomes less than median income had nothing to do with it? Ditto for the Community Reinvestment Act.
Yes, banks like Citigroup engaged in short-sighted greedy behavior. They were given incentive to do this because it wasn’t just their own money they were risking, they had government safety nets in place which reduced risks and changed incentives, which results in stupid decisions.
Jon B (Stuck in IA) saysFebruary 6, 2015 at 12:32 pm
Predatory pricing story.
Isn’t anyone free to come along and undermine Company A’s business however? There’s no such thing as a “last challenger”.
What’s wrong about borrowing on future expected profits (a significant risk, btw) in order to establish a brand name (create value) and gain market share (creation of value). Customers got lower prices for a while. If Company A ever tries to jack up the price, another company will come along in short order and run them out of business. Unless Company A tries to predatory price again, but imagine the difficulty of always borrowing on future profits to run your competitor our of business, and then the moment you try to recoup your losses, having to lower your prices to price predatorily again.
Even more ironically, it probably takes significant capital to enter this business, which means you have one group of rich capitalists fighting another group of rich capitalists for market share and brand recognition. In order to do so, they lower prices for consumers, rich and poor alike.
I fail to see what harm is done in this entire process. No coercion occurred. Company B was persuaded to go out of business due to lack of profits. They could have chosen to continue to take losses via financing or finding more investors or just wanting to be charitable to consumers- particularly if they knew they were being predatory priced on- in order to access future profits once Company A could no longer take further losses. However they were persuaded it wasn’t worth it.
On one thing we agree, however. You are right. What you describe is no horror story. It’s just actual economic activity on a daily basis.
Applied to gentrification, if the genteel want to drive prices up and take losses to remove certain types of people from their neighborhood, let them. That means the rich aren’t living elsewhere, and provided there are no laws prohibiting the creation/renovation housing in the area, you can move to a cheaper area. As pointed out elsewhere, the rich aren’t just going to vanish. Even if places like NYC become cities only affordable for the super-rich, eventually the super-rich are going to want certain amenities. They’ll have to pay for those amenities. And that’s how service-level workers can charge enough to survive the high cost of living in those superstar global cities. Trapping the poor in an environment which continues to become more and more of a high cost-of-living environment isn’t going to help them at all. Let them get out and go somewhere where there isn’t as much demand to live.
I’m guessing you will rebut that the jobs are in the big cities. True, but if the working class abandons those big cities due to affordability, guess what happens. The price of labor in those cities goes up because there is less supply of it. Then the “equilibrium” (vague notion- I agree) is reached where common laborers are in demand enough that their wages afford them the ability to live in such a city. Nothing is going to change the fact that people who can’t afford where they live are going to have to move to lower-cost areas because they aren’t providing enough valued “input” into society in order to receive the “output” of prime locations.
Jon B (Stuck in IA) saysFebruary 6, 2015 at 12:38 pm
But knowledge and connections are valuable. Not all value is “tangible”. The idea to burn oil created value.
Which is why respectability and education (of any sort) possess value in a marketplace. They facilitate economic exchanges and therefore provide value. And last time I checked, everyone is free to gather as much knowledge and respectability as they can (yes, formal education requires payment in order to access the knowledge, but there are plenty of means of acquiring knowledge that aren’t as costly).
Jon B (Stuck in IA) saysFebruary 6, 2015 at 12:49 pm
Which is why authority needs to be bestowed by election (rich people can’t tell lawmakers what law to make) and cultural disdain of bribery (trying to persuade lawmakers). Even in a free market utopia, the most productive person doesn’t get to tell me what to do, only persuade me.
Any person who defends the free market will tell you it won’t work in a society that doesn’t have the social capital to turn down bribes and actually vest authority to those who received it with the populace’s consent. But that is a complaint with a corrupt government, not the free market. Any economic system is going to present the same danger of people trying to influence the lawmakers for their own ends, of people trying to rent-seek. Even egalitarian socialism, because suppose I’m unsatisfied, or think I deserve more. I’m going to try to bribe my way to an exception.
It is also why free-market people tend to be for small, limited government. The less power of coercion at stake, the less incentive to influence it.
Jon B (Stuck in IA) saysFebruary 6, 2015 at 1:01 pm
Thank you for your respectfulness throughout this debate. Most of my debates on the Internet don’t have the same level of courtesy.
I think both of us are trying to learn about how the world really works and what we humans can do to create human flourishing. Both of us have ideas about how that can be done. So we’re arguing them. We’re seeing which ideas are more reasonable. I hope you understand that I also bear you no ill will.
MTBinDurham saysFebruary 7, 2015 at 10:47 am
Again, this has been debunked to death by lots of people far smarter and more articulate than me. FDIC is non-sequitur here. The collapse was caused by sub-prime, not prime, and Fannie and Freddy don’t touch sub-prime. The real story is in derivatives trading like credit default swaps. If you don’t get that you’re completely missing the culprit. The rest is utter fairy tales.
MTBinDurham saysFebruary 7, 2015 at 10:55 am
Why would anyone throw good money after bad? The capital required to make a play in the space and to fight back against the almost certainty of Company A’s predatory pricing is in the tens of billions of dollars, and there are other niches worth going after. The “harm” here is an illustration that Company A continues to be synonymous in this country in its market niche despite being non-stellar in many areas of its business, competition is stifled for the consumer, and at a theoretical level, it simply demonstrates that the market winner is frequently not there on abstract merit, but on an economic power play that produces no additional value to anyone but the shareholders of Company A.
There are competitors emerging to Company A, but they have been primarily in the form of local cooperatives whose customers have placed a value on above and beyond price and product. Another earlier analogous situation would be Microsoft’s hyperaggressive monopolistic practices which forced everyone out of the market until open source software, which was impervious to them, undercut them (and undergirded much of Apple’s platform transforming market interventions).
Again, I’m not trying to tell a heroes and villains story here, but merely to point out that the market can be (and almost always is) warped to the favor of major market players, in a way which increases the wealth and power of the shareholders of those players without providing any additional value to society as a whole. (More on this in a parallel comment.)
MTBinDurham saysFebruary 7, 2015 at 10:59 am
Agreed. I apologize if I get snarky and punchy at times — I have a very strong dislike of the libertarian worldview, and think it’s not only patently false but also morally harmful — but that doesn’t mean we can’t talk about it in a civil manner.
MTBinDurham saysFebruary 7, 2015 at 11:24 am
I think we’ve gotten to the core disagreements here. I object (strenuously) to the following notions:
1) That wealth is only obtained by legitimate value production.
2) That equal production of socially beneficial goods in the economy yields equal wealth.
3) That acquired wealth, however obtained, should *normatively* yield unfettered power equivalent to that wealth.
4) That provision of fundamental human needs should be contingent on acquired wealth.
5) That productive activity in the economy is motivated only by wealth acquisition.
6) That marginal decreases in the amount of wealth acquired, particularly at the top end, are enough disincentive to substantially decrease overall economic activity. (Corollary: that the net productive yield from increased incentive to top wealth earners outweighs the corresponding net productive to minimum wage earners, roughly speaking.)
I would further assert that the above concepts, while not only based on a grossly simplistic model of economic activity, have each also been demonstrated to be empirically incorrect. One can say, “well, they’re not always true, but they’re generally true.” I would say that they are true so seldomly as to be considered generally false.
Jon B (Stuck in IA) saysFebruary 7, 2015 at 2:30 pm
1) I’m not saying wealth is only obtained by legitimate value production. I’m saying wealth SHOULD only be obtained by legitimate value production. Do you disagree?
2) Same thing. Obviously this isn’t true. But shouldn’t it be true. Isn’t that the desirable state.
3) I don’t think wealth should yield unfettered power. One free market dogma is “no monopolies” regardless of how wealthy you are.
4) This is the ultimate debate. It’s the one even some libertarians have caved on and said, “Fine, we’ll guarantee through an income transfer everyone has enough money for food/clothing/shelter with the understand that while this means our society will produce less resources, it might be more human. See Charles Murray laying out the idea of a negative income tax in “In Our Hands” (despite the fact that the rich always have the option to move somewhere where they aren’t taxed to supply welfare- in effect competition among governments).
5) Not all productive activity is motivated by wealth acquisition. But you have to admit for some people that is the only reason they are productive. The less incentive you give them to be productive, the less productive they will be. Sadly some people are immoral and irresponsible. That’s a reality that we have to live with, whether or not a significant chunk of people would be productive our of the goodness of their hearts. The question is whether enough people are ONLY motivated by wealth acquisition that they would freeload to death those motivated by more than wealth acquisition, and whether such a high view of productivity would exit in a world where work was optional for existence (i.e. you weren’t responsible for your own survival). Something about 4000 years of human history tells me there are more than enough greedy and selfish people they would devour the honorable people’s productive capacity were they not forced to be productive themselves.
6) Plays out of #5. Of course some top earners will continue to eek every penny they can out of their ability to acquire wealth, even if 95% of it is taxed. And some will continue to produce out of charitable inclinations. However some will give up- and if they decide not to produce an hour’s worth of goods, considering they fact they SHOULD (see #1 and #2) be richer due to providing more value, it would make sense that an hour of their time is more valuable than an hour of the person whose skills only return minimum wage.
Basically you are positing that a very small fraction of any population struggles at all with being dishonorable, or irresponsible, or with other immoral behavior, so we don’t need to worry about one selfish person counter-acting another selfish person through free market incentives.
Yet you also seem to think that a large fraction of the rich are precisely this- greedy, selfish, immoral, dishonorable to the point they will rig the game.
I guess my final reply is something along the lines of what Madison said. If men were angels, we wouldn’t need all the checks and balances our Founding Fathers put in the Constitution. If men were angels, the free market wouldn’t make any sense either.
But lots of men aren’t angels- and don’t ever plan on becoming one.
Jon B (Stuck in IA) saysFebruary 7, 2015 at 2:34 pm
Got any links?
Doesn’t matter whether or not sub-prime was touched by Fannie and Freddy. The government put laws on the books which encouraged sub-prime lending without proper financial guidelines to allocate risk. (see: 2001 Recourse Rule and Housing and Community Development Act of 1992). Furthermore, the addition of Fanny and Freddy to the market encouraged the other lenders to get into the sub-prime game in order to keep up with the government-subsidized competition. Nothing you said counters anything I said.
How is FDIC non-sequitur if it means that banks knew their sub-prime loans were fully insured and they couldn’t take a loss on them. That doesn’t change the risk perimeters for those lending the money?
Jon B (Stuck in IA) saysFebruary 7, 2015 at 2:38 pm
“there are other niches worth going after.”
Whoa whoa whoa. Opportunity cost effecting business decisions is a free market thing. If Company A’s play made the costs of preserving your niche in this market outweigh the benefits from switching to another niche, that’s opportunity cost at work, not coercion.
“Company A continues to be synonymous in this country in its market niche despite being non-stellar in many areas of its business, competition is stifled for the consumer,”
It’s not that the competition is stifled. It’s that competing isn’t worth it considering the other options out there to make money. Once again, it is a matter of opportunity cost- not stifled competition. If Company A became so bad and pricey the opportunity cost became minimal, competitors would come along. It’s just that there are more productive things for them to do with their time/money/investments than compete with Company A.
Dennis Allard saysFebruary 7, 2015 at 4:31 pm
Jon B (Stuck in IA) long reply (the one just above that begins “We’re going to compare consumers to slavery”) contains a couple of good points that I will, briefly reply to.
However, first I will summarize, also briefly, the essence of what’s wrong with his position.
The following video is an entertaining rebuttal to Jon B’s position. It is a TED talk by very wealthy entrepeneur Nick Hanauer:
The essential point that Libertarian Fundamentalists don’t see is that the Free Market does not optimize quality of what is produced nor lead to equitable income curves. I worked for a lab where many of the inventors of the Internet did their great work (USC/Information Sciences Institute). They did not do that work to become wealthy (some did go on to wealth but that is not the point). They did that work for good salaries and for the love of good science. The DNS system, TCP/IP, and everything that is making this blog conversation possible was NOT done for profit. Libertarians seem to (religiously in my view) believe that maximizing profit results in maximizing the quality of what is produced. That is patently ridiculous. Bill Gates produced an operating system that was know at the time to be mediocre. It contained all kinds of faults that resulted in entire industries being created to fix those faults (memory managers, networking systems, etc.) As one bright fellow software engineer friend of mine has put it, Microsoft succeeded due to “Survival of the Adequate”. Yes, Gates is very high IQ and a brilliant businessman,but the reason DOS became imposed on society was because he “won” the race more of first to market and consolidation of the market. And his vast wealth is based on that ownership (of one third of Microsoft stock).
Could Microsoft (or, hopefully, a company producing an even better OS) have succeeded without the “incentive” to become a billionaire? Of course. The invention of TCP/IP and HTTP proves that very excellent inventions are done all the time by government funded work.
So, at the very least, please put a lid on this adulation of the Free Market as a panacea to optimzing productivity or quality.
The one point @jonbstuckinia:disqus made that needs to be taken seriously is the point about stock ownership. The fundamental problem for socialists is how to solve the issue of income for people who have retired from the work force.
My problem is not with the ownership of stock, per se, it is with the non-linear nature of income and wealth. Jon B wants to not have controls on rents or prices or, god forbid, wealth, and I assume Jon B opposes a minimum wage and progressive income and wealth taxation. I don’t buy it. The non-linearity of income is based not on productivity but on the power of ownership (see above). So, I believe in a non-linear solution but one that involves very progressive taxation of income to counter the rabid non-linearity of income caused by the Free Market Jungle.
Ultimately, Social Security, which is funded by workers but then invested in Treasury bonds, is paid from the tax base (just like Chinese of Jon B’s bonds (assuming he has bought any) are paid for from the tax base). And that’s OK. Paul Krugman has ably showed how Social Security is both stable and could be enhanced. Ultimately, I believe that massive enhancement of social security is part of the solution.
I would also favor a very progressive wealth tax. I favor having zero property tax on primary residences but strong rent control (or, better, a constitutional amendment banning rent for ones primary residence (essentially banning land lords can converting all renters into landed gentry)). But for other land used to suck money out of the economy (by renting) I would favor very high income taxes, resulting in lowering the cost of land enabling more businesses to buy the land and not have to rent it.
February 7, 2015
MTBinDurham saysFebruary 7, 2015 at 5:41 pm
Here’s the first decent link I found, but it’s pretty good. http://www.washingtonpost.com/blogs/wonkblog/wp/2013/02/13/no-marco-rubio-government-did-not-cause-the-housing-crisis/
FDIC is non-sequitur because it insures the depositors, not the bank investors. The bank can still get cleaned out, and the depositors made whole.
As the WaPo points out, the biggest changes were things like repeal Glass-Steagall and other deregulatory actions.
Jon B (Stuck in IA) saysFebruary 7, 2015 at 6:41 pm
“The essential point that Libertarian Fundamentalists don’t see is that the Free Market does not optimize quality of what is produced nor lead to equitable income curves. ”
Optimize quality of what is produced? Why aren’t people demanding this optimal quality? Because they aren’t willing to pay for it, that’s why. Which means they value the savings due to reduced quality more than increased quality. And let’s even suppose this isn’t in their own self-interest. Let’s suppose that by buying higher-qualities good, the average consumer actually saves in the long-term. Good. Go teach people how to truly act in their self-interest. The solution isn’t to shackle self-interest, it’s to help people understand what is actually in their self-interest. Even if you do know what quality is optimal better than the rest of us, the solution isn’t to force us into accepting your idea of what optimal quality is, it is to persuade us. Furthermore, our acting against our self-interest doesn’t hurt you. You’re perfectly free to go buy whatever high-quality goods you want.
Yes, Bill Gates would work even if he didn’t make millions to do so. I’ve made this point elsewhere, but I’m glad he would. I’m glad a lot of Americans would work even if their survival didn’t depend upon it, but sadly, not everyone is of that good a nature. There are those, and they are a significant amount of people in any society, who will not work unless they have to in order to accumulate enough wealth to survive. That’s why when you try to guarantee people any standard of living beyond the mere basics, they are happy to do no work and have 1K of disposable income, rather then do work and have 20K of disposable income. And I re-iterate, yes some people would work even if it gave them no further wealth. But that’s not everyone, and to imply that the world is free from freeloaders is just naive.
By the way, Bill Gates providing the money so that fixed costs can be met in order to achieve high scalability and re-producibility provides value. That’s why he gets returns on his stock. Because his investment actually does provide something of value to society.
“My problem is not with the ownership of stock, per se, it is with the non-linear nature of income and wealth”
Well, get rid of the free-rider problem in economics, and we’ll talk. Until you can show me that enough people won’t try to get more out then they put in that it will cripple the entire economic and social system, we’re going to have to have non-linear income in order to give people incentive to work. Based on the history of China, and Russia, and Cuba, I’m going to posit that we’ve not yet found a way to get rid of the free-rider problem.
Progressive taxation just means (in a perfect world) some (not all) people who could be earning more wages by providing more services and goods for people won’t, because they receive less in return for what they produce. Yes, for those who make money that they haven’t actually earned this isn’t the case- but free market libertarians aren’t for people making money they don’t actually earn by producing something of value, so promoting progressive taxation as a way to hinder rent-seeking doesn’t really counter free market thought. It’s more of a strawman. Bill Gates gives people something they want. Robert Downey gives people something they want. Anyone else is free to come along and give people what they want for cheaper, and run those two out of business. In short, I’ve yet to see an example of a rich person making lots of money without providing people something of value that a free market libertarian would look at and go “Yeah, I’m defending that”. For example, Carlos Slim. Not really operating in a free market with competition. Not really a fan of his wealth.
Social Security would be stable, were it properly funded and our politicians hadn’t used it as a shore-up shortfalls pot of money earlier on in its existence. My problem with Social Security is its lack of return. Other libertarians have proposed mandatory IRAs or something of the like- noting that this would be a compromise and an exception to their principles.
Rent control: If you put the rent control price at a price at which it is no longer profitable to rent out that land, who is going to rent land? I’m guessing your real objection here is that landlords “price gouge”, to which the answer is competition, not price controls. If Bob wants to charge me 1K a month for a studio apt, let him. George realizes that he can charge 950, still make a profit, and steal Bob’s business. Then Bob has to lower his prices, so on and so forth, until they are charging as little as they can and still make a profit.
Jon B (Stuck in IA) saysFebruary 7, 2015 at 6:50 pm
It may be that private lenders held the sub-prime loans. If the reason they held the sub-prime loans is government incentives, we’re not dealing with a free market failure, because it wasn’t a free market.
However, that article does seem to rebut by removing most ways the government could have influenced private lenders. In which case, the problem would have stemmed from free market decisions.
I’m not sure what the better option is though. Suppose people in a free market make mistakes and act in a way that isn’t in their long-term self-interest, and it causes a mortgage bubble like in 2008. Then they bear the brunt of those mistakes and take the loss in a free market system. If you start to nationalize or subsidize stuff, then taxpayers and the rest of the country takes a hit because other people made bad decisions. Would you rather individuals bear the responsibility for their irresponsible decisions, or that they pass the cost on to the rest of us? Or do we try to force people not to make bad decisions? Who gets to decide what a bad decision is? What about the law of unintended consequences. Central planning seems to backfire pretty often- and if people with their own interest at stake are going to make mistakes, what are people who don’t have an interest at stake going to do?
Dennis Allard saysFebruary 7, 2015 at 10:44 pm
You both cherry pick and miss my points.
“Why aren’t people demanding this optimal quality?” They are. You miss my point. Optimal (or just better) quality does NOT cost more than what Bill Gates produced (MS-DOS). The reason MS-DOS won was not because it was cheaper, it was because it was first to market and Gates made a deal with IBM. It has to do with power and control.
And the main point, which you also did not address, was that the Free Market was not even necessary to produce excellent technology. The Internet was a government funded product. The U.S. government could fund gigabit fiber to every household in the U.S., just as it funded the Interstate Highway system back in the 1960s and the result would be excellent. There is no need for someone to get rich doing that, they just have to do their job and get paid well.
Rent control: No my objection is not that land lords “price gouge”. I don’t think they do. They simply charge market rate and they (well, more often, the last bank to have loaned money to the last land lord who bought the building at the Free Market inflated price) make money by virtue of what they own and not by virtue of a production function. Essentially, they are coercing the entire renter class into paying them for owning property. That is stupid. And I don’t “put the rent control price at a price at which it is no longer profitable to rent out”. The rent control price should be intially at market price then held to adjust for inflation. In that way, the price will remain profitable but the price will not inflate. For this to work in a way that prevents a black market it needs to be done everywhere at least within the greater municipal area of a typical city.
You did not comment on my proposal that we make it a right for everyone to own land and not be a renter. You don’t seem to understand that my proposals to limit rent (and, in fact abolish it) will have the effect of reducing land lords making money without being productive (owning land) and, hence, increase productivity in society since renters will have more money to spend rather than transferring their wealth to their land “lord” (I really look forward to a day when we no longer have lords in society who make money riding on the back of people who are actually working).
You also never commented on the TED talk which presents solid stats about distribution of wealth and income due to lower taxes and how that has not helped the economy.
Cuba a bad example for you to pick as was China. China went from feudalism in 1949 to an advanced economy in less than one life time (66 years and counting). I am not defending lack of civil rights in China, by the way. Cuba has a per capita GDP much greater than comparable Capitalist countries such as Guatemala, Honduras, and El Salvador. Even Colombia’s per captia GDP is not much greater than Cuba’s. If the U.S. economic boycott of Cuba ends it is going to be a good thing that we can finally travel there and do business there and not have to be subject to U.S. anti-Cuba propoganda of the past 50 years.
Jon B (Stuck in IA) saysFebruary 8, 2015 at 12:56 am
If we can get something of better quality for the same price, we aren’t we? That’s just a bad decision if we as consumers are choosing lesser quality for the same price. How has Bill Gates coerced us into choosing DOS? Could it be that he offered something that you’re not factoring into the value of his product that made it better than the competition (convenience of compatibility or something?). Just because someone is the first to market doesn’t mean they always dominate the market (see: Ford automobiles).
” the Free Market was not even necessary to produce excellent technology.”
Of course not. The argument is that the free market will produce more of an abundance of excellent technology. Examples of abundance or value created outside of the free market don’t negate my argument. To repeat, just because some value has been created in the absence of self-interested motives doesn’t mean more value can’t be created if we use people’s self-interest to give them incentive to serve the rest of society.
How is renting not production of value? They either spent resources (money) on or built a house. I need a house. Hence they provide me with value (production) by giving me a place that will shelter me from the elements. Instead of consuming their savings on whatever, they invested it a good that other people want. They provide value by taking care of all the issues that come with owning property that someone who needs to stay mobile is willing to pay in order to avoid (maintenance, taxes, etc). They provide value because if you need to move, it’s convenient to not have to find a seller in order to leave your apartment behind. And there’s no coercion. No landlord ever forces a person to live under them. People choose to rent from them because it is the best option available to them. Perhaps you prefer there are even more options, but renting is not a monopoly and it provides a legitimate service.
I’m not sure why there needs to be a right to own land. If you want to own land, you are more than free to do so. If you find the opportunity cost of owning land too high, I don’t think you should be made to own land or just given land. Some people by the very nature of their lives might move around so much owning land would be pointless.
I listened to the TED talk. I decided not to interact with all the claims he made. Simply put, the phrase “rich people create jobs” isn’t true. I agree. The ability to meet more human desires using the same resources creates jobs. It would be better to say human ingenuity combined with available investment capital creates jobs- and since we have plenty of investment capital waiting to be used in the US, most job creation occurs when someone comes up with a new “recipe” to better use resources to meet consumer’s wants.
China is a perfect example. Look at the massive difference between when free riding was allowed if not incentivized (1970s, Cultural Revolution) and when the government opened things up so people could profit from their labor.
I’m not sure countries torn with civil strife and ranked as fairly middling in terms of having free markets are a fair comparison, but I’ll admit Cuba hasn’t done terribly. The question is whether or not it could have done better.
But to try to trim this to one topic, you said your problem with Libertarian free market economics is that it doesn’t optimize quality. I still don’t understand how that is possible outside of people not acting in their best interests, and I’m not sure how if people not acting in their best interests is the case how you hope to solve it. Mandate people buy better software than Microsoft? Better yet, do you think people should be free to make choices, even if they might make bad choices, so long as they are responsible for the harm their bad choices cause (they take the loss from using mediocre software, for example).
And it doesn’t lead to equal income curves. To which my reply is that in order to give people incentive not to free ride, they need to have skin in the game, so to speak. You seem to think that the non-linearity of income distribution is due not to differences in value created, but to power. Suffice it to say, no free market apologist would be happy with this situation. We want people to only receive what they have earned. So I’m not sure how this is an argument against free market economics unless I am missing something. The problem is that you see some things as not being “earning” income, whereas I would see it as “earning” income.
Dennis Allard saysFebruary 8, 2015 at 12:28 pm
You cherry pick – my statement was:
… the Free Market does not optimize quality of what is produced nor lead to equitable income curves.
It is the inequitable income part that is the problem.
No one can know enough to know what is optimal, so let’s just talk about relative quality. I argue that the goal of producing better products is not achieved by the Free Market since the goal of the free market is not to produce better products. The goal of the Free Market is to maximize profit. Libertarian religion conflates maximizing profit to producing better products.
The “free ride” argument is a red herring. Germany, Denmark, and other advanced democratic socialist economies have strong rent control and much lower child poverty than the U.S. yet they are net exporting advanced manufacturing economies with very high living standards. They are example that give the lie to LIbertarian dogma.
Dennis Allard saysFebruary 8, 2015 at 12:43 pm
On this issue of “productive”…
“Historically, economists such as Adam Smith and David Ricardo viewed landlords as producing very little that was valuable, and so regarded “rents” as an exploitative concept.”
It is worth mentioning that the advanced manufacturing net-exporting economy of Germany has strong rent control. (same reference).
Dennis Allard saysFebruary 8, 2015 at 12:54 pm
I have enjoyed seeing MTBinDurham’s attempts to explain the logic of power to the LIbertarian Fundamentallists. It’s like trying to tell a Jehovah’s Witness that God does not exist.
“I am not anti-private property, so calm down.”
Let me try to add a point here.
I, Dennis Allard, claim to be a socialist (as hard as that is to be in the United States). Does that mean I am opposed to private property. No, au contraire. In fact I am for MORE people owning private property. I think that everyone should have the right to own the land they use for their home. Socialists believe in more people owning things, not fewer people owning most things. The issue is what one DOES with private property. If you own it so that you can leverage it and take rent out of the economy by virtue of you just owning the land, then don’t tell me your are being productive. You are taking money away from someone merely by virtue of your power of ownership.
Jon B (Stuck in IA) saysFebruary 8, 2015 at 4:23 pm
I’m not trying to cherry pick. I’m trying to select what I see as the dividing line between our positions.
The goal of the free market is to give people what they actually want/value. The problem is that there is no free lunch. Everything has opportunity cost. Producing higher levels of quality will come at the expense of other possible uses for our limited supply of resources. Your objection isn’t with the free market for giving society a lower level of quality, your objection is with a society that uses the free market to satisfy their wants, and they apparently don’t want or value quality as much as you think they should.
A good example is airline tickets. An airline provider asked their customers what they wanted, and customers said they wanted more space on the planes. So the airline provided more personal space (quality) at the expense of raising the price (lower quantity/availability) in order to offset the costs of not carrying as many people per flight. Their sales plummeted because people really weren’t willing to pay for the amount of quality they said they wanted. They valued the savings to go do other stuff (opportunity cost) more than the increased quality.
The free ride argument is not a red herring. I know that Germany and other democratic socialist economies have high living standards along with social safety nets. The free market person realizes that since those nations enable those people- however many they may be- who desire a free ride to have a free ride instead of having to put something in in order to get something out, they have less goods and services produced than they would otherwise. As I’ve said before, many free market proponents have pondered over whether or not the trade-off of less prosperity for an increased level of “humaneness” in our economy is worth it, or whether allowing those who will not act except in self-interest to freeload will over the long term decay a nation’s ethic. But regardless of where you come down on that issue, you have to acknowledge there is a trade-off there.
It also acknowledges that if you allow some people a free ride, their sustenance has to be created by someone else. And that someone else than has to be forced to give it to those who can’t sustain themselves. If you really believe most people are generous enough they would provide for the basics of life for the poor without forced redistribution (a position I take)- that makes you a believer in charity due to the willingness of folks like Bill Gates to be productive above and beyond what own desire for wealth dictates, not a believer in forcing people regardless of whether or not they wish to be charitable with their discretionary wealth to give it up.
MTBinDurham saysFebruary 8, 2015 at 6:13 pm
This is where climbing down out of abstract theory and getting back to actual reality is really helpful. We have some pretty good solutions at hand already, some of which (like Glass-Steagall) used to be in place but were repealed in the name of deregulation. We could tell the Wall Street lobbyists to stuff it and actually regulate derivatives properly, which we have consistently failed to do because of their screams of agony. We could put a very small transaction tax on all trades to slow down the hyperliquidity in the market and save us from the catastrophic failures that emerge from approaching chaotic conditions. We could also simply remember not to put Objectivists in charge of the fed, where they will assume that markets will self-regulate and refuse to take action on housing inflation.
There’s one underlying theme to all of these, though — you have to actually believe that financial markets need regulating. If you don’t, then we’re at sea with no solutions in sight. If you give up that absolutist position, though, and accept that imperfect regulation is better than no regulation, then suddenly there’s some very real solutions at hand.
Jon B (Stuck in IA) saysFebruary 8, 2015 at 6:18 pm
Landlords still provide some services. For example, say the property becomes less valuable. Since it is still their property, they bear the risk of having paid for the value of the property rights only to see the value decrease, not you. Likewise, they provide value by their property rights helping to avoid the tragedy of the commons. If everyone could live in that room who wanted to, things would get messy right quick. It would be pretty rare to see an entire apartment building spring up on an un-owned piece of land because the commoners conspired to put it there.
The fact that it is his property and therefore he cares about his upkeep provides value in the form of maintenance. Furthermore, landlords provide value by being the person willing to sink a lot of their investment capacity into building a place for other people to live. If it isn’t profitable for them to do so, they’ll invest that money in other more lucrative investments, and it’ll be up to the person who wishes to rent to provide for his own home (via labor or their own investment/taking out a loan).
I’ll agree with you to the extent that rents are very desirable to be avoided. Someone is sinking cost into a property without gaining any of the property rights. To be honest, I see co-ops as a pretty good means of getting out of the rent trap. It allows people who need a place to live to pitch together in order to create the shelter and since the have a stake in it, they benefit for the improvements.
Was it you that suggested we move from rental exchanges to buying exchanges? Simply put, if you are paying for shelter, you should be getting equity in that shelter. The price of “rent” in this equation would be the cost to buy the apartment, divided by 30 years times twelve month (since housing is often paid monthly, and 30 year payment plans are the norm in housing markets). Each month your payment gets you one of the 360 shares of equity in your apartment. If you need to move out, you simply sell your shares back to the landlord- so he can start trying to find another buyer. It’s still profitable for the landlord since the price of “rent” has the total profit from selling/360 so he’s making profit each month. So for an apartment that cost 200K to build, let’s say it would need to be sold for 230K to cover 30 years of appreciation/interest. Then you need a rate of return that makes this investment worthwhile, so let’s say 5%. That makes the selling price 241K. 241K/360 = 670 dollars a month for a place to live that you would have fully own in if you stayed there for 30 years. There would be very few cities in which apartments were more valuable than 200K (in which case most people tend to make more in SF and NYC as well), and that’s still a pretty reasonable payment for the tenant and returns a reasonable profit for the landlord in exchange for his capital investment. But it removes the law or rent by adding an exchange of equity to the equation.
MTBinDurham saysFebruary 8, 2015 at 6:50 pm
So, lumping 1-3. Please look at the post to which my previous responds (and others of yours), where you oppose taking the wealth of those who are “productive” and giving it to those who do not produce “value” for society. This implicitly either assumes 1 and 2 are descriptively true, or assumes that the best way to get to a world where they are true is simply to act as if they are true. You’ve admitted that they are not true now, and while I agree they should be true (so did Marx, for that matter), the question is how to get there, which ties into #3. I don’t think it’s actually possible to construct a society where #1 and #2 are true, because of the implicit complexity in human sociopoltiical dynamics.
As an alternative, we can stop treating value as something that is produced atomically by individuals and instead look at it as something which is created through a socioeconomic process. We can then notice that in any political economy the value tends to accrue unequally to certain members, and assert that some of that some percentage (but not all!) of that value should be provisioned towards the basic human needs of all members of a society. Admittedly, that’s hard, and we don’t have any one perfect solution, and we’ve learned that markets are an important part of that solution, but getting into that logic and out of the Randian obsession with the solitary and atomic individual can keep us out of some of these logical traps.
Regarding #5, #6, and your following comments, I don’t assume that only a small percentage are dishonorable, rather I assume that the entire population is mostly dishonorable, poor and rich alike. I think if you reversed their positions (and behavioral studies on wealth and empathy agree), the poor would fairly quickly start to try to ring-fence their assets and behave in monopolist, predatory, and rent-seeking ways. I certainly agree that we need modes of work to incentivize behavior, but I disagree that the market is the one and only tool available for that. For instance, behaviorally, we know almost without a doubt that those who are living on the margins and are struggling with homelessness are operating, out of coersion and necessity, in highly stressed, short-term thinking. If you provide stable housing for people, people are far more likely to start engaging in long-term beneficial behaviors, such as going to job training, opening savings accounts, etc. (Note: not all do, but more do than when they are in dire situations.) The logic of the pure market doesn’t explain this behavior, but understanding people as more complex than simple rational market actors clarifies it, and these non-linearities are everywhere in actual human behavior. Hypersimplifying economic behavior leads to bad economics.
One comment on your #6 response — the CEO to worker pay ratio is now to the point that at many American companies the CEO makes in three hours what an entry-level worker makes in an entire year. Is anyone really willing to make the argument that in EVERY given three hour segment of the year the CEO adds more value to the country or society as a whole than one worker does in a year? Note that I say value to society — I firmly believe that CEOs do, in fact, capture that much more value *for their shareholders, particularly the largest and most preferred*, but that is a different thing than society as a whole. Said another way, in the two states I lived in last year, North Carolina and Virginia, ALL real wage growth in both states went to the top 1% of earners. (Obviously wages increased for some earners in other categories, but others in their categories saw wage decreases canceling it out.) Are you prepared to make the argument that the only people in these two states who increased their productivity were the top 1%?
MTBinDurham saysFebruary 8, 2015 at 7:44 pm
The point here is that Company A is excluding competitors via control of existing market share. That means they’re not excluding solely based on product, value, and service. Hence, they’re warping the market using their control over the market share. The market is not level, to the point that an unnatural niche monopoly is perpetuated using nothing more than market force. Therefore, models which assume a level market have substantial error in them.
Jon B (Stuck in IA) saysFebruary 8, 2015 at 8:46 pm
Another “value” added by landlords is it allows people to have shelter without going into debt (for the vast majority of us who don’t have 100K lying around). This increases mobility. For the person who intends to settle down, renting makes little sense, but for the person who needs to keep options open it allows them the mobility they value rather highly.
Jon B (Stuck in IA) saysFebruary 8, 2015 at 8:57 pm
Market share doesn’t exclude competition. If a company was able to come in and offer the same services for half cost, that market share would disappear. It’s just a matter of offering customers enough value in another category for them to give up the perceived value of operating within a comfort zone with a company they have a history with.
So in the end, Company A isn’t excluding competitors other than by giving customers something they perceive as valuable. A recognizable brand name or trust that comes with prior successful transactions “adds value” for the customer. While you and I might not see it that way and would rather maximize either savings or quality of service, once again your problem isn’t with the free market, but with the poor preferences and values of the people using it. If people wish to act on poor preferences, they’re responsible for the losses the incur.
Jon B (Stuck in IA) saysFebruary 8, 2015 at 9:55 pm
I heartily concur with telling lobbyists to stuff it. That’s rent-seeking at its finest. Ugh.
However, I still remain skeptical about regulation. Take Glass-Steagal for instance. It caused major problems in unintended consequences.
There’s basically two premises I have difficulty with. One is that central planners, or whatever sort, will come up with an idea that is in “society’s best interest” that masses of population wouldn’t come up with acting on self-interest.
The second is who is responsible for the consequences. If someone makes bad decisions on the free market and therefore suffers loss, so be it. They are responsible for their bad decisions. If someone regulates people into having to make bad decisions, then people are forced to take loss on something they never decided or wanted to do. It spreads the responsibility for the loss onto people who never made the bad decision.
MTBinDurham saysFebruary 8, 2015 at 11:01 pm
Wait, seriously? Company A deliberately lost money in Company B’s core markets until Company B crumbled, then once Company B was gone upped their prices in those markets to make a profit. How is that adding value? How is that the responsibility of the consumer?
MTBinDurham saysFebruary 8, 2015 at 11:05 pm
“There’s basically two premises I have difficulty with. One is that central planners, or whatever sort, will come up with an idea that is in “society’s best interest” that masses of population wouldn’t come up with acting on self-interest.”
You just described the tragedy of the commons, aka the reason why certain economic arrangements are only possible in partially collectivized enterprises.
“The second is who is responsible for the consequences. If someone makes bad decisions on the free market and therefore suffers loss, so be it. They are responsible for their bad decisions. If someone regulates people into having to make bad decisions, then people are forced to take loss on something they never decided or wanted to do. It spreads the responsibility for the loss onto people who never made the bad decision.”
Except that often times people make bad decisions with good intentions. Or make bad decisions because of bad information. The notion of social humanity is basically that of, even if you screw up, you only fall so far. Sure, you fall, but you don’t starve or freeze to death. Yes, it puts the responsiblity for that on all of us, in the same way that we’re all responsible for W’s wars, for Goldman-Sachs greed, and ultimately for your hospital’s medical errors (if nothing else in the form of price premiums). We simply do not live atomized lives — almost no humans ever do. So what you described isn’t “moral hazard,” it’s core to the human experience. And there are many, many ways beyond the market and Randian notions of personal responsibility to encourage honorable behavior.
Jon B (Stuck in IA) saysFebruary 8, 2015 at 11:14 pm
Well, I’m working more from the understanding that two wrongs don’t make a right. #1-3 may not be true in our world, but that doesn’t mean we shouldn’t labor to make them more and more true. Our complex human socioeconomic dynamics have come a long way from the Hammurabi Code. Perhaps one day yet we’ll get rid of 99% of the rent-seeking and unearned wealth accumulation. Until that day, that is why I leave room in my free-market economics for something like a guaranteed poverty grant to all people. Just so long as there is never a point where there’s a 100% marginal tax rate when you decide to add to that guaranteed baseline, I think most people might free load for a few years, but eventually I think the human desire to do something, to achieve something with one’s life might win out in enough people that we aren’t sunk by the weight of an ever-growing dependent class. It’s a tight rope to walk though. It would be interesting to see people try to model what might happen under different scenarios. I read somewhere that at this point we could guarantee every person in the US not making 60K a year a 12K baseline grant to lift them out of poverty, and it would cost less than our current welfare system. I’d be willing to give that a try- it can’t go worse than what we have and if even that fails, we may just have to begrudgingly accept that there’s no good way to use coercion to eradicate poverty.
And you are also right that the stress of poverty can lead to bad decisions. Now, I’ve met some people in poverty who were clearly not stressed by this fact at all, and they tended to be so irresponsible that they made bad decisions anyways. It’s one of the reasons why I prefer charity to forced redistribution if it can be done, because charity can distinguish between the deserving and undeserving poor, Or at least encourage the undeserving poor to maximize their potential if they are going to receive any assistance. To me going first to any level of forced redistribution is putting the cart before the horse. Let’s see how much need is really out there after we trade in taxation for welfare transfers for more charity (I think there’s roughly a 50% swap as welfare transfers crowd out charity). Then we can tack on whatever additional measures are needed for what I predict would be the very few people who fall through the gaps of charitable assistance.
In regards to my #6 response, I have no doubt that most CEOs don’t actually provide 30K of value an hour. Globalization does mean that one phenomenal idea scaled up across a multi-national company could be worth billions of dollars, however, so it is conceivable to see why a Steve Jobs is worth that much a day. 364 days he might bring squat-diddly, but the one day he gets that lightbulb idea, ka-ching, 30 billion dollar idea. However I’ve always wondered why companies spend an extra 50 million trying to get that one savant (especially when you have to KNOW people to get into most top corporate positions, so they aren’t even attempting to hire based on raw merit anyways…) rather than just trying to hire better workers up and down your company with that 100 million and see where all those accumulations of little ideas and productive worker bees take you. But we have a hero cult in our culture, and I have no doubt that plays into the idea that if I’m the guy to find the next whiz kid CEO- check me out. So everyone goes out and tries to find the Lebron of CEOs instead of just team-building like the Atlanta Hawks (if you don’t watch basketball- that’s ok).
MTBinDurham saysFebruary 8, 2015 at 11:22 pm
Gah, I thought I’d early-posted a comment I wanted to edit but Disqus isn’t letting me see it. I think it’s still here, but I can’t find it.
I also wanted to comment on “central planners.” These are, of course, those paving the road to hell (or at least serfdom) with good intentions in Hayek’s framework. Hayek was responding to a particular kind of rationalized, bureaucratic planning state, one which has fallen far out of fashion.
Some on the left are starting to take that seriously, and actually look for non-neoliberal alternatives to the bureaucratic state. Again, cooperatives work well, because they allow for collective action and socially stated enterprise, but are voluntary and smaller scale than some of the massive dreams of the collectivists of the early 20th century. John Restakis and J. K. Gibson-Graham have covered a lot of this ground.
Jon B (Stuck in IA) saysFebruary 9, 2015 at 9:42 am
Yes, seriously. Nothing is preventing a Company C from entering the niche market and forcing Company B to have to lower their upper prices. If people would still purchase from Company A despite the new Company C’s lower prices for the same product (it doesn’t sound like Company A is providing good service or high quality), your objection is yet again not with the free market that enables people to get what they want, but with that fact that people want to spend more money for the comfort of brand loyalty or some such nonsense. It is the responsibility of the consumer not to get hoodwinked by brand names of unfulfilled promises of better service. You can’t make people stop buying bottled water either- despite how silly it often is.
Jon B (Stuck in IA) saysFebruary 9, 2015 at 9:49 am
“Except that often times people make bad decisions with good intentions. Or make bad decisions because of bad information. The notion of social humanity is basically that of, even if you screw up, you only fall so far. Sure, you fall, but you don’t starve or freeze to death.”
Most libertarians/free market types are pretty amenable to this line of reasoning. They just prefer charity (or some form of voluntary coop whereby the members look out for one another) to provide that safety net as opposed to government programs, because those methods can distinguish between poverty despite good intentions or faulty information, and pauperism based on laziness or irresponsibility. I’ve often thought, based on personal experiences, that the best way to avoid poverty is to belong to a house of worship of any form, but you could probably substitute a lot of other collectives for a house of worship and have the same effect (a farmer’s guild for example). In fact, some of the problem I have with welfare programs is they take the need to build those small collective (voluntary) networks away and thus those networks and communities languish (I’m thinking of Putnam’s work Bowling Alone). An obvious example is the early settlers of America like the Pilgrims, who didn’t have forced redistribution per-say, but they looked out for the poor among their community.
Also you keep mentioning Rand. I’m not big on Rand. Never read her Although I’m sure we’d agree on some things, it’s not even close to all things.
Jon B (Stuck in IA) saysFebruary 9, 2015 at 10:20 am
“Again, cooperatives work well, because they allow for collective action and socially stated enterprise, but are voluntary and smaller scale than some of the massive dreams of the collectivists of the early 20th century. John Restakis and J. K. Gibson-Graham have covered a lot of this ground.”
If they are voluntary, they then would fit perfectly into the framework of free-market libertarianism. Because you are absolutely right when you imagine that people look for more from their work (and lives) than merely monetary compensation (once they have enough monetary compensation to provide the basics for themselves). Free market libertarians have NOTHING against anyone who wishes to do this, provided they don’t force others to do so as well. The voluntary nature of co-operatives is the key. Allowing people to set up co-ops of different ilks and flavors is precisely what having a small government is all about. It isn’t supposed to eliminate collective action, it’s supposed to localize it in order to make it more meaningful and beneficial to all.
Because the moment it becomes non-voluntary, you run into problems of conflict like this (pardon the source and pardon some of the snark in the article- but focus on his points that the distinctions so often made aren’t the important distinctions- they’re distinctions made based on personal tastes and then made mandatory for everyone):
MTBinDurham saysFebruary 10, 2015 at 11:55 pm
As fun as this has been, this is going to be my last round of replies. I can’t keep going on like this forever.
I don’t know what to say other than go back and read the example again. Even if consumers send all of the correct signals with their purchases, they still end up losing in this situation, because Company A is manipulating the market via market power. If Company C enters the market, if they don’t have a truly gigantic war chest of capital to dump into the project (which is basically how Intel finally broke the Japanese RAM manufacturing monopoly in the 1990s), they’re going to have the same thing happen to them that happened to Company B, and it has nothing to do with service or brand loyalty or what not. I don’t know how to demonstrate that more clearly. This is how monopolies get formed and maintained on a regular basis (in addition to other market-based market warps), through the exertion of market power. I feel like you’re not seeing this because you really don’t want to see it, and I can’t do much about that.
MTBinDurham saysFebruary 11, 2015 at 12:08 am
I realize that libertarians like the theories of volunteer cooperativism, but they become pretty much useless allies after that because they refuse to acknowledge the barriers to such forms of economic organization that exist in the marketplace. For instance, cooperative groceries actually have surprisingly high business success rates compared to other forms of entrepreneurship, and most new cooperatives are organized to make a small profit in order to pay off loans and to return dividends to their consumer or worker owners. However, cooperatives have a hell of a time getting financing compared to private businesses. There are lots of reasons for this — including that banks don’t understand how to model the risk in a coop — but the broad reasons are that even though coops are perfectly good at returning a profit to investors, they violate some of the assumptions of the way that highly capitalized investment institutions assume in the market, and deny those institutions access to many of the soft leverage points within the organization. More simply put, cooperatives can’t be controlled by private capital, so private capital generally refuses to fund them, even with an above-market return.
In the libertarian model, this makes no sense, so libertarian thinkers and libertarian-leaning politicians are useless in trying to help cooperatives get started.
Which is why I go on and on and on about wealth and power and market warping….
MTBinDurham saysFebruary 11, 2015 at 12:23 am
The welfare/charity dichotomy is largely a false one, and in my experience usually turns out to be nothing other than a fig leaf for those who don’t like welfare and don’t want to do much charity either. Most houses of worship that I know of that do meaningful service outreach (and given that my wife is a pastor, I know a lot of them), regardless of their political affiliation, are screaming for Medicaid expansion in their various states because of how much better it would make so many peoples lives, along with things like TANF expansion and improved public transit and better housing policy. It’s folks who don’t bother with much charity who are happy to preach about the greater benefits of it versus government assistance. Once you start trying to address the problems, you see how overwhelmed private charity currently is by desperate need, and you stop worrying so much about what the “best” solution is.
On Rand — I talk about Rand and Hayek a lot because in my experience their theoretical framings underpin about 97% of what libertarians talk about. Hayek is interesting and thought-provoking albeit with a few key myopic points (again, market power, pace Orwell), and still stands as a crucial critique of the Keynesian management state writ large. Rand is the source of the more noxious stuff — the supremacy of self-interest, the atomized individual, the rational and efficient market, the rejection of Kant’s limits of pure reason, etc. It’s not just the disapproval of charity, the atheist absolutism, and weird rape fetish stuff. Objectivism is just as rotten but in a more pernicious way.
I guess it’s part of a larger argument, that if libertarians are ever going to turn the corner and become useful activists achieving their own stated goals of a more just society based on individual liberty (a noble enough cause), they need to a) get out of the theory and into empiricism, b) understand the way power is wielded via wealth and the marketplace, and c) ditch the Rand crap. Then we’ll really be on to some fun conversations.
It’s been fun. I’ll read any last replies but got to cut it here.
Jon B (Stuck in IA) saysFebruary 11, 2015 at 9:38 am
I’ve re-read your comments. I’m still not finding anything that address my objection.
If Company continues to keep “dumping” and taking losses in order to run competitors out of business, the customers get cheaper prices. As long as there is always potential future competition, such a process could go on indefinitely. Company A prices goods at $5, competitor comes along to sell at $5 with better service, price dump at $3 and take temporary losses, competitor goes out of business, price goods at $5, rinse and repeat. Essentially, as long as there is no lack of potential competition, Company A faces the prospect of taking losses for eternity in order to try to have a monopoly. It would be death by a thousand competitors (cuts). It’s utterly irrational.
Plus as you already addressed, if their only tactic is predatory pricing, someone can go out and get enough funding via the stock market to outlast them.
Furthermore, their suppliers can’t be too happy about the monopoly because it suppresses their leverage as well, which means Company A’s suppliers are going to either try to wholesale direct to customers, or find some other way to cut into Company A’s monopoly.
Predatory pricing just doesn’t work. It’s not a good example of a market-based market warp because long-term it can’t succeed.
Jon B (Stuck in IA) saysFebruary 11, 2015 at 9:45 am
If what you say is true, I’d be your ally in this. I’ll refuse to advocate using any form of coercion to get the co-ops up and running, but I’d be more than happy to pitch a model that properly assesses the risk in co-ops, market the idea to customers, market the idea to those with capital, etc.
“The broad reasons are that even though coops are perfectly good at returning a profit to investors, they violate some of the assumptions of the way that highly capitalized investment institutions assume in the market, and deny those institutions access to many of the soft leverage points within the organization.”
Well, I’m afraid neither you nor I can fix stupid. If people refuse to make a better return on investment only because they are blinded by their assumptions, or have a thirst for control (access to soft leverage points), not sure what you can do other than lead by example. Coercing the investors won’t work out in the end, and it’s hard to persuade people who have poor assumptions. The best way to learn for these people seems to be experience. They have to sit there and watch the co-ops outperform their ideas before they’ll buy in. Reminds me of the tech world and PCs in the 1980s.
Jon B (Stuck in IA) saysFebruary 11, 2015 at 10:11 am
The welfare/charity dichotomy actually exists
Quote: “Who Really Cares? has four main messages: (1) The four forces in
American life primarily responsible for making people charitable are
“religion, skepticism about the government in economic life, strong
families, and personal entrepreneurism”
There’s actually statistical evidence that people on welfare or who support welfare are significantly less charitable. Personally, my parents (my Dad is a pastor too) lived below the poverty line my entire childhood, and were constantly helping out families and in particular, feeding and cutting the hair and tutoring the children in the neighborhood who had less engaged parents. Meanwhile some of the stingiest people I know are blue-collar Democrats who are constantly trying to freeload. One particular example has never left a tip for a meal in 20 years, but gets ticked off when you suggest cutting any form of welfare. Of course these are anecdotal, but the overall, empirical evidence shows a strong correlation between support for welfare and lack of charity as well.
And if welfare is in fact feeding some of the problems of poverty, we can’t institute more welfare in order to fix poverty. It will only continue to make things worse. For a good book on the potential of charity to take over from welfare and more than suffice see the link below:
There’s also the idea of things like private unemployment or poverty insurance. Much like health insurance, I’m not sure you’d have to use coercion to get enough people to sign up to make it worthwhile. I know I’d sign up for private unemployment insurance in a heartbeat- it’s just prudent to hedge your bets with the way today’s labor market can bounce around.
I’m a lot more of a Hayek/von Mises guy. Yeah, Rand gets pernicious fast. She skewers totalitarianism fairly well, but has absolutely nothing better to offer. I’ve synthesized a little bit of musings on self-interest into the way I see the world (for example, I don’t think acting morally is ever outside of one’s self-interest) but Rand’s version of libertarianism goes far afield.
I’ll leave on this thought. Libertarian-ism isn’t the end. The point of a free society isn’t just freedom to do whatever. Freedom has a goal too. A lot of libertarians miss this, and it’s why I tend to label myself a “conservative” Libertarian because freedom from most forms of state coercion is just a beginning point to allow society and communities to do something else- mainly strive for what Aristotle was trying to get at in describing what makes for a good or happy life. Achievements and relationships. Neither or those things actually fulfill the human spirit if they are forced. Both can lead to long-lasting joy if given the freedom to actually embark upon those challenges however (and yes, I’m kind of borrowing this from Charles Murray and his writings on the subject if you want further knowledge about what I’m saying).
Wishing you the best.
MTBinDurham saysFebruary 11, 2015 at 1:16 pm
Briefly coming back to this, it would probably help if I could drop the “Company A” stuff. If you want the more detailed story, my twitter handle is the same as my username on Disqus. If you don’t care much, that’s fine, but putting some actual store names to this would be good, and I don’t mind sharing that in a non-googleable forum.
Jon B (Stuck in IA) saysFebruary 11, 2015 at 3:03 pm
I don’t have a Twitter account. I could pass along my email.
baklazhan saysFebruary 11, 2015 at 5:47 pm
“areas with bad transit are that way usually because of highly liberalized zoning and land use, leading to auto-centric development”
Quite the opposite! Many of those areas are highly restrictive in zoning and land use, which are specifically designed to promote cars as the one and only solution– ie density caps, parking minimums, and so on.
EatmyCockLibtards saysFebruary 11, 2015 at 11:07 pm
its not your money and the rich can do whatever the fuck they want, you jealous worthless nigger fucking libtard. get cancer faggot
George Carty saysMarch 17, 2015 at 4:26 pm
Those extremely high rates of income tax were only worthwhile because capital controls were in place (which prevented the rich from simply moving their money abroad), and the government was probably only able to impose them at all because the American rich then had the Nazis and Japs breathing down their necks.
Steve SanFrancisco saysMay 12, 2015 at 8:48 am
I suggest a voting needs to be upgraded to the sophistication of a currency. Literally make a multi-currency society with currency based on non-market units such as up-votes. They need to be transferable, and such like a currency and can be used to empower democratic power. Currency is just an accounting system and having an accounting system for public opinion with the sophistication and ability to leverage and adjust is what we need to balance the capital goods currency.
Steve SanFrancisco saysMay 12, 2015 at 8:56 am
consider creating a bitcoin type digital currency based on the unit of public opinion and up-voting and civic activity. Alternative currencies can be used to leverage democratic value. Imagine if you could vote your public opinion with the convenience and power of spending cash.
Steve SanFrancisco saysMay 12, 2015 at 9:02 am
Yes, there is a panacea. We just have to create a digital currency for public opinion and community good. Currently capital has an advantage and that’s it’s accounting system called money. Money can be banked and saved or spent all at once or invested to grow in value or lent to others and money tends to consolidate into the hands of a few. What we need is a form of political currency and will of people currency to bank or save or spend all at once or invest to grow in value or lend to others our non-capital based needs and goals in life.
Steve SanFrancisco saysMay 12, 2015 at 9:12 am
expand your idea of an economy. Money is just an accounting system to track and manage value of capital goods. A solution is to give the voting system all the power and affordances of money. Let people vote on facebook and let people save their votes and use them all at once and let people spend a little of their vote on little things or a lot of their vote on big things.
to compare this imagine if money, such as the USA dollar had only one denomination, could only be spent at a government poll on an election day, and you could only buy things from a 6 page multiple choice list where everything costs the same amount. the government gives everyone gets a single dollar (aka vote) for every purchasing opportunity (aka election) and people are not allowed to barter or trade dollars. So that’s our current state of accounting (aka money) for the will of the people.
what we need is a “will of the people” economy to balance our “capital goods” economy. Make a digital currency similar to bitcoin based on up-votes or public opinion that can do everything money does for a unit of goods and the public will be better served.
We actually already have examples of currency that represent the will of the people and they work pretty good. housing vouchers are better than not having housing vouchers. Food stamps, carbon credits, and facebook likes or redit gold are all examples of currency that expresses more than just the generic market equilibrium value of capital goods while excluding all else as externalities.
Steve SanFrancisco saysMay 12, 2015 at 9:26 am
Well, actually no, your money is not as good as someone who has less money. A single dollar has the same worth in capital goods, but the value to a person who is starving of a dollars worth of food is far greater to someone who has only one dollar than the value of a dollars worth of food is to a person with 1000 dollars in their pocket.
Money value is based on the society equilibrium demand and supply of capital material and has a very distorted relationship to “good” for the individual or society.
Steve SanFrancisco saysMay 12, 2015 at 9:28 am
Well, money helps those who can capture money from others best. Money doesn’t grow like plants, it’s just an accounting system used to calculate ownership.
ps. wikipedia “just world fallacy”
Steve SanFrancisco saysMay 12, 2015 at 9:32 am
Well, that’s kind of like the value added by factories in Mexico city that offer sweatshop work to people displaced by the pollution they produce that destroyed their rural livelihood.
your describing a benefit and ignoring the costs that comes with the benefit. The cost of landlords is they take more money than they produce so fewer people have 100k lying around.
Steve SanFrancisco saysMay 12, 2015 at 9:37 am
you wrote. . .”This means allowing people to cast votes via their money or labor as to what they actually want, not what the powerful wish to give them.”
Not necessarily. People could cast votes with their votes. People could earn money with their votes. Votes could be made a form of currency and exchanged and converted and banked and saved etc.
Steve SanFrancisco saysMay 12, 2015 at 9:40 am
One vote for one person is the answer yes.
One indivisible vote, of value only at certain designated polling places for certain decisions decided by someone else is not the answer. Votes and public opinion and will of the people need only have the power of currency to triumph over capital property.
Steve SanFrancisco saysMay 12, 2015 at 9:48 am
“An issue becomes how adjust rents so that land lords make a reasonable profit and that there is incentive to improve buildings and create new housing.”
There’s every reason to argue that government as the creator of money and ultimate owner of money and the public as well should have every right to know how it is used. Money is not created by individuals, it’s an institution for the public good so giving private business or individuals the right to use it in secret from it’s creator is not necessary. For poor people this is not a problem because they have little money and but for large corporations or the rich, their should be a requirement of public disclosure on how a public means of exchange is being used.
Steve SanFrancisco saysMay 12, 2015 at 9:49 am
The choice of who moves into a large apartment complex should be made by the neighbors not the landlord.
anonymouse saysMay 12, 2015 at 9:56 am
Right, and that’s true, and problematic in all sorts of ways. But it’s ultimately less problematic than some alternative arrangements for exchange, exactly because money is so impersonal and fungible. But the alternatives are even worse. Allocating privilege by birth? By who your friends are? By whether you’re the right race or gender? Ultimately, it’s still possible for some (not all!) people to accumulate money and use it to buy things. For the people at the top, it doesn’t matter: they’ve got plenty of whatever form of capital they need to get what they want, whether it’s money or influence, and the ability to exchange one for the other. For those at the very bottom, they’re going to need explicit help either way. But for those in the middle, money is still better and easier to get and spend than any alternative.
Steve SanFrancisco saysMay 13, 2015 at 8:47 am
Right, so that’s why I think we need a digital currency based on some non-capital base unit such an hour time or an upvote. Money doesn’t have to be fungible in the sense that money is an accounting system that currently only counts the capital value of something and discards all other information as externalities. But Money, in the abstract as an accounting system, could be less fungible by having a column for capital value, social value, personal value, etc. So a lamp could cost a mix of personal hour coins and environmental carbon credits and capital based dollars. And it could be sold that way with an exchange system. The point is to build a multi-currency society based on multiple concurrent accounting columns only one of which is capital value. You can take the externalities and gives them a currency system and makes them part of the price. each individual accounting column, or currency, is fungible still, but there’s fewer uncounted externalities and so total value as a sum of all currencies is only fungible along the axis of the currency base. So for example common dollars based on capital goods are not very fungible in terms of the base unit of capital value devoid of externalities.
So there’s still going to be problems with multiple currencies, but fewer of them and there’s redundancy, so someone poor in capital based dollars (the only form of currency in common use today) might be rich in vote currency and can use that instead. It would tend to average out a little better for distributing public good than would our single capital based currency system.
MTBinDurham saysMay 13, 2015 at 10:34 am
Do we really need a technophilic solution to this? We have democracy. We have voting. We have duly elected local governments. We have democratically run cooperatives. Those are well-established and well-understood economies of power which are fundamentally more egalitarian in nature than the pure money economy. A little bit of tending to those goes a long way.
Steve SanFrancisco saysMay 13, 2015 at 4:12 pm
We need some tending as you say. But notice the tending is needed more as institutions scale up to include larger numbers people who are more spread out and more diverse.
At a local level barter and a gifting economy ( http://en.wikipedia.org/wiki/Gift_economy) work pretty well and there’s a strong element of gifting economics in local government and democratically run cooperatives. If you read the wikipedia on “gift economy”, you’ll see how it’s a part of the decision making process in the good institutions you mentioned. Sociologist have looked at gifting economies and found that capital based money and societies seem to have a corrosive effect on them.
I guess the question is how would you propose to increase tending to the voting and democratically run collectives? How would you know if it works? How would you measure the level of tending to even find out which kinds of tending work and which kinds don’t. The traditional way of planning tending is surveys and voting and politics (which can be bottom up or top down) and often excludes money from the decision making process at a local scale.
I think it probably does need to be a tech solution in order scale large, but at smaller scale their’s non-profits like Philabucks ( http://philabucks.org/ )that uses a sort of digital currency for local charities and non-profits. Philabucks doesn’t use a fully developed digital currency like bitcoin but instead just uses a spreadsheet. It works great and is used as a way of counting votes and assessing need and incentivizing activity. smallish groups of under 250 people actually use a sort of informal social value currency in gifting, but at a smaller scale and by giving people titles instead of a social net worth estimate in a social currency. It works, but it’s like bartering or a gifting economy in terms of scalability.
I Think your concern is that you’ve equated money with “a measure of capital value devoid of all externalities”. And you’re right that’s not very egalitarian for people, but it’s very egalitarian for capital. All capital goods value is treated equally and fairly because that’s the base unit for money. But currency is not the same thing as money. Currency is just an accounting system like voting is a form of currency. Money is a currency based on capital value with all other externalities such as social good or will of the owner removed from it’s value proposition. You can’t say “this money will only be used for helping poor” and that’s how come money is fungible. But in a multi-currency society, you can create a “helping poor people coin” that you can use as an aid to bartering or voting on issues that help the poor. This allows you to scale up to groups larger than those you personally know without running into the fungibility corruption of money.
I guess my claim is that money is actually pretty technophilic or complex and evolved and refined as a social custom, so it makes sense that it’s so effective at changing people and behavior. We can’t get rid of capital based money in practice because society depends on it and everything would need to stop and have a revolution to get rid of money. So I think the way forward is a techophilic solution that gives the power of a currency to voting and social value.
MTBinDurham saysMay 13, 2015 at 5:03 pm
Yes, money is a refined social custom. So is voting. There are consumer and worker cooperatives in increasing numbers (John Restakis I think claims 800 million members worldwide), plus there are Rotary clubs, Oddfellows halls, Elk lodges, neighborhood associations, churches, non-profits, honor societies, anarchosocialist collectives, libertarian collaboratives, political parties, and so on. “Tending” involves finding a few of those you believe in and putting some effort to help and grow them.
These don’t get a lot of play in the blogosphere of abstract thoughts and conjectures because they’re not easily reducible in the theories that are popular up here. But that’s not the fault of the cooperatives or organizations or parties.
Steve SanFrancisco saysMay 13, 2015 at 8:40 pm
Well, I would disagree that voting is as refined as money. Voting is a old social custom, but it hasn’t changed much in thousands of years compared to money. In deciding who does what and why money has become more successful at directing behavior of people because of all the growing number of ways it can be used.
Imagine if you could only use money at certain times for a very limited number of choices in what you get determined by other people. Imagine if you had only a one thousand dollar denominations bill and all products had to be sold for 1000 dollars. Imagine if you could not save your money but instead were given your money as you entered a designated government store and your money only allowed you to buy one of each category from a list and when you left the store your money was taken away. Imagine if you could not loan or borrow money. Imagine if you could not divide your money and spend a little on some little thing or a lot on some more valuable thing. If you had all that then you would have “voting with dollars”.
There’s more complicated forms of voting such as voting on who gets to vote and committees that vote as representatives of others and committees to decide what’s up for vote. There’s even ideas like proportional voting and instant run off voting. BUT in general voting practices haven’t changed in a very long time. There’s no voting innovation on par with financial innovation. Probably facebook and reddit voting are some of the more advanced forms of voting, but even these are immature voting systems compared to financial systems. Now before you say that financial innovation hasn’t helped people, let me agree and say that’s because financial innovation helps only the owners of money. Voting innovation would help only owners of votes. And that’s what we need.
So this is why I argue for creation of an upvote currency. Something you can earn through upvoting and comments and political voting and other means. Something that lets you delegate your will or save your vote and use it all at once on a subject that’s most important to you.
MTBinDurham saysMay 14, 2015 at 12:09 pm
“Voting is a old social custom, but it hasn’t changed much in thousands of years compared to money.”
This is ridiculous on its face. Thousands of years ago voting didn’t exist in any form remotely like what it looks like now. The only place it did exist was in one city in Greece, and there it was an in-person assembly of wealthy men doing direct voting. Representational democracy, which is the current dominant social form, is generally held to have been invented by the Reformed movement in the Christian church in the early Enlightenment period, and later adopted as a form of governance. Proportional representation, electronic voting, IRV, heck, even Roberts Rules, are all distinctively modern inventions. And this doesn’t even get into universal suffrage in its various forms. Voting has been and continues to innovate at, historically speaking, a blindingly fast rate, all the while evolving and developing as a continuous and well-respected social phenomenon.
By contrast, money has changed only marginally since coinage was first invented. The major changes I’d mark would be the the Mongol development of the paper note of trust (enthusiastically reported back to Europe by Marco Polo himself), the creation of the regulated banking system, and the development of electronic currency transfer. Borrowing and lending aren’t innovative, they’re so old they’re referenced in the oldest sections of the Old Testament. The financial innovations we’ve been treated to lately are largely derivatives trading and the hyper-liquidity of the market, which I would say have next to no public good value and are only of benefit to highly connected investors.
Steve SanFrancisco saysMay 14, 2015 at 8:32 pm
you make some good points but I still think transferability, saving, the ability to spend your vote at any time and other points I mentioned previously would be good to have for managing the will of the people and are not currently practices ways of harnessing the will of the people.
MTBinDurham saysMay 14, 2015 at 10:38 pm
Except that transferability is at the core of money’s tendency towards inequality. If voting is a unit of power (what else would it be?), then the transferability becomes a means for fractionally advantageous transactions, leading to some individuals or parties who are particularly good at the transactions accumulating lots of the votes, at which point they have the power to alter the rules of the system in their favor. Transferability of voting is so antithetical to democracy that we have specific laws against it — you can’t sell your vote.
One of the key aspects of votes are that they’re inalienable. Break that, and you don’t have some kind of democratized currency, you just have a plain old currency.
Steve SanFrancisco saysMay 18, 2015 at 11:16 pm
much of what you say is true of money based on capital unit of measurement. It’s possible to make an alternative digital currency based on inalienable personal rights or power if that’s you’re disagreement. The point is with a digital currency you get digital rules like you can check a button and turn off transferability if that’s your concern. Personally, I think transferability has basic counting value as a metric for judging collected will as long as it’s done publicly and correctly. It’s a basic accouting function you do some other money like way such as vote counting and representations.
Steve SanFrancisco saysMay 21, 2015 at 1:49 am
@MTBindurham, you make some good points that I can only add caveats and modify.
1) Transferability is probably just one of the requirements to make money increase the tendancy towards innequality. other requirements to make money tend towards innequality are positive interest rates that make holding money more profitable than investing money. Some currencies have used demurage wich is a negative depriciation on any form of held money. So under Demurage, the more money you have the more money you lose. The solution under demurage is to lend your money out to others but others don’t want to hold the money either so they buy things. But thinks lose their value over time too in most cases, such as food or buildings require handling and storage and maintenance. So it only helps decrease the loss of your money if you invest in things you can afford to maintain. So who has time to maintain a house? the house owner does so the house owner has saves value by putting money into the house, but doesn’t only that only works with a modest low maintenance house. for a larger house you have to pay staff to maintain.
2) a vote currency can be inalienable according to the block chain specefications. You could make it completely non-transferable and non-divisible by design and then it works almost like a voting. Make it limited to being used at certain times of the year and for certain ballot initiatives and that can be done with an alternative digital currency too and then you have exactly what votes are. So for example you can give everyone digital wallet free (cheep on scale of usa) and when they walk into a poll they get enough digital vote currency to vote once on any issue. and we can set up a block chain to enforce that. and then all the money disapears after election day. We can do that too. BUT we don’t have to do that with a digital currency. It’s easy to change as a digital currency how we vote so that we might be able to split our vote or save our votes or combine our votes so we can vote on what we care about when we care about it and vote how much we care about an issue.
3) Transferability is probably essential to some form of scaling up voting and creating concentrations of power. And I think we want concentrated political power, but not based on a persons ability to collect money as is currently used to concentrate political power. Political power should be concentrated in political leaders, like thinkers and musicians and others that the public votes for on facebook and american idol and other forms of voting. So in the event that adding transferability adds to political innequality it will at least be political inequality based on ability to capture the public vote instead of ability to capture the public money. So for example elizabeth warren got lots more votes/dollar than her opponent in her senate race. BUT she currently can’t use those votes for much of anything. wouldn’t it be great if she would use those votes for advocating against TPP? I know she’d want to and the people who voted against her would like her to. Maybe a demurage form of transferability, so that every time a vote is transfered it loses some of it’s value? or we could even do variable currencies, like a “public voting coin” that’s used by the public and when used to vote on something it becomes a “voter support coin” that can be used to represent voter interests in congress.
we can even create very specific coins such as a housing construction advocacy coin to measure the support for housing construction advocacy in san francisco. We could give out housing construction coins from the central bank of housing construction advocacy groups (there’s a lot of them in san francisco) and then labor unions who sometimes apose housing construction if it doesn’t use labor unions, can use housing construction advocacy coins to negotiate agreements with housing construction companies who need their projects to be advocated for to get public support to sway the housing planning commision. Currency makes that kind of trading of advocacy value easy and allows cooperation in a way that bartering in a partnership agreement for reciprocal unquantified benefits and returns in kind specified and itemized make very difficult to agree on and enforce and manage.
AwesomeB saysOctober 12, 2015 at 4:43 pm
I’m positive that Intelligentsia turmeric soda drinking mustachioed fixed-gear riding vegan is dying to live in Lincoln Park, but just can’t afford to instead of Logan Square.
Do you even live in Chicago? hahaha.
ThatOtherBrownGuy saysMarch 1, 2016 at 12:36 pm
This is an extremely simplified view of gentrification and the economics involved and has also irresponsibly excluded the issue of race which is where much of the injustice lays in this conversation
Adam Hengels saysMarch 3, 2016 at 11:15 pm
Skip saysMarch 4, 2016 at 1:04 am
Capitalists, oops I mean Market Urbanists, trying to tell us that the problem isn’t capitalists buying cheap and then selling high. Oh no, it’s that the capitalist can’t go into the high priced areas and buy there.
Oh no it’s not the fact that Capitalism: the private ownership of the means of production (aka, private property) get to dictate what happens to that property. It’s the rich people not wanting to sell their property to other rich people.
Tom Holz saysApril 18, 2016 at 11:12 pm
Can radically liberalizing zoning and building regulations prevent gentrification in a small mountain town that is overly attractive to wealthy buyers of vacation homes?
Tom Holz saysApril 18, 2016 at 11:14 pm
So they know, e.g., that the neighbor’s cars up on blocks ain’t going nowhere just because they’re moving into the neighborhood.
Beautiful Brown saysJune 8, 2016 at 5:46 pm
I’m a Black person being gentrified out of NYC – but I refuse to go. I wish people would just be honest about this issue. In my city, first the Mormons came with their backpacks to every ghetto taking the temperature of the natives, then came the tour buses and then came the changes to social services to cut off any assistance that could have helped people stay in their homes and then came one white person and then came 5,000,000. The state is in collusion – they play their part by doubling/tripling property taxes so ALL landlords have to raise the rent, so the elderly homeowners on fixed incomes can’t afford them and end up losing their homes and so real estate corporations with the big bucks can swoop in and buy up whole blocks to gentrify.
It’s not an organic, fair process. In NYC, as soon as you fall one month behind in your tax bills, here comes someone knocking on your door to tell you they will take the “problem” off your hands. These people are getting this information from their co-conspirators who work in the Dept of Buildings or other govtl agencies that have access to that information. That’s not fair, that’s not right.
And please, please, please STOP calling it “development”. Nobody has a problem with living in a better neighborhood. Nobody has a problem with good supermarkets, parks and new construction. What we have a problem with is that we have to go for the white people settling our neighborhoods to enjoy those things.
anotherneighborhoodactivist saysSeptember 12, 2016 at 7:45 pm
The solution is …radical liberalization of zoning in already wealthy areas.
Where has that ever happened? (Aside from the fact that in some places the wealthy are building on top of themselves, not displacing middle income or poor.)
There are two underlying problems. This article addresses one, inequity in economic and political power. Missing is any consideration of capitalism’s need for growth. Or even just an acknowledgement that gentrification is directly related to growth—stable or shrinking cityies do not gentrify. I recommend Domhoff’s essay for an explanation of the connection between capital and growth in urban housing markets.
Alejandro saysOctober 24, 2016 at 1:31 pm
Or 3) You could take certain plots of land off the market, like brazil is trying to do. It’s not public housing, the people take care of themselves. The government simply takes their property off the market for those who are not in need or do not come from those neighborhoods.
Suresh Raina saysFebruary 24, 2017 at 4:19 am
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jk2001 saysApril 25, 2017 at 2:11 pm
think this guy is just interested in getting rid of zoning. The
argument leading up to his conclusion didn’t seem to reflect what’s
happening in my area.
markbuehner saysApril 27, 2017 at 11:43 am
Yawn. I hear Venezuela has some great prices on property comrade.
Deb O'Naire saysJune 5, 2017 at 11:51 pm
The lie lies in the myth that more market priced housing will allow costs to drop due to trite supply and demand anecdotal platitudes…It’s all still out of reach of most people, especially those with roots to the areas they’re being kicked out of due to financial warfare. When the zoning is utilized to allow this the city is then complicit in class warfare, just as they were when all of the highways were put right through black neighborhoods and districts or are when oil pipes are routed around white populations to snake around and go through Native American land. With around six times the houses as humans in this country, constant building is not necessary. We’re losing all of our great architecture and culture just to keep building (structures of inferior design, craftsmanship and materials) in order to appease an insatiable, black hole economy of destruction. https://www.facebook.com/groups/stopdemolishingvintageportlandhouses/
IrateinNH saysJune 9, 2017 at 10:59 am
That is obviously wrong. A larger volume of housing does not reduce prices in strong markets. Instead it results in a greater number of expensive units on the market. There are benefits to adding housing in a measured, community-friendly way, but ways to create or keep affordable housing, unfortunately for free-market idealists, are to constrain the market with rent control, inclusionary zoning and subsidies. Not always popular, but that’s reality.
Debra Blouin saysDecember 28, 2017 at 3:59 pm
And if you wanted a unit in the USSR all you had to do was report on a neighbor to the authorities. You need to talk to people who actually lived under that regime.