Wednesday, June 29, 2005

My First (semi-)Fisking!

So. This started out as a response to a comment on a post at Left2Right, an excellent blog. However, this particular comment was not quite so excellent; and when I went to respond to it, I got a bit carried away. The response was much, much too long to post in the comments thread, so I decided to post it here instead. So, without futher ado:


Why should wealthy conservatives or established agri-businessmen (anyone who says "farmers" has never driven through a few nearly county-sized corporate "farms" in say the Central Valley of California or Midwest) support planning when it most likely threatens to diminish their profits?
I don't know what to tell you; you're completely wrong that farmers dislike planning. Farmers love planning. Specifically, they love plans based on the claim that what we as a nation really need is to give lots of money to farmers. This is why we spend nearly $20 billion a year giving money to farmers—it's all in the plan! For a number of reasons, central planning tends to benefit the already powerful (who have access to the machinery of power) at the expense of the not-as-powerful (see Kelo v City of New London; Pork-Barrel Spending; and Welfare, Corporate). Giving the government more power is in many ways asking for trouble.

The agri biz (or oil) and its party the GOP are not for planning any more than they are for restrictions on construction or real estate prices.
Excuse me? The GOP not in favor of government planning? I'll have to go tell my friends—they've spent Bush's entire presidency complaining about how inclined he is to engage in large handouts, economic protectionism, and all-around corporate welfare. You're certainly right that the Republicans (much like the Democrats) are mostly in bed with corporate special interests. That's why I don't vote for them.

Yet if there are in some OK town 10,000 tenants who want (or who would at least benefit from) rent control and only 50 landlords opposed to it, perhaps a vote might be in order.
I agree it may appear that rent control benefits the poor, but that happens in the short term only, at best. Rents are actually a perfect example of my argument, which you kindly quoted. When rents get really high, that's a strong signal to landlords and construction workers that people want housing in a given area; the prices they're willing to pay tells landlords how much they want housing. If the price is enough to cover the costs of providing housing (including the purchase/construction of new housing units), landlords have an incentive to provide that housing.

If the rent isn't enough to cover the costs of providing housing, that tells our prospective landlord that society values those resources more for doing something else. It may be worth $10000 a year to people to get the housing those resources could produce; but maybe it's worth $11000 for people to get the food, clothes, computers, and whatever-else those same resources could produce if they're not used for housing. So the landlord profits if and only if he's using those resources for a use that society values more than it values the next-best use.

Rent controls screw up this dynamic. If, for instance, the commission in charge of setting rents says you can charge $9000 a year, not enough houses get built. Landlords think people only have $9000 of desire for housing, when they actually have $10000 of desire. Housing that costs $9500 a year to provide doesn't get built, even though it would benefit both the landlord and the people. Similarly, if rents get set at $11000 a year, landlords think people want housing more than they actually do. Landlords flock to the city and build lots of houses, only to find that no one wants to live there and they've just wasted a ton of resources that could have been better spent.

"Ah, but that's only the landlords' filthy profit motive! If we put the city in charge of deciding how much housing to produce, we can solve all that and still charge a fair rate!" That's nice, but that's exactly the claim Mises and Hayek refuted (convincingly enough that the socialists of their day had to fundamentally change their arguments—the critique was so powerful that it couldn't be ignored). The number of factors that go in to deciding how much housing to build is unimaginably vast. How much housing do people want? How much glass, brick, steel, copper wiring, insulation, plastic, etc. should we use in each house? What are all the other things those materials could be used for, and how much do people want each of those things? How could anyone, or any group, process that much information?

Prices. When we set things out in a market, people bid on stuff to show how much they want it; in general, the more use you can get out of something, and therefore the more valuable it is to you, the more you're willing to pay for it. Resources get sent to the places where they produce the most value to society as a whole, because that's where people are willing to pay most for them.

Oh, and that adjustment that the socialists of von Mises' day made? They agreed that a planning commission couldn't work on its own, and that a socialist state would have to regulate its economy by setting prices, and raising and lowering prices to equate supply and demand, just like people do in a market. Only, really inefficiently, because the central planning commission has to keep track of all the prices on everything, not just the prices on the relatively few things any one corporation sells, and prices just aren't adjusted fast enough to keep everythign working smoothly. But even this system it works, it's not really a planned economy any more: it's a market economy with only one employer—the State—and only one producer—the State. Oh, and this one giant company also owns all the guns. Good luck with that one. (A fuller discussion of these issues can be found here).

Vegas too: nothin' but effectiveness there
Vegas is actually great, because it's one of the few places in the world that actually gives people what they want. That's how they make all that money. Of course, it's also very instructive, because when you see what people want, you learn that most of it is really, really stupid. But that doesn't mean they don't want it. And most of them think my desire to spend an hour writing a critique of central planning theory in response to some guy online is really, really dumb. I figure I'll let them do what I think is dumb if they'll let me do what they think is dumb. If you want to put someone in charge of what people are allowed to like and do, you're walking awfully far down the Road to Serfdom.

( of course the water may be dried up in a few years, except for millionaires who might have hoarded it for their golf courses).
Yeah, the West has lots of problems with water. They seem to be consuming way more than they should. Wanna guess what generally causes that?

Who collected all the data to build Malibu's $1 million a half acre enclave over the last 30 years? There's little to no democracy or "everyone putting in data" in the LA or SF housing markets: there's some real rich guys and brokers who "got in early" as they say who now parcel the land out for millions to a few
ueberrich entertainment or professionals.
Yeah, houses in some places sure cost a lot, don't they? There are a few reasons for this. I can throw back at you the fact that governments in those areas generally restrict the number of homes that can be built there, artifically restricting the supply and driving up the values of the houses already built (this benefits people who own houses there already—and thus vote—at the expense of people who don't, and so don't). This is another example of how housing messes with the market and keeps people from getting what they want.

But more fundamentally, prices are that high because lots of people really want to live there. People will only a buy million-dollar house if it's worth a million dollars to them to live there. So this is another good example: high prices signal that people want to live there a lot. The prices first of all, make sure that the people who most want to live there get to (I might want to live there, too, but only enough to spend $200,000 on a house. The guy willing to spend $1,000,000 values living there more). The high prices also signal that finding ways either to let more people live there, or to let people live in areas that resemble those areas, is a good idea—it will fill a desire that lots of people have that can't be met yet. Thanks for all the help; I'm way too lazy to dig up good examples like that on my own.

Oh, and one last thing: your post (especially the first paragraph) is a perfect example of what Arnold Kling calls a "Type M" argument. Rather than responding substantively to my arguments, you effectively accuse me of being a shill for the wealthy, and lying about both my motivations and the quality of my arguments. This is stupid both because you have no way of knowing what my actual motivations are, and because my arguments are equally good whether or not I'm advancing them in a bid to seize more wealth for myself. I happen to think that a relatively more market-oriented society will benefit me. I also think it will benefit most of the readers of this blog, and of Left2Right; and I think it will benefit most members of society generally. If this be "self-interest and protectionism on the part of the of the wealthy," make the most of it.

Update: the Left2Right site moderator has determined that Mr. Caligreen, to whom I was responding, is a troll, and all of his comments were deleted. The link that previously linked to his comment now links to the thread on which it appeared (which is well worth reading; most of the people over there are sensible, and the conversation was extremely interesting). However, one of his comments, at least, is preserved in near-entirety: I quoted almost his entire post in this response.


Anonymous Stephanie Bell said...

Come on, Jay. You're more intelligent than "The Road to Serfdom"... Hayek just wrote beautifully and said very little of substance. There was virtually no analysis behind that specific book. His other stuff is much better, but I, following my own politics, much prefer "The Great Transformation" by Karl Polanyi.

July 21, 2005 5:38 PM  
Blogger Jadagul said...

Well, I'm glad you showed up; and thanks for the vote of confidence. I actually haven't read The Road to Serfdom, unless you count the cartoon version. I referenced it because it's a cool metaphor and everyone recognizes it (and because I'm a total Amazon-associates-program link-whore and I had an excuse). But from what I understand, The Road to Serfdom was pretty much just an extension of Ludwig von Mises's work in Socialism: An Economic and Sociological Analysis, another book that I haven't read. However, I've read a bunch of discussion of the principle both on the Ludwig von Mises Institute's website, in a couple primers on economic thought, in Mises's magnum opus Human Action: A Treatise on Economics (available online here, and in several online discussions, one of which I linked in the original post (see, I told you I was an absolute link-whore).

As for Polanyi, I'll put him on my reading list, and I'll probably post about the book if I ever actually manage to read it (haven't done too well keeping up with my reading lately; I've been halfway through On Human Action for a year now). But based on the review of the book at Amazon, my offhand comment is that the distinguishing feature of ~1887-1940 was the hemisphere-wide shift from free-marketeerism into socialism and fascism, a shift that wasn't really reversed until the seventies and eighties. Also, given that he argues against the "self-regulating market," I'm curious what he means by "self-regulating": there are some aspects of the market that only the most diehard anarcho-capitalist would deny requires some sort of external custodian, and other aspects that only the most diehard socialist would think can be regulated effectively by any mechanism other than a market (e.g. shirt style/color). The important question is where between the two you draw the line.

July 22, 2005 12:49 AM  
Anonymous stephanie bell said...

Polanyi's goal with "The Great Transformation" is to do just what you asked--draw a line about when it's fine to interfere in the market and when it isn't. If I'm remembering correctly, the "self-regulation" refers to society backlashing against social problems caused by either too much freedom (more often) or too much regulation (less often) in the economy. This backlash manifests itself in policy shifts. I think the setup for this argument, involving the idea that the economy has only become socially important in recent years, and that its social importance constitutes a fundamental shift in what society prioritizes is a particularly neat argument.

July 22, 2005 12:16 PM  
Anonymous stephanie bell said...

whoops, misread your comment. his argument *against* the self regulating market proffered by liberals from Smith until the early 20th century is the argument about social reaction.

July 22, 2005 12:18 PM  
Blogger keith said...

Working my way through the blog. Interesting stuff.

Jay, you said, "Of course, it's also very instructive, because when you see what people want, you learn that most of it is really, really stupid. But that doesn't mean they don't want it."

How do you define "want"? Is it simply an urge to acquire? Or is it something more primal? And if it's the former, does it bother you that so much of what people "want" is simply the ginned-up results of incessant marketing? By satisfying those fabricated wants with things nobody really needs we don't reach any greater level of net utility; we simply keep the wheels of production turning. Of course, that's fine if production (and the marketing to support it) is an end unto itself.

July 31, 2005 9:42 PM  
Blogger Jadagul said...

Really, the answer is that I know that each person has a better idea of what he wants than I do. I could argue that I want the right things to want, and in many cases I do believe that. On the other hand, can you imagine the revolt that would occur if I banned spectator sports and most TV, and required people to read three hours of political commentary every day and a novel every week?

I do think most people would be happier if they learned not to feel like they have to compete with everyone over inconsequential status symbols. On the other hand, if you ban one inconsequential status symbol people will replace it with another, because they're that determined to compete with each other. For people who only care about their status—their place in society's pecking order—it doesn't matter what we do. Only one person can be at the top. Restricting production doesn't change that, and neither does expanding production. But that sort of ginned-up, keep-up-with-the-Joneses status competition is not most people's only desire, and a well-functioning market is the most effective way for most people to achieve as many of those desires as possible.

But most importantly, the argument has a lot of force for apparently trivial situations. I know I keep talking about shirt colors, but they're a perfect example. I doubt anyone is so paternalistic that he'd want to regulate shirt color, or think that shirt-color-preferences are ginned up by marketing. Still, the only possible way to efficiently get people shirts of the colors they want is a market. And the same holds true of most other things; if you accept that someone has a better idea of what he wants than you do, then the market is the best way to ensure that he gets it. And if he wants stupid stuff, denying it to him will frustrate him—because he can't get what he thinks he wants—and not make him feel any better.

August 01, 2005 2:26 AM  
Blogger keith said...

I responded to your last post yesterday but for some reason it never showed up here in the list. Oh well.

All I said then was that I'm not talking about taking away people's choices; I'm simply saying that the market deliberately elicits skewed choices and we should acknowledge that fact. The question isn't whether people should be allowed to make those silly choices. Rather, the question is whether they should make those choices.

August 02, 2005 4:25 PM  

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