The curious task of economics…

Russ Roberts, host of EconTalk podcast, often reminds his listeners and his Cafe Hayek blog readers that F.A. Hayek said:

The curious task of economics is to demonstrate to men how little they really know about what they imagine they can design.

I think Edward Glaeser did a good job of fulfilling this task in last week’s EconTalk podcast when it comes to nice-sounding government policies that may have unintended consequences of hurting cities.

Here’s one consequence I hadn’t thought of regarding government policies meant to encourage more home ownership:

Having a very pro-home ownership policy also means you have an anti-urban policy, because typically single family houses are owner-occupied whereas multi-family dwellings are rented; on average more than 85% of multi-family dwellings with 5 or more units are rented, exactly the same percentage of households for single-family occupancy being owner-occupied. So if you are going to have federal policy which both directly, through let’s say the home ownership interest deduction, or indirectly, through Fannie Mae and Freddie Mac are going to subsidize owning, you are going to be stacking the deck against high rise houses.

Glaeser also comments on how school districts hurt cities (my parents moved to a suburb when I was a child primarily to get their kids into a better school district):

Now the last thing that artificially stacks the deck against cities is just the way our local education systems work. So, by your telling me your kids like to go tromping around in grass, that’s great; my kids do that. I have no problem with parents making those choices. However, I grew up in the streets of Manhattan and that can also work perfectly well. The problem is that we’ve created such a strong schooling incentive for people to move out of those cities that have weak school systems. I think anything that we can do that tries to somewhat reduces those spacial, those schooling-related, which are fundamentally government-created incentives to suburbanize, that’s probably a good thing.

As I heard Glaeser say this, I was reminded of how Arnold Kling decomposed freedom into having the power of voice and exit. People with bad ideas to use public schools as a means to achieve their desirable social goals took over many public school districts and drowned out the power of voice for many. They didn’t worry about it because public schools were free and they figured that folks would continue to send their kids there. What were they going to do, move?

Yes, that’s exactly what happened. They exercised their power of exit.

The neighborhood I grew up in was a nice, middle class neighborhood. It had been for 40 years from when it was first built. Sadly, it turned into a pit soon after we left. And not because that was the natural order of things. The public education system was failing to educate and that chased people away.

More people wanted out than wanted in. ‘Supply and demand’ says that means home prices will go down. When prices fell, folks who couldn’t afford much because they hadn’t made good life choices, or simply didn’t care, moved in. I remember my grandparents finally moving from the home that I believe they bought new when they discovered their next door neighbors were crack addicts willing to do just about anything for their next score.

There are neighborhoods of similar age and design in different parts of the metro area that are subject to different public school systems and they are still thriving.

It’s amazing to me that the very people who love cities so much, the so-called intellectual elites, have done so much damage to them. But, it’s the perfect example of Hayek’s fatal conceit and the curious task of economics.


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