Category Archives: Economics

The Price Of Regulation

Today’s Washington Times tells a story that brings home, quite literally, the costs that government regulation impose on society.

Escalating prices that have made houses unaffordable for many people in Washington are mostly the result of homeowners using political and regulatory means to block construction of new housing, economic studies show.

The so-called “slow growth” movement has been a political force in the Washington DC area for several years. For the most part, these groups characterize their efforts to limit the construction of new homes as a method to put the reins on “out of control” growth which has led, supposedly, to crowded roads, crowded schools, and crowded neighborhoods. At the same time, the costs of housing the D.C. area has soared.

Washington home prices continued to soar last month despite a slowdown in sales, with gains of 21.5 percent and 18 percent over November 2004 in the District and Montgomery County, respectively, the Greater Capital Area Association of Realtors reported this week.

It now costs $618,692 to buy an average-priced home in the District, and $560,327 in Montgomery County. Prices in Northern Virginia also have maintained breathtaking heights, among the highest in the country, despite some slackening of sales.

Until now, nobody has put the two together to see that it is in fact so called “slow growth” that is causing housing to become unaffordable for a growing segment of society.

Economists increasingly are concluding that the shortage of affordable housing in Washington and other major U.S. cities on the East and West coasts is a result more of man-made restrictions on development than high construction costs or other market forces.

“It simply takes too long and is too expensive to move through the development process,” said Mark Vitner, senior economist at Wachovia Securities, pointing at “smart growth, slow growth and no growth” movements in many of the same areas where the population and demand for housing are growing the fastest.

What many economists have been proclaiming as a “bubble” in Washington and other high-cost areas can be mostly explained by the restrictions on development, combined with a rush to homeownership by renters taking advantage of low interest rates, he said.

The effects of these policies can be seen throughout the area:

Montgomery County imposed a temporary moratorium on building this year after a controversy over a developer’s violation of height restrictions in Clarksburg.

The county already had banned most development in one-third of the jurisdiction set aside as an agricultural reserve. Under pressure from residents’ groups, it is considering further restrictions on building in the reserve by churches and nonprofit institutions.

Loudoun County, one of the fastest-growing jurisdictions in the nation, put severe restrictions on the density of housing several years ago, but some of those restrictions were overturned later by a more pro-development Board of Supervisors.

Prices are booming in the District, where federal ownership of large tracts has limited the land available for development and height restrictions imposed by Congress have been in effect for more than a century.

Prince George’s County, with much land available for development, only recently lifted a restriction against building in areas where police and fire-safety infrastructure is not able to accommodate new residents.

Even Fairfax County, which gained fame in earlier decades for free-wheeling development policies that led to rapid job growth and construction, is contending with homeowners against plans to increase the density of housing near the Vienna Metro station.

Existing homeowners, in other words, have become more politically active and have been using the power of their local governments and zoning boards to prevent developers from building new homes regardless of whether the demand exists. The result, of course, is predictable, with a decreased supply of housing, the price of that housing increases. Hence, the housing market “bubble” that everyone talks about. And, since the market is not being permitted to operate in its normal fashion, distortions are inevitable:

The resulting shortage of housing causes an escalation of prices as new residents and renters seeking to become homeowners bid up prices to purchase the few homes available. That further serves the interests of the homeowners by pushing up the value of their houses.

The result is to turn the housing market on its head, the study found. High home prices should act as an inducement for developers to build more houses, increasing supply and lowering prices. But construction rates in Washington and other high-priced cities are substantially lower than those in the interior, less-pricey areas of the country.

Its not very often that we see the cost of government regulation so easily displayed in a monetary amount. For those of us in the D.C. area, all we have to do is glance at the weekly real estate listings.

Cross-Posted at Below The Beltway

Economics Is Fun Too!

So, I was reading Patri Friedman’s interview with Tim Harford, author of The Undercover Economist: Exposing Why the Rich Are Rich, the Poor Are Poor–and Why You Can Never Buy a Decent Used Car!. And I ran across this gem:

Patri: Why is it important to educate people about economics?

Tim: We can all think of ways in which the world would be a better place if people knew a little bit more about the basics, but that’s not why I write. I write about economics because I love it and I want other people to love it too. I’m just having fun.

Just imagine if folks actually understood, for example, that if I own something I can set whatever price I want for it, and interfering with that ability on my part is violating my right to property. Or maybe understanding, as my fellow blogger, Doug, does, that when Wal-Mart costs low income wage earners $4.7 billion in wages, but then provides them with $50 billion in reduced consumer costs it is a net win for folks earning under $35,000/year. Or, imagine if they actually understood that repairing hurricane damage is not a net gain for the economy. I won’t go on boring you with my silly examples of the good that might come out of it.

Instead, how about this thought. Each and every one of us is part of the economic system every day. We enjoy it. We like to earn money, get good deals, purchase goods and consume services. Economics is fun. Imagine how much more fun it would be if you understood it!

Oh, while I was at it, I discovered that Tim has a blog! Go check it out.

Security executive, work for Core Security, veteran, kids, dogs, cat, chickens, mortgage, bills. I like #liberty #InfoSec #scotch, #wine, #cigars, #travel, #baseball

Wal-Mart And The War Against The Poor

Do a Google search for “anti Walmart” and you get your choice of about 6,880,000 links. The search term “walmart hurts america” returns 537,000 results. Clearly, there are plenty of folks out there who don’t like Wal-Mart. It hurts small business, they claim. It reduces wages, they assert. It contributes to suburban sprawl, claim others. As Sebastian Mallaby points out in today’s Washington Post, however, Wal-Mart has been a positive force in the economy and those who attempt to use the political arena to slow its expansion are, in reality, hurting the poor.

The average Wal-Mart customer earns $35,000 a year, compared with $50,000 at Target and $74,000 at Costco. Moreover, Wal-Mart’s “every day low prices” make the biggest difference to the poor, since they spend a higher proportion of income on food and other basics. As a force for poverty relief, Wal-Mart’s $200 billion-plus assistance to consumers may rival many federal programs. Those programs are better targeted at the needy, but they are dramatically smaller. Food stamps were worth $33 billion in 2005, and the earned-income tax credit was worth $40 billion.

Of course, Wal-Mart’s low prices aren’t an assistance program targeted at the poor, they are a competitive strategy that has succeeded marvelously by tapping in to a market that the Target’s and Costco’s of the world have neglected. If it weren’t for Wal-Mart, where would the people making $ 35,000 a year, or less, shop ? Sure, they’d find something but it wouldn’t be as cheap, or as convenient.

But what about those low wages ?

Arindrajit Dube of the University of California at Berkeley, a leading Wal-Mart critic, has calculated that the firm has caused a $4.7 billion annual loss of wages for workers in the retail sector. This number is disputed: Wal-Mart’s pay and benefits can be made to look good or bad depending on which other firms you compare them to. When Wal-Mart opened a store in Glendale, Ariz., last year, it received 8,000 applications for 525 jobs, suggesting that not everyone believes the pay and benefits are unattractive.

But let’s say we accept Dube’s calculation that retail workers take home $4.7 billion less per year because Wal-Mart has busted unions and generally been ruthless. That loss to workers would still be dwarfed by the $50 billion-plus that Wal-Mart consumers save on food, never mind the much larger sums that they save altogether. Indeed, Furman points out that the wage suppression is so small that even its “victims” may be better off. Retail workers may take home less pay, but their purchasing power probably still grows thanks to Wal-Mart’s low prices.

I disagree with Mallaby’s concession on the wage issue, but his point is valid nonetheless. More important, though, is the question of why those 8,000 people would want to work at Wal-Mart if conditions were so bad. The answer, of course, is that the Wal-Mart job is obviously more attractive to them than whatever the alternative might be in their hometown, assuming there even is a viable alternative. If Wal-Mart didn’t exist, the truth of the matter is that most of the people wearing the blue vest today either wouldn’t be employed at all or would working longer, more dangerous hours somewhere else. Just as Wal-Mart has benefited consumers at the lower end of the economic spectrum, it has benefited workers as well.

Of course, as Mallaby points out, the leftist critics of Wal-Mart are guilty of even greater hypocrisy

Wal-Mart’s critics also paint the company as a parasite on taxpayers, because 5 percent of its workers are on Medicaid. Actually that’s a typical level for large retail firms, and the national average for all firms is 4 percent. Moreover, it’s ironic that Wal-Mart’s enemies, who are mainly progressives, should even raise this issue. In the 1990s progressives argued loudly for the reform that allowed poor Americans to keep Medicaid benefits even if they had a job. Now that this policy is helping workers at Wal-Mart, progressives shouldn’t blame the company.

Its easy, I think, for the critics of Wal-Mart to say that the company should raise the wages it pays employees or increase health care benefits. For the most part, they don’t shop there and most of them probably don’t need to shop there. If Wal-Mart had to raise prices, they wouldn’t be the ones who would pay the price.

Wal-Mart is at the center of the globalized, technology-driven economy that’s radically increased American inequality, so it’s not surprising that it has critics. But globalization and business innovation are nonetheless the engines of progress; and if that sounds too abstract, think of the $200 billion-plus that Wal-Mart consumers gain annually. If critics prevent the firm from opening new branches, they will prevent ordinary families from sharing in those gains. Poor Americans will be chief among the casualties.

I will be the first to admit that I’m not a fan of Wal-Mart. I don’t enjoy shopping there, and the products they sell don’t appeal to me. For a large segment of America, however, Sam Walton’s creation has opened up opportunities that didn’t exist before. To argue that you care about the working poor at the same time you attack the one institution that has helped them the most in the past 20 years is the height of hypocrisy.

Cross-Posted at Below The Beltway

Quote To Ponder

It’s as true today as it was when de Tocqueville wrote it.

Democracy and socialism have nothing in common but one word, equality. But notice the difference: while democracy seeks equality in liberty, socialism seeks equality in restraint and servitude.

The left continues to try and obfuscate their goals, to create the myth that socialism can somehow result in liberty for the individual. But, when the state, directly or indirectly, controls your economic environment, then you cannot have liberty at the same time. Property ownership is the foundation of liberty. The fact that the left is not upset by eminent domain or the Kelo decision (see this entry and this entry for evidence) should be all that you need to understand that the left’s position is not one of liberty and protection of inherent rights. Nothing has changed but the rhetoric.

Security executive, work for Core Security, veteran, kids, dogs, cat, chickens, mortgage, bills. I like #liberty #InfoSec #scotch, #wine, #cigars, #travel, #baseball

Massachussetts’ Blue Laws

Doesn’t this seem a bit over the top? Even for the People’s Republic of Massachussetts?

Massachusetts’ attorney general is launching an investigation into several supermarkets that opened on Thanksgiving in defiance of the state’s Puritan-era Blue Laws.

Then again, maybe the author of the article is a bit over the top, considering the later quote from the owner of the supermarket, the Super 88.

Super 88 officials said they didn’t know about the warnings.

“We don’t celebrate” Thanksgiving, said Rudy Chen, a former manager of a Super 88 in Chinatown who now works at the chain’s headquarters. He said the store he managed was always open on Thanksgiving and no one complained.

Apparently, this constitutes defiance. There is, as usual, more to the story than is being reported. Barely mentioned in this article is the fact that the Whole Foods chain of stores was prevented from being open on Thanksgiving due to these same laws and the complaint of a competitor. Here’s this article’s bit on it.

Reilly’s office had earlier warned the Whole Foods supermarket chain not to open on Thanksgiving after a competitor complained. Wal-Mart, Family Dollar and Big Lots also received warnings.

It turns out, however, that there is more to the story than just this little blurb. From an earlier article, on the Whole Foods chain:

The Massachusetts attorney general has handed Whole Foods Market Inc. a real retail turkey.

The Austin-based natural and organic foods retailer had planned to open its 14 Massachusetts stores on Thanksgiving. But the state’s attorney general, Thomas Reilly, told Whole Foods that it risked criminal charges if it conducted business that day at its Massachusetts stores, The Boston Globe reported Saturday.

[ ….. ]

Reilly’s attention was drawn to the proposed Whole Foods openings after competitor Shaw’s Supermarkets Inc. lodged a complaint. Shaw’s, based in West Bridgewater, Mass., is a division of Boise, Idaho-based Albertson’s Inc.

But wait, there’s more yet. In this Boston Globe article, we discover yet more information on the whole thing.

The state’s blue laws were first enacted in the 1600s, intended to prevent colonists from straying from church or hearth to drink or transact business. In their current form, the laws ban retailers with more than seven employees from opening on Thanksgiving and Christmas. Pharmacies may stay open.

That makes no sense to me. Have you ever gone out to get the one thing you forgot, on Thanksgiving day? Usually, the only store you can find is a 7-11, which invariably does not have what you need, or does it have it, but the wrong brand. And always for a far higher price than you would pay in a regular grocery store. The esteemed Attorney General of Massachussetts explained.

Reilly told the Globe this week that tradition, and giving workers a day off, outweighs shopper convenience. ”Thanksgiving is a time when people should be with their families, not working,” he said.

A light begins to dawn. The truth is that the secular, leftist government of Massachussetts is no different from their Puritan forebears, except that they don’t like religious governments. They are still busy deciding what is best for the citizens of their state. Reilly is going to decide for you and I whether we should be able to go get that can of yams we just have to have. He’s going to decide for the employees of Whole Foods whether they can work on Thanksgiving, or not. He’s going to decide for the management of Whole Foods whether they will be able to be open, or not, on that day. It doesn’t matter to him if it is a good business decision for the store, or a good economic decision for consumers, or a good income decision for the employees.

It turns out, although I can’t find that article now, that Whole Foods was not going to require any employee to work on Thanksgiving, it would have been purely voluntary. And, rather than paying them the 150% of normal salary that is usual on a holiday, Whole Foods was going to pay the workers who volunteered 200% of their normal wage. Considering that most supermarket employees don’t earn a huge amount of money, I’m guessing that the holiday pay might have been very welcome, especially going into the Christmas shopping season. But, of course, the paternalistic government of Massachussetts knows what is best for those employees.

This is the sort of government intervention and decision making that has contributed to a 20% unemployment rate in France, and one nearly as high in Germany. When companies are deciding whether to do business somewhere, one of the things they take into consideration are laws like these, that constrain their ability to make appropriate decisions for their business. Often times they will decide to locate the business somewhere else that does not have as restrictive a business environment.

Aside from that, the question we have to ask ourselves is this. Who is better able to make these decisions? The individual citizen and business? Or the state? Ask yourself if you would rather have the option to make this decision for yourself, or not? Is it appropriate for the state to decide for you when you can and cannot work, when you can and cannot sell goods to others? Can they better determine the best outcome than you can?

Security executive, work for Core Security, veteran, kids, dogs, cat, chickens, mortgage, bills. I like #liberty #InfoSec #scotch, #wine, #cigars, #travel, #baseball

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