Much of your writing is about how most people think deprivation is due to high prices, but actually, it’s because of (unnecessary) scarcity of supply.
Today, after 2 years of most not seeing eye to eye on economic issues, my girlfriend and I finally clarified the real source of our disagreement.
She tends to favor limitations on building, and imposing price controls for education, healthcare, and housing. This is because she’s pessimistic that it’s feasible to expand the supply of these goods enough to bring the price down. She sees the difficulty schools have in hiring teachers, the burnout among nurses and doctors, and the difficulty in hiring contractors to renovate the bathroom, and has a hard time imagining how we could possibly get enough labor to supply all these services. She worries that even if they could be supplied, the quality would suffer: we’d get a lot of crappy new universities, bad healthcare, and parkless slums or soulless Walmart cities.
Being pessimistic about supply increases, she therefore sees economic progress being about making the distribution of current goods and services more fair. If we can’t get more universities, we can at least give the rich and the poor a more equal shot at an education. If we can’t get more nurses, we can at least make sure that everybody has to wait their turn in line. If we can’t get more quality housing, we can at least remove the chance to gate out the poor by imposing price controls.
Furthermore, she thinks that if the government set prices in these areas, it would be able to negotiate the rates down more effectively since it would be the monopoly payer. So the result would be that everybody gets a shot at what services do exist, and the price to the nation is lower because the government can negotiate the prices down.
These aren’t the terms she puts it in, but it’s the position she endorses. She says she’d be open to a very different approach to welfare (ie just give people money and let the market handle the rest), but only if she felt confident that the market could supply large amounts of additional high quality services. Otherwise, she worries that putting a bunch of money in people’s bank accounts would just cause inflation and have no real or lasting effect on affordability.
I think it would be extremely helpful to get some detailed information about how a supply increase in these areas would take place. If we wanted to quadruple America’s housing supply, is there really enough construction capacity to do so in any reasonable timeframe? How would we prevent this from turning into a license to just build a bunch of slums (as the market has, it seems, created in the past)? If we wanted to quadruple America’s medical service supply, where would we source the people to fill those roles? If we wanted to build lots of new universities, where would we find the teachers, and wouldn’t that require a huge tax increase to pay for all the research, tuition subsidies, and teacher salaries?
It’s not so much that she doesn’t believe these things are possible, as that she never hears people describe how this supply increase would unfold in detail. Economists just handwave and say “let the market work,” or “deregulate and the problem solved itself,” and this just doesn’t strike her as plausible.
I do think it’s plausible, but I too have never really heard any YIMBY folks talk about how long it would take to build X units of new housing, or how we’d jam it all into our crowded and high-traffic cities, or where we’d source all the new police and sanitation workers to accommodate the growth. It seems like education and healthcare are heavily government subsidized, so you’d need radical restructuring of how those services are provided go grow their supply, unless you were willing to impose big new taxes to pay for it all.
So I would love to read pieces describing in some detail what it looks like to rapidly increase supply of goods Iike these.
It's an interesting idea for a post. I think one of the most counterintuitive things to understand is that a small moves in supply often create huge changes in prices. There are something like 130 million housing units in the US and we have built 500k-2 million a year for decades. We've been on the low side of that since the housing bubble popped and now rents are very high. My guess is that if we waved a magic wand and made it easy to build, total nationwide housing construction would go up to the high side of that, but more importantly, construction activity would shift to the high demand cities, which would bring down rents there relative to the rest of the country.
The other things is to remember that we are not talking about changing the actual population of the country. If we let people build more in high demand cities, rents will come down, which will cause people to move to those cities, and also will cause people to move out of their parents' basements. But that won't create a need for more services - we would have the exact same people, just in different places. In fact you might expect a lower need for services if housing abundance makes it less likely for people to end up on the street.
The answer to your question is that the magnitude of the supply increases necessary to create "abundance" is far smaller than most people intuitively imagine. Just think about how we've gotten spiraling rents in the last 10 years - housing construction has been short 500k units per year for a decade in a country with 130 million homes? It's not much. Even in individual cities, people aren't likely to notice much of an effect on their daily lives from even a 20% increase in population, especially if it happens in walkable areas with good public transportation, which is likely as that's where the unmet demand is right now (judging from rents).
I guess the last point I'd hazard, is if you want to increase the labor supply of a specific field quickly - construction workers, doctors, nurses, etc - the most efficient way to do it is through allowing some immigration. Politically, I'm not sure how that goes though. If you're willing to do it slowly, you can just let more people in to med school/residencies each year and so on.
I'll think about writing something at some point, I just don't know how interesting it ends up being.
Here's one about housing I came across (from MR?) the other day:
This comment sort of falls between this article and the medallion piece. With the medallions in NYC, the holders of the assets are (not PC...) largely lower income immigrants with little political power. I imagine this must be part of the reason their monopoly pricing power wasn't protected.
The rentier class in the coasts are middle/upper class voters with considerable political power at the state/federal level and extraordinary power at the local level. I struggle to see how meaningful and overdue reform, like the ones you described, can be accomplished when the changes directly harm incumbents.
What I was trying to get at is that the rentier class on the coasts isn't really that numerous or powerful measured at the federal level. We might have a 66% homeownership rate in this country but the class we are talking about is at most the top quartile of that, and they're concentrated in big blue states like CA/NY which dilutes their power even more. In that way they're not that much different than any other special interest group that collects economic rents - they have to stay under the radar and/or use some misdirection to sway public opinion, because they can't carry many votes by themselves. If public opinion goes against them, then politicans can score an easy political win by going after them.
It's interesting to see how these special interest groups manage to defend their interests (or don't). I think it's some combination of managing the court of public opinion and their skill at lobbying. You can see over time how the NCAA has lost the PR war in a way that pro sports haven't. Doctors and universities have mostly done a good job so far protecting their interests. The airlines mismanaged their position, but I would say local TV stations and cable providers are examples of companies that have made a lot of money with the help of favorable government regulations.
Realtors are one of the biggest lobbying groups and have been very successful at defending their interests and they are generally pro-development - they make more money when we are building more homes. So there is an interesting contrast there.
I think there is a social justice/equity layer here too - I didn't get into it but of course land use regulations are historically closely intertwined with segregation and discrimination, so there is this dissonance where you have liberal cities wanting to appear progressive but also not wanting to give up what they perceive as "theirs".
Much of your writing is about how most people think deprivation is due to high prices, but actually, it’s because of (unnecessary) scarcity of supply.
Today, after 2 years of most not seeing eye to eye on economic issues, my girlfriend and I finally clarified the real source of our disagreement.
She tends to favor limitations on building, and imposing price controls for education, healthcare, and housing. This is because she’s pessimistic that it’s feasible to expand the supply of these goods enough to bring the price down. She sees the difficulty schools have in hiring teachers, the burnout among nurses and doctors, and the difficulty in hiring contractors to renovate the bathroom, and has a hard time imagining how we could possibly get enough labor to supply all these services. She worries that even if they could be supplied, the quality would suffer: we’d get a lot of crappy new universities, bad healthcare, and parkless slums or soulless Walmart cities.
Being pessimistic about supply increases, she therefore sees economic progress being about making the distribution of current goods and services more fair. If we can’t get more universities, we can at least give the rich and the poor a more equal shot at an education. If we can’t get more nurses, we can at least make sure that everybody has to wait their turn in line. If we can’t get more quality housing, we can at least remove the chance to gate out the poor by imposing price controls.
Furthermore, she thinks that if the government set prices in these areas, it would be able to negotiate the rates down more effectively since it would be the monopoly payer. So the result would be that everybody gets a shot at what services do exist, and the price to the nation is lower because the government can negotiate the prices down.
These aren’t the terms she puts it in, but it’s the position she endorses. She says she’d be open to a very different approach to welfare (ie just give people money and let the market handle the rest), but only if she felt confident that the market could supply large amounts of additional high quality services. Otherwise, she worries that putting a bunch of money in people’s bank accounts would just cause inflation and have no real or lasting effect on affordability.
I think it would be extremely helpful to get some detailed information about how a supply increase in these areas would take place. If we wanted to quadruple America’s housing supply, is there really enough construction capacity to do so in any reasonable timeframe? How would we prevent this from turning into a license to just build a bunch of slums (as the market has, it seems, created in the past)? If we wanted to quadruple America’s medical service supply, where would we source the people to fill those roles? If we wanted to build lots of new universities, where would we find the teachers, and wouldn’t that require a huge tax increase to pay for all the research, tuition subsidies, and teacher salaries?
It’s not so much that she doesn’t believe these things are possible, as that she never hears people describe how this supply increase would unfold in detail. Economists just handwave and say “let the market work,” or “deregulate and the problem solved itself,” and this just doesn’t strike her as plausible.
I do think it’s plausible, but I too have never really heard any YIMBY folks talk about how long it would take to build X units of new housing, or how we’d jam it all into our crowded and high-traffic cities, or where we’d source all the new police and sanitation workers to accommodate the growth. It seems like education and healthcare are heavily government subsidized, so you’d need radical restructuring of how those services are provided go grow their supply, unless you were willing to impose big new taxes to pay for it all.
So I would love to read pieces describing in some detail what it looks like to rapidly increase supply of goods Iike these.
It's an interesting idea for a post. I think one of the most counterintuitive things to understand is that a small moves in supply often create huge changes in prices. There are something like 130 million housing units in the US and we have built 500k-2 million a year for decades. We've been on the low side of that since the housing bubble popped and now rents are very high. My guess is that if we waved a magic wand and made it easy to build, total nationwide housing construction would go up to the high side of that, but more importantly, construction activity would shift to the high demand cities, which would bring down rents there relative to the rest of the country.
The other things is to remember that we are not talking about changing the actual population of the country. If we let people build more in high demand cities, rents will come down, which will cause people to move to those cities, and also will cause people to move out of their parents' basements. But that won't create a need for more services - we would have the exact same people, just in different places. In fact you might expect a lower need for services if housing abundance makes it less likely for people to end up on the street.
The answer to your question is that the magnitude of the supply increases necessary to create "abundance" is far smaller than most people intuitively imagine. Just think about how we've gotten spiraling rents in the last 10 years - housing construction has been short 500k units per year for a decade in a country with 130 million homes? It's not much. Even in individual cities, people aren't likely to notice much of an effect on their daily lives from even a 20% increase in population, especially if it happens in walkable areas with good public transportation, which is likely as that's where the unmet demand is right now (judging from rents).
I guess the last point I'd hazard, is if you want to increase the labor supply of a specific field quickly - construction workers, doctors, nurses, etc - the most efficient way to do it is through allowing some immigration. Politically, I'm not sure how that goes though. If you're willing to do it slowly, you can just let more people in to med school/residencies each year and so on.
I'll think about writing something at some point, I just don't know how interesting it ends up being.
Here's one about housing I came across (from MR?) the other day:
https://marketurbanism.com/2022/08/05/how-big-is-the-housing-shortage/
Excellent article.
This comment sort of falls between this article and the medallion piece. With the medallions in NYC, the holders of the assets are (not PC...) largely lower income immigrants with little political power. I imagine this must be part of the reason their monopoly pricing power wasn't protected.
The rentier class in the coasts are middle/upper class voters with considerable political power at the state/federal level and extraordinary power at the local level. I struggle to see how meaningful and overdue reform, like the ones you described, can be accomplished when the changes directly harm incumbents.
Thanks!
What I was trying to get at is that the rentier class on the coasts isn't really that numerous or powerful measured at the federal level. We might have a 66% homeownership rate in this country but the class we are talking about is at most the top quartile of that, and they're concentrated in big blue states like CA/NY which dilutes their power even more. In that way they're not that much different than any other special interest group that collects economic rents - they have to stay under the radar and/or use some misdirection to sway public opinion, because they can't carry many votes by themselves. If public opinion goes against them, then politicans can score an easy political win by going after them.
It's interesting to see how these special interest groups manage to defend their interests (or don't). I think it's some combination of managing the court of public opinion and their skill at lobbying. You can see over time how the NCAA has lost the PR war in a way that pro sports haven't. Doctors and universities have mostly done a good job so far protecting their interests. The airlines mismanaged their position, but I would say local TV stations and cable providers are examples of companies that have made a lot of money with the help of favorable government regulations.
Realtors are one of the biggest lobbying groups and have been very successful at defending their interests and they are generally pro-development - they make more money when we are building more homes. So there is an interesting contrast there.
I think there is a social justice/equity layer here too - I didn't get into it but of course land use regulations are historically closely intertwined with segregation and discrimination, so there is this dissonance where you have liberal cities wanting to appear progressive but also not wanting to give up what they perceive as "theirs".