Economist Channel

The fundamental reason so many markets are not free, and so dysfunctional, is that the voters of our democracy don't really want freedom. Freedom will come when we want it, when we insist on it, when the average voter sees a free market solution rather than endless controls as the answer to real world problems. The sad paradox of free markets is that free markets do not need people to understand them to work. But democracy does require voters to understand how things work.

In that vein today's internet browsing (both HT marginal revolution) brings good news and bad news.

Good news - one more piece of evidence that people from left and right are finally beginning to see the huge damage of zoning and construction restrictions, including inequality, income segregation, and perpetuation of economic status. That "progressives" now see this too is a most heartening development.


Today's data point is What Happened to the American Boomtown, in, yes, the New York Times. The piece notices the dramatic expansions that Chicago and San Francisco experienced in the 19th century, when they were economic magnets.

"Chicago in 1850 was a muddy frontier town of barely 30,000 people. Within two decades, it was 10 times that size. Within another two decades, that number had tripled. By 1910, Chicago — hog butcher for the world, headquarters of Montgomery Ward, the nerve center of the nation’s rail network — had more than two million residents. 

... It was a classic metropolitan magnet, attracting anyone in need of a job or a raise.
But ...migration patterns like the one that fed Chicago have broken down in today’s America....local economic booms no longer create boomtowns in America. 

The places that are booming in size [sunbelt, providing cheap housing] aren’t the economic boomtowns — the regions with the greatest prosperity and highest productivity. In theory, we’d expect those metros, like the Bay Area, Boston and New York, to be rapidly expanding, as people move from regions with high unemployment and meager wages to those with high salaries and strong job markets.

Source: New York Times

So what's the problem? Amazingly, the Times nails it. (Or at least its intrepid reporter Emily Badger nails, it, and the Times let her do it.)

Some people aren’t moving into wealthy regions because they’re stuck in struggling ones. They have houses they can’t sell or government benefits they don’t want to lose. But the larger problem is that they’re blocked from moving to prosperous places by the shortage and cost of housing there. And that’s a deliberate decision these wealthy regions have made in opposing more housing construction, a prerequisite to make room for more people.

Moreover, she gets not only the overall flow but its character -- lower income people move out to make room for the very high skill migrants who can pay outrageous prices to be in the high productivity clusters. This results in inequality and residential segregation.

As a result [of restrictions], housing prices have soared in the most prosperous places, making them inaccessible to lower-income workers and negating much of the allure of the higher wages there. Over this same time, ...high-skilled migrants have clustered in these areas, while low-skilled workers have been more likely to move elsewhere. 

For a Times article, the omissions are just as instructive. No mention of big housing subsidies, and  "affordable" housing mandates (which drive up the cost of market rate housing even more.) We just need to get out of the way and allow more housing.

With left and right apparently now aware of the problem, what's stopping us from fixing it? The bad news:

In the Boston suburbs, the Bay Area, Brooklyn and Washington, people who already live there have balked at new housing for people who don’t.

Several Virginia lawmakers are calling on the state to suspend tolls on Interstate 66, condemning this week’s variable tolls that hit as high as $40 as “outrageous” and “unacceptable”.