...Archive for the ‘uncategorized’ Category

A parliament without a parliamentarian

I mean to write a bit about the “DAO hack“, which provides a fascinating true-crime introduction to the fascinating (virtual) world of blockchains and cryptocurrency if you don’t already follow this stuff. But before saying what I think about that DAO-stardly DAO-eed, I think it might be useful to explain what I think “blockchains” are, in social rather than technical terms.

A blockchain is just a parliament without a parliamentarian.

Like a parliament, a blockchain is a means by which a group of people collaborates to produce an ordered list of accepted “resolutions” that is deemed authoritative and legitimate by some community it represents. That list of resolutions may cause the construction of alteration of some side-product. Laws passed by Congress create or alter the United States’ legal code. “Blocks” accepted by Bitcoin “miners” change account balances in an implicit ledger of who owns what Bitcoins. But the authoritative source is always an ordered list of accepted resolutions, from which the state of the side products may mechanically be derived.

A traditional parliament requires a lot of work and organization, and it doesn’t scale very well. It’s hard to coordinate getting even a few hundred legislators into a room to vote on a resolution. Keeping an orderly chamber requires organization and hierarchy. Typically there is some kind of leadership, there is a hierarchical structure and “rules of order”, whose purpose is to orchestrate the consideration of resolutions. A “parliamentarian” acts as a keeper and adjudicator of those rules, which are often obscure even to the membership of the parliament. The parliamentarian and the hierarchy her rules enshrine may not be neutral. Most obviously, the leadership of a deliberative assembly may be capable of preventing consideration of resolutions that the membership would pass if required to vote on the question. Anyone who follows real-world politics understands that it matters very much who “controls” a legislative house.

A blockchain represents a deliberative assembly that may be very large (thousands or millions of participants bound by computer networks), and that may be very open (anyone may participate, “legislators” may come and go at will). Traditional rules of order are not up to the task of managing this sort of assembly. Further, the inventors of blockchains did not approve of the traditional prerogatives of a parliament’s “leadership”. Among blockchain enthusiasts, preventing the consideration of a potentially acceptable resolution is usually referred to as a “censorship attack”.

So, instead of a “leadership” that orchestrates the consideration of resolutions, blockchains hold a kind of lottery among its legislators, who are called “miners”. Every few minutes, or even seconds, the winner of a new lottery is announced. The winner gets to submit resolutions for consideration by the parliament, and is financially rewarded if her “block” of resolutions is accepted by the majority. The proposal of resolutions is not restricted to miners. They may be submitted by, well, anyone at all. Miners check the resolutions and decide if they are likely to pass. They combine the ones that do seem likely to pass into a “block”, and hope to win the lottery. A miner may try to exclude resolutions that are likely to pass but that she herself disagrees with, but that sort of censorship is unlikely to have any effect, since she is unlikely to win the lottery in any particular round. Once a block of resolutions pass, each participant updates its own personal copy of the list of passed resolutions to include the new ones. Only participants with a fully up-to-date copy of the list may participate in the next lottery. Since winning the lottery and proposing a successful block is financially rewarded, while censoring proposals or ignoring blocks that the majority would accept is ineffectual, participants usually propose anything that they think would pass and go along with anything that has already passed. Blockchains reward consensus: It is lucrative to go along with most others would go along with. Understanding the will of the majority of their colleagues and bending to it is the job of each and every legislator.

In the most prominent, current blockchains, the norms about what sort of resolution is likely to pass are simple and widely shared. On the bitcoin blockchain, most resolutions amount to something like, “Unspent money belonging to User A in an amount of 3 BTC should be assigned to User B.” A miner checks that User A does in fact have 3 BTC unspent, and that the resolution is properly signed by User A. If so, this transaction is very likely to pass, as the core shared norm of the community of BTC miners is that people should be able to spend their own unspent money however they choose. Note, though, that this in only a norm. If more than half of the participants in the Bitcoin blockchain suddenly decided that User A was evil and should not, in fact, be permitted to spend her money, then lottery-winners would quickly learn to exclude her resolutions, and that would become a new, communally enforced norm. People in the Bitcoin community who consider a norm like this illegitimate would refer to it as “censorship” or a “51% attack”. But “51% attack” is just another way of describing “majority rules” when you don’t like the decision of the majority.

But majority of whom? Open blockchains, like Bitcoin and Ethereum, permit anyone who wishes to participate as a miner, without any kind of vetting or “voter ID”. That’s obviously a problem, because over the internet it is easy to pretend to be a hundred or a thousand or a million people if you want to (a tactic evocatively referred to as a “Sybil Attack” in the blockchain community). To prevent that, instead of “one person, one vote”, blockchains are something like “one GHz, one vote”. Ones weight in the parliament is determined by how much computing power one can bring to bear, and, it turns out, sometimes by the form of the computing power, as Bitcoin for example is best run by very specialized chips. The legitimacy of blockchains, as of more traditional parliaments, derives in part from notions of participation or at least representation, and also from expectations that they will honor and reinforce communal norms. The power of blockchains, as of more traditional parliaments, may depend to a certain degree on their continued legitimacy, but might also survive a loss of legitimacy by virtue of network effects. Congress itself produces nothing but a set of official minutes, but those minutes create important social facts because we each expect other people to take them seriously, so we ourselves take them seriously, so the contents of those minutes create important social consequences. The Bitcoin blockchain produces lists of who spent what to whom of an imaginary, artificial, funny money. But Bitcoin users have become willing to surrender objects of real value for appearing on lists of Bitcoin recipients, and as long as we expect that to be true, we must take the blockchain’s adjudication of who owns what seriously. A blockchain, like a parliament, is much more a social institution than a technological one, although very clever technology was necessary to design blockchain systems that could become socially credible. Like political systems, some mix of continued legitimacy and path-dependent coordination equilibria (“network effects”) determine how durably and powerfully blockchains will be able to shape social facts into the future. Continued legitimacy may depend on continued adherence to widely shared norms, on perceptions of fairness and representation, and on how effectively the blockchain’s decisions serve the actual interests of the community that relies upon it. Ethereum‘s is the most interesting and ambitious widely deployed open blockchain, a parliament whose job is to enforce the behavior of social institutions and financial contracts inscribed as directly consequential computer programs rather than in human habit or legal text. That was never going to be straightforward, and the DAO hack has beautifully surfaced some the difficulties and contradictions inherent to the enterprise. More on that soon, I hope.

FD: I am a critic, but also an enthusiastic participant in the blockchain hyposphere. I am financially and professionally invested in the Ethereum project in particular. I am also a DAO token holder, directly injured by the DAO hack. I’m more intrigued than angry about it, though. Nothing that has already been perfected is very interesting.

Update History:

  • 19-Jun-2016, 5:05 a.m. PDT: “to explain what I think ‘blockchains’ are”
  • 20-Jun-2016, 4:50 a.m. PDT: “some mix of continued legitimacy and path-dependent coordination equilibria (“network effects”) determines how”

E pluribus unum

Many of us understand and agree that the way you lose to terrorism is to cop to its premises in the way that you react to it. If ISIS or Al Qaeda want to claim that there is a war of civilizations, a religious war between “Muslims” and “The West”, the worst thing we could do is to live up to the role into which the terrorists have cast us by indiscriminately harassing and attacking Muslims. Acts of ostentatious violence are calculated to goad us into reinforcing the enemy’s framing of the conflict. Unfortunately, the tactic frequently works, because “we” are not a monolith, and some domestic factions in fact share a commonality of interest with the terrorists. During the Republican primary season, at least as abhorrent as anything Donald Trump said was the emergence of recitations of “We are at war with radical Islamic terrorism” as a kind of litmus test of seriousness among the allegedly sensible candidates. Perhaps I am cynical, but the sprawling, shadowy, money-drenched national security state is still disproportionately a Republican constituency, and that strikes me as relevant to why these politicians would garb themselves so enthusiastically in a costume sewn by our enemies. (Of course, there is no evidence of any quid pro quo, and I’m sure the candidates are all perfectly sincere in their way. So let’s not call it corruption.)

Similarly, if Donald Trump wants to start a race war, I wonder whether the best approach is to step in and take the other side. You might win an election that way, but you might also take us from a country of people who, still, mostly, don’t think of themselves as partisans for their race to one in which organizing along racial lines becomes a matter of self-defense. Of course, it often has felt that way, and really has been that way, for African Americans. Although there might be a certain justice in extending that condition to the rest of the country, I’m not sure that it would ultimately work out well for any of us. Functional nation states generally try to reduce the salience of socioethnic difference in favor of a national identity. That one of America’s two political parties has sometimes sabotaged this objective for political reasons doesn’t mean it would be a good idea if they both did. It seems to me an overtly racialized United States would be a lot more, rather than less, comfortable place for Donald Trump or the 20th Century politicians to which he is often compared.

I think that the “war on terror” cannot be won by defeating ISIS or Al Qaeda or any other enemy, but will end when the people of the Middle East have hope of living decent lives in stable countries with legitimate governments. Most problems in the world must be solved, not defeated, however attractive the branding of yet another “war on” may be. In the United States, I don’t doubt that various forms of racial animus drive the support of Donald Trump, to some degree. But you can’t solve “Trumpism” by defeating racism. The so-called “white working class” has lots of reasons to be aggrieved besides race or resentment over changing racial hierarchies, including legitimate grievances that would be shared by the not-white working class. Racism itself is an outcome as much as it is a cause. If interpreters of political affairs make wild efforts to dismiss colorably legitimate explanations of grievance in favor of unsympathetic racial resentments, that might be politically useful in delegitimizing support of Donald Trump. It might, less usefully, actually be believed, both by the people whose concerns are being caricatured (and so who come to see themselves as racists) and by others (who take an ever harder line with a cartoon moral enemy).

Of course, socioethnic conflict can be useful. It is an old strategy of colonialists to create racial strife in order to divide and rule. In Europe, elites turned a crisis that emerged from venality among bankers and poor regulation by Brussels into an ethnonational morality play that has destroyed the legitimacy of the EU and continues to devastate several countries, precisely in order to deflect blame from themselves. An America as unequal as ours has become engenders lots of blame that may require deflecting. Carl Beijer writes, “[L]iberalism relentlessly co-opts identitarian politics as a way to channel civil unrest away from class struggle.” (ht Ryan Cooper)

To be clear, I don’t think the writers with whom I am taking issue are intentionally sowing discord. They are writers whom I often admire, who, I think, have given less thought to the implications of the lines they are taking than I wish they would.

Update: This piece is not a response to the awful events in Orlando, which I learned of just after hitting “post”. Stupid fucked-up world.

Update History:

  • 12-Jun-2016, 7:30 a.m. PDT: Added bold update re terrible Orlando shooting.

There’s no substitute for a substitute

Eric Fischer, after heroically reconstructing San Francisco housing data for much of the 20th Century, published an analysis of the determinants of median rents. The hat tip goes to Tyler Cowen, who concludes “basically SF is ****ed.” Less pithy commentators did what less pithy commentators usually do, and used the analysis to claim that it basically supports their preconceptions and what they have been saying all along. It was only March when Hamilton Nolan helpfully concluded, “Build some housing, assholes. A lot!”.

Well, far be it from me to buck the trend. The analysis supports my preconceptions and what I’ve been saying all along.


Basically, Fischer estimates a model that puts plausible magnitudes on the price effect of new housing supply. How much new housing would we actually have to build in San Francisco to address the housing affordability problem? The model is certainly contestable, but at least it gives us plausible magnitudes to talk about. To stabilize real rents at their current, absurdly unaffordable level, Fischer finds that the number of housing units would have to increase in real terms by 1.5% per year, holding other factors constant. [*] So, is it plausible that San Francisco could build its way out of its housing crisis? As Fischer notes, that would imply a unit growth rate more than 3 times the average rate since 1975. Hamilton Nolan of build-some-housing-assholes fame concludes that

Those fortunate enough to have nice places to live in San Francisco (and the rest of the Bay Area) have had decades to get this right. And they haven’t. Drastic measures are in order.

Decades! Hamilton, you are more right than you know. The last time San Francisco achieved a unit growth rate of 1.5% was in… 1941. So many decades of NIMBYs! What was really different about 1941 compared to now? No exclusionary zoning regs? No pesky environmentalists? Maybe! But perhaps a more parsimonious explanation is the one that Fischer himself gives.

From 1935 to 1943, the Central Sunset and Parkmerced filled in. From 1944 to 1954, the Outer Sunset and Ocean View were built. And that was essentially the end of the easily developed greenfield housing.

In the history of San Francisco, 1.5% unit growth has never been achieved via “infill” development of an already occupied peninsula. There was a brief boom that managed a few years of 1% to 1.3% growth in the mid-1960s, but during that period developers “still could fill in the hillsides of Twin Peaks and above O’Shaughnessy Boulevard.” After that, the vacant land was gone. From 1967 to the present, the city managed a growth rate of more than 0.5% in barely one third of years (17 years out of the 48 from 1967 through 2014, when the data ends.) During the post-greenfield, post-1967 period, which years were best? Was it during the good old days before “homevoters” shut down the “growth machine” with their exclusionary zoning laws? No. The best years of the post-1967 period in terms of unit growth were 2008-2009, and then again in 2014 (the most recent year in Fischer’s data). No year exceeded 1% unit growth. But 2009 and 2014 did achieve a remarkable 0.9%.

Conventional wisdom has coalesced on the notion that it is NIMBY-ism and exclusionary zoning that are responsible for the crazy, crazy housing prices in San Francisco and other high rent cities, and so the solution to the problem must be a bloody, painful battle to overcome greedy incumbents’ attachments to their homes and neighborhoods. But before we destabilize neighborhoods and displace humans in the name of housing supply, we might want to ask, will all that pain really address the problem? Sure, at the margin, more construction will yield lower prices. And I understand that, following construction boom years, rental prices have stabilized in cities like DC and Chicago.

But within developed cities, construction booms are short and finite. Chemotherapy may be worth the nausea and hairloss if it adds years to ones life, but would it be worth it for an extra week? Infill densification is socially painful and physically expensive in terms of demolition and retrofitting infrastructure. And, yes, buying off the evil NIMBY’s and the permitting authorities who serve them adds to those costs. But how many examples are there of cities that have grown their housing stock in place at anything like the rate that would be required to meet the burgeoning demand in San Francisco or New York? Before we wage war on ourselves, maybe we should inquire whether victory is plausibly achievable. And, if it isn’t, maybe we should come up with a different plan?

The situation is even worse than it appears. The current craze, the only hope on the political horizon, is “affordable density“, which would eliminate regulatory impediments to construction for developers who reserve a percentage of units for means-tested tenants who would pay below-market rent. This trend reflects some mix of a well-intentioned attempt to address displacement and pragmatic acknowledgment that a city that has priced out its teachers and service workers might have a hard time functioning. However, an awkward fact of market pricing is that effective supply is not the number of units built, but the number of units actually made available to the market. Compared to a laissez-faire counterfactual in which redevelopment simply pushes poorer residents out of the city (often the case historically), every human not displaced diminishes the degree to which densification reduces market-rate rents. A market is not a dinner party. The higher the affordable housing requirements, the greater the rate of unit growth required to stabilize market-rate prices. Have we mentioned already that infill unit growth is really hard?

Cities evolve. They grow, they change, they do become more dense. And that is great. San Francisco NIMBYs are always on about Hong-Kong-ization or Manhattanization of the city. I like Manhattan and Hong Kong, and would be excited to see San Francisco’s aesthetically blah, largely single-family-detached west side turn fun like that.

But those neighborhoods are already inhabited. People live in the single family homes. They plant gardens in the generous backyards. In time, I hope those neighborhoods will change, and become more dense. I’m for a whole lot of redistribution, but there are reasons why civilized countries redistribute via financial tax-and-transfer rather than “land reform“, i.e. direct reallocation of real resources. To people who characterize homeowners’ informal sovereignty over their neighborhoods as a subsidy to the “upper middle class” at the expense of the “economically vulnerable”, I’d ask a few simple questions.

  • In a country where the homeownership rate is more than 63%, is it right to characterize homeowners broadly, even in San Francisco, as “upper-middle class”? Many homeowners have lived in their homes for years, and many new homeowners are mortgaged to the hilt.

  • Given that even an ahistorical, sustained trebling of unit growth would probably only stabilize, not reduce, the real price of housing in San Francisco, is it fair to characterize the people who would be helped by increased space for new residents as the “economically vulnerable”?

  • And given that, for perfectly understandable reasons, homeowners and residents resist fast-paced densification of their neighborhoods, which homeowners and residents would most likely be forced to tolerate changes they dislike or that threaten the value of properties? San Francisco has its share of stunningly beautiful neighborhoods affordable only to plutocrats. Will we put high-rises in those neighborhoods? Or, in the anodyne language of economists for every bad thing, will it be the economically vulnerable who must “adjust”?

Is Tyler Cowen right, then? “Basically SF is ****ed?” No. San Francisco could be just fine. The thing about San Francisco is that while greenfields have been exhausted in the city, the San Francisco Bay Area is largely undeveloped. We are always arguing over San Francisco, or Palo Alto (ick). Outside of the 47 square miles of San Francisco proper are almost 3200 square miles in San Mateo, Santa Clara, Alameda, and Contra Costa counties. (I’ll leave out the hoity-toity North Bay counties — Marin, Sonoma, Napa — but if it’s Latin-America-style land reform you want, the vines there are ripe for revolution!) Nobody wants new suburban sprawl, thank goodness. But dense development is not sprawl, even when it is greenfield development. When I argue that Singapore is an example we look should look to, people think I’m trying to make some left-wing point about public housing. I’m not. I don’t actually care very much about that. What excites me about Singapore is this:


It’s silly to characterize what Singapore does as “basically greenfield suburban growth“. Singapore’s new towns are denser than any US city, and nicer than most of them. They are designed for their density, not retrofit. What distinguishes Singapore is a “can do”, dirigiste approach to developing new living space, and a remarkable competence at making density green and livable. Singapore is an exuberant site of architectural experimentation, in both private and public building projects. Singapore’s “new towns” can house 100,000 people in less than 5 square miles. In the San Francisco Bay Area, there is plenty of space for Singapore-style new towns. Even Back East, room could be found for these compact conurbations.

Every piece of Earth has its stakeholders. As with densification of existing cities, plans to build new cities and their supporting infrastructure will provoke bitter controversy. But stakeholders for exurban land are fewer and more dispersed, and so less intensely affected, than city dwellers. The fights will be more winnable and the victories more meaningful in terms of the numbers of new dwellings that can be constructed. In the old city, we are condemned to bitter struggle over what ultimately may be too little to matter.

There are glimmers of hope for new towns, even in the US. See The Economist on “ersatz urbanism” in Florida. But it is in the San Francisco Bay Area, with its dreadful, painful housing situation, and its science fiction tycoons (several of whom individually could provide the necessary finance) where a full-scale, ecotechnological US microcity should really be attempted.


Personal Epilogue: I live in San Francisco. I am a renter. I live in a neighborhood with no pretty Victorians, on a block with little anyone would want to preserve for character. My personal preference would be for a lot more density, in my own neighborhood and many others. My apartment building, like the vast majority of SF multi-family dwellings, is rent-stabilized. I support San-Francisco-style rent stabilization, under which initial rents are “market rate” but rent increases are regulated. I think it is a good policy regime. I don’t think the $300-ish per month I may be saving (after a three year tenure, figuring two 10% rent increases) much impacts my views, but “none of us can be perfectly objective arbiters of our own conflicts of interest“, so you be the judge. I detest San Francisco’s high housing (and other) prices, and feel that the cost makes the city culturally gross, a place full of insecure people (very much including me) tacitly or not so tacitly competing in crude financial terms for the right to live here. Conversations always turn to housing, in overt commiserations or covert attempts to feel out where the other person lives, whether they have space, how they can afford it. As I said, it is gross.

Nevertheless, I don’t support the broad-brush anti-NIMBY, anti-zoning, affordability-through-density movement, because I think it is counterproductive. I want more housing, more density, and more development, but I don’t imagine those can possibly address affordability even over the medium term. I think that attempts to supercharge in-place densification i) will not succeed at any remotely sufficient scale; and ii) will cause real harm, and not just or mostly to unsympathetic upper-middle-class baby boomers protecting price-appreciation windfalls. I am very fond, intellectually and personally, of people like Matt Yglesias and Ryan Avent who have made strong cases for upzoning and densification as the way to go. They deserve congratulations for how persuasive their arguments have been. At least within my socioeconomic milieu, their ideas have become enshrined as conventional wisdom. But in my opinion — which of course might be mistaken! — these ideas have supplanted consideration of more effective and less difficult solutions to the very real problems they mean to address.

[*] I’ve tried to reproduce Fischer’s work, see the embedded image above (also Mathematica source code). My version yields slightly different coefficients and requires only 1.3% growth to stabilize prices. Hooray!


Matt Yglesias, with characteristic perceptiveness, points out (ht DeLong) that

There are significant and salient tension between the economic and identity-oriented wings of the left that conservatives largely avoided… You saw this in the Clinton/Sanders primary where identity politics rhetoric and concepts were mobilized to shore up economic moderation.

Freddie deBoer offers a piece that I enthusiastically recommend. (But then I would, wouldn’t I?) deBoer writes

the existence of tens of millions of nativist racists represents a practical problem to be addressed no matter what your take on their origins. I am not talking about giving concessions that we consider contrary to our basic convictions in an effort to court these voters. I’m not necessarily talking about courting them, as voters, at all. I am not saying we shouldn’t defeat them in elections. I am asking, what do we do with them after the elections have been won? More, I am here asking that we consider whether we want to adopt the basic logic of conservatism: that some people’s distress is deserved and thus safely ignored.

In general, I think attitudes towards difference are an underappreciated fault line of contemporary liberal politics. By difference, I don’t mean individual difference or eccentricity, iconoclasm or nonconformity. What I do mean is consequential divergences of status across different, socially identified groups of people.

There are two axes of difference that seem to me to be particularly relevant. Yglesias identifies these precisely: There is an axis of “identity politics”, and an axis of economic stratification. Both of these axes are associated with “progressivism”, in the sense that both economic stratification and various socially defined identity groups have been associated with perceptions of disadvantage and oppression of the sort “progressivism” seeks to remedy. (See Arnold Kling’s axes.)

However, there are two, quite distinct approaches to remedying this sort of oppression. One way is to alter the way people are sorted and the relative status of the different groups so that the socially consequential groupings are more legitimate. Another way is to try to diminish the legitimacy and the fact of distinctions between groups, so that what groupings remain are more like elective subcultures than implacable social facts.

Along the economic axis, this distinction plays out in the question of meritocracy. “Classical liberals” and the people sometimes referred to as neoliberals don’t challenge the existence of large, consequential differences between rich and poor. They seek to remedy what is oppressive in economic stratification by putting a humane floor beneath the consequences of being sorted downwards, and by working to ensure that the sorting is “fair”. They tend to promote equality of opportunity and emphasize education as a solution. People to whom the label “left” gets applied work instead to compress economic difference, to delegitimize the sorting or at least to dramatically reduce its scope relative to the unjust, socially destructive dispersion they perceive in the status status quo. Both groups find common cause, sometimes, in wanting to put a floor beneath the bottom. But they are in sharp conflict about whether stratification towards the top calls for making the sort fairer or imposing limits.

With respect to identity politics, there is a similar divide, but the labels aren’t as recognizable. There is a strand of left-of-center politics that seeks to simply end group difference, epitomized by Martin Luther King’s call for “a nation where they will not be judged by the color of their skin but by the content of their character”. There is a different strand that views group difference as legitimate, or else inevitable and therefore legitimate, and that seeks to remedy oppression by contesting in politics and society explicitly as groups in order to alter the sorting of material goods and social status across groups. As in economics, where meritocratic liberals and people to their left form uneasy alliances over “safety net” programs, universalists and identity-centered activists can and often do work together to try to remedy disadvantage and oppression attached to social identity. Just as meritocratic liberals acknowledge the fact of economic hierarchy, universalists are not reductionists, they (we) acknowledge the fact that social goods are differentially distributed across identities through mechanisms quite different from within-group economic sorting, and often much more brutal. But, as in the economic sphere, universalists and identity-centered activists ultimately have very different goals and so embrace very different tactics. Universalists want group identity to become less salient and consequential, and so resist tactics that highlight difference in order to promote intragroup solidarity and to sow open conflict with other groups. Identity-centered activists view solidarity and conflict as the best and perhaps only way to overcome identity-distributed oppression. To a universalist, tactics like “no platforming” sow precisely the sort of divisions we ought to be working to overcome. To an identity-centered activist, “no platforming” an apologist for racism or sexual violence is just winning. This distinction blurs in practice, because neither universalists nor identity-centered activists restrict themselves to “neutral” (race-neutral, gender-neutral) tactics. Procedural neutrality is a trope of conservatives, of people working to defend status quo distinctions rather than to alter them. But universalists adopt group-conscious tactics as a means of reducing the salience and importance of group difference (think of how Singapore actively manages the composition of its housing to prevent the emergence of distinct ethnoracial communities), while identity-centered activists work to advance the interests of the groups for which they advocate in ways likely to accentuate the salience of group membership and encourage continued group identification and solidarity.

The core dispute, I think, in identity politics as in economic policy, is over whether to embrace consequential difference across groups but make outcomes more legitimate, or whether to try to reduce the degree to which difference is socially and materially consequential.

The diagram above summarizes the differences as I see them among US liberal-to-left factions. Note that these are questions of more or less, not absolutes. I’d place myself in the “universalist left”, for example, but I do believe that some degree of economic stratification is legitimate and necessary, under economists’ usual rationale of preserving incentives to produce. I just think that the degree of economic stratification that currently prevails is way, way, way, way, way past the point where benefits of sharp incentives to produce are undone by even sharper incentives to cheat and outweighed by destructive social fragmentation.

Update: Eli Schiff offered some similar thought experiments recently, thinking about the acceptability and reputation effects of left- and right-flavored activism in a corporate setting or workplace, depending on whether that activism emphasizes identity or economic concerns. I chatted with Schiff about these, and am indebted to him in thinking about using emphasis on identity politics to cut a 2 x 2 grid. Take a look at his work, his initial cut, or his more elaborate take, also embedded below!

Update History:

  • 15-May-2016, 4:25 p.m. PDT: “…neither the universalists nor the identity-centered activists…”
  • 17-May-2016, 1:15 p.m. PDT: Added bold update re Eli Schiff’s thought experiments on the acceptability of workplace activism.
  • 19-May-2016, 1:15 p.m. PDT: Added horizontal line to separate conclusion from update.

Ten years after

I don’t know whether it is of note even to me, but today interfluidity is ten years old.

Here is the inauspicious first post. Thank you all for coming by, for reading, for putting up with me all these years.

So I’ll leave it up to you. If you live in one of those states, please vote today.

Policy as Mock UN

Ezra Klein offers a response to my previous post, and there’s a lot that’s good it in. I appreciate Klein’s characteristic effort to provide a nuanced and balanced take. Nevertheless, I can’t say that I am persuaded.

Before going into the substance of Klein’s piece, I want to clarify that my prior post was not a response to the controversy that has arisen following a letter from four former CEA chairs about Gerald Friedman’s projections of the effects of Sanders’ proposals. My piece was written last Monday, the CEA letter was published Wednesday, I promise you I have no moles on Mount Olympus. I do have an opinion about the “kerfuffle” provoked by that letter, and maybe I’ll express it in a future post. (Or maybe not.) But my post on theories of politics was not addressed to that controversy.

Anyway. Klein and I agree, I think, that “in a democratic polity, wonks are the help”. Elections are where voters set the interests and values in service of which wonks’ technical expertise will later be deployed. But Klein is quite correct to point out that we don’t elect disembodied interests and values, we elect people, and the competence of those people along myriad dimensions will determine whether they are capable of translating the interests and values they represent into meaningful social outcomes. I agree with Klein that voters are called upon to evaluate not candidates’ competence, but their competences, to trade off weaknesses against strengths, and sometimes to trade off evaluations of competence against their preferences with respect to interests and values.

As Klein very aptly puts it, “debating the details of campaign proposals is, on some level, fantasy football for wonks.” But, he argues

Watching a candidate run his campaign’s policy processes is one of our best ways of predicting how he would run his White House.

The key word there, by the way, is run. Some of the most important decisions the president makes are about how to run the processes that translate vision into policy. Those decisions include whom to hire, which advisers to listen to, which ideas make sense, which strategies are likely to work. The presidency is one damn decision like that after another. Obama, famously, is so exhausted by the decision fatigue of the job that he wears the same color suit every day so he has one less thing to decide in the morning.

This is one way in which campaigns give us insight into presidencies. Presidential candidates also have to decide whom to hire, which advisers to listen to, which ideas are truly good ones, which strategies are likely to work. To make those decisions well, they need a sound philosophy, yes, but they also need to want to hear good advice, they need to want advisers who will tell them when they’re wrong, they need to have good instincts for when something they want to believe is true simply isn’t, and they need to be realistic about the strategies that are likely to work and the ones that aren’t.

A White House has to be run, for sure, and Klein is eloquent and correct on the work and care that entails. But I don’t think a campaign’s policy processes tells us anything much about that. Presidential campaigns are not presidencies. The goals, incentives, and constraints are entirely different. The “policy process” of a campaign begins first and foremost with the work of a campaign, which is to signal the interests and values of the candidate. Policy details are, for the most part, elaborated reactively, as competing candidates try to work out inconsistencies between opponents’ broad policy visions and the interests and values of the electorate they are vying to win over. Policy details are also elaborated to signal competence and to concretize interests. Detailed white papers are more than most voters are willing to work through, but their existence, especially if certified by trusted experts, may persuade voters of a candidate’s competence. One way to appeal to voters’ interests is to be able to make claims like “the typical American family will save $5200 per year if my policy is enacted”, but making that sort of claim without some pretense at a projection opens candidates to attacks on character and competence. Candidates face tradeoffs between the benefits of making speculative or ambitious claims and potential costs in perceived credibility. They also face tradeoffs between perceived benefits of making promises and the constraints those promises may impose on their future choices or credibility should they be elected. These are the factors shape the policy details they come to offer.

Certainly presidents have to sell policies to legislators, so you might argue that the sales job that is an election may not be not entirely alien to the process of governing. Mostly that’s wrong. What gets legislated is a function of constraints imposed by the legislature, and the interests that shape those constraints are very different from those of the open electorate. President Obama signaled in a State of the Union address his strong support for Universal Pre-K, as Hillary Clinton or Bernie Sanders probably both would in the context of this election. Universal Pre-K is good policy on the merits, and is popular with the public, but President Obama has made no effort whatsoever to transform his call into legislation. The skill that a President requires to get policy enacted is the ability, somehow, to get the constraints of the legislature and her own policy agenda aligned. That can be done Lyndon-Johnson-style, by backroom armtwisting; it can be done per Coase’s Theorem, with various kinds of side payments; it can be done as the prior Clinton administration did with welfare reform, by letting the administration’s agenda shift to become more hospitable to the constraints of the legislature; it can be done by creating outside threats, in terms of adverse public opinion and potential electoral risk, as Bernie Sanders proposes to do with his “political revolution”.

One certainly can draw connections between skills on display during an election and skills that will eventually be required to get policy enacted. It is not unreasonable to suggest that Hillary Clinton’s locking up of endorsements by political insiders at all levels might indicate real skill in Johnsonian arm-twisting and Coasean bargaining that will help her “get things done”. It is also not unreasonable to argue that Bernie Sanders’ remarkable success at organizing a grassroots donor and volunteer base and his clear intent (unlike President Obama) to ask those grassroots to engage publicly in conflict with political opponents, suggests a competence at creating electoral risk. Voters can and should consider these competing competencies, along with their adjudications of values and interests. But these competencies have little to do with the quality of the campaigns’ policy white papers. For the most part, wonk-quality is not a useful differentiator of presidential candidates.

Let’s look at an example. As Klein notes

There are plenty of criticisms to be made of Obama’s presidency, but I think the baseline competence of his administration has begun to dim memories of how important presidential management really is.

My own view of the Obama administration is mixed, but I am happy to second Klein here. I think the administration takes its policy process seriously, and generally does fine work along dimensions of technical competence. That doesn’t mean I endorse all of its work, or that the administration’s technical work is apolitical. It is not. All policy is ideological. Technical work carries ideology with it in how things are framed, what is assumed, and what is considered. Still, within the boundaries the Obama administration has chosen to define, its technical work is high quality.

But as Klein reminds us, eight years ago, on the core wonk controversy of 2008, Barack Obama took a position of astonishing technical incompetence. You can accuse Bernie Sanders’ campaign of touting optimistically shaded estimates or underplaying some costs, but his proposals are fundamentally sound in wonkish terms. Single-payer healthcare does work, and would eventually reduce costs, but the politics of getting there may be impossible, or we might have to tolerate a long transition period during which costs remain high to appease incumbents. What Barack Obama proposed in 2008 — universally accessible health care through individually purchased insurance without an individual mandate — was sheer absurdity. As Paul Krugman has reminded us many times, the Obamacare approach to universal insurance is a three-legged stool: guaranteed-issue leads to a death spiral without an individual mandate, and an individual mandate is unaffordable without subsidies, community rating + mandate + subsidies. (See also Ezra Klein.) If you think policy details during a campaign are the best predictor of the policy process of an administration, you would have expected very little of Barack Obama’s tenure. And you would have been wrong. I suspect that even at the time, Klein was not terrified that Obama would become his caricature of Jimmy Carter as a man whose good values were eclipsed by bad management. Obama signaled competence in ways that Klein could recognize, despite the fact that he took a ridiculous position on the core technocratic issue of the campaign in order to be more appealing to voters.

What I really think is going on is that humans, proles and elites both, have a wide variety of largely unconscious ways of reading candidates. Wonkishly inclined people don’t see themselves reflected in Bernie Sanders, as they did in Barack Obama and do in Hillary Clinton. For them like everyone else, that leads to skepticism and mistrust. But wonkishly inclined people tend not to leave it there. They are verbal, they regard themselves as rational, and so they rationalize. But Klein’s rationalization is, I think, not ultimately supportable. Neither the wonkishness of the candidate nor the quality of campaign white papers is a predictor of the success of a presidential administration. As Klein points out, George H. W. Bush was no wonk, but he was a good manager and in retrospect a decent president. From the perspective his supporters, Ronald Reagan was a phenomenally successful president, but he was no wonk, and I suspect his campaign white papers weren’t anything special either. Johnson, JFK, FDR, admittedly, the farther back we go, the harder it is to “measure” analogues of the contemporary wonk. But I don’t think you’ll find sustainable a theory of campaign policy details as a reliable predictor of actual policy competence. I think wonks, like other humans, have a tendency to see what they want to see, and to reach for theories that flatter their own views and that elevate their own role in the democratic process.

Your theory of politics is wrong

I support Bernie Sanders in the Democratic primary. I don’t support Sanders because I think he is brilliant in some academic way. I don’t support Sanders because I am particularly impressed with the details of his policy proposals, although they are not nearly as hopeless as some self-proclaimed technocrats make them out to be. A democracy is not a graduate seminar.

It is not that I am for Bernie Sanders, but that Bernie Sanders is for me. Bernie Sanders, more than any politician who has ever had a serious shot at the office of United States President, represents my interests and values. By that I don’t mean my interests in a narrow, self-interested sense, but in his vision for what kind of country my country can and should be.

A democratic polity does not elect a technocrat-in-chief, but politicians whose role is to define priorities that must later be translated into well-crafted policy details. Paul Ryan’s various budgets haven’t been wrong because they require giant magic asterices to make the numbers add up. They have been wrong because the interests and values Paul Ryan represents are wrong. The magic asterices don’t reflect dumb mistakes, but smart politics. The problems of our polity do not arise because one faction or another is too stupid to do high quality science. If your interests are the interests of the fossil fuel industry, and you are unwilling or unable to transcend the narrowness of those interests, then confusing the public about the science of climate change is a mark of intelligence, not stupidity. Being smart is great. You may be proud of your GRE scores, your PhD, your Nobel Prize even. And deservedly! But raw intellect is not scarce, and no faction holds anywhere near a monopoly.

In a democratic polity, wonks are the help. The role of the democratic process is to adjudicate interests and values. Wonks get a vote just like everyone else, but expertise on technocratic matters ought not translate to any deference on interests and values. If your theory of democracy is that informed citizens ought to cast votes based on the best social science, you have no theory of democracy at all. If you are honest, you will follow your own theory where it leads, as Bryan Caplan has, and work to limit democracy. But Caplan, whom I love, is mistaken, because he begins with a mistaken theory of politics. If you want to see how that theory of politics works in the real world, look no farther than the European Union, which is a real-time experiment in demoting democratic adjudication of values in favor of technocratic adjudication of facts. I know, you don’t agree with their science. Their economists haven’t died quickly enough to realize that a decades-old consensus has been discredited. Technocracy, like communism, like capitalism, has never been tried. Elevating technocracy above democracy is similar to, and as insidious as, letting military power escape civilian control. The problem with life under military rule is not that the army lacks patriotism, or that it doesn’t mean well. But the interests of the military are not the interests of the polity, and we invented democracy because human beings have a tendency to confuse their own interests with the public’s. The interests of the class of humans who might reasonably qualify as technocrats are also not the interests of the polity.

So, I am for Bernie. I am not against Hillary. But just as it’s foolish to say that Democrats and Republicans are “all the same” because they are both corporatist parties, it is foolish to claim that Bernie and Hillary do not represent meaningfully different interests and values. I’ll enthusiastically support either Bernie or Hillary over a Jeb Bush, Marco Rubio, Ted Cruz, or Donald Trump. But it is Bernie Sanders who is for me, and I’m supporting him without apology. If your interests and values are my interests and values, I hope that you do too.

Update History:

  • 16-Feb-2016, 1:00 a.m. PST: “which is a real-time experiment”


The word “progressive” is used in all kinds of ways. I’m not interested in the term as a label of people. I won’t even self-identify as “a progressive” (or almost any other thing), even though I often find myself making common cause with people who do. I’ll leave arguments about who is a progressive to others.

One frequent use of the term “progressive” is to refer to the distributional effects of an arrangement or policy. The income tax is “progressive” because it takes more (in absolute terms and in percentage terms) from high earners, thus reducing after-tax income inequality. A carbon tax, it is often claimed, would be regressive, because the poor spend a high fraction of their incomes on heating and transportation than the well-off, who therefore pay less (in percentage terms), accentuating after-tax income inequality.

It is easy to forget, in these kinds of conversations, that “progressivity” is not scalar. Policies cannot be ordered by their progressivity, because most nontrivial policies make different groups of people better off and worse off in ways that don’t monotonically map across the income distribution.

Let’s look at a few charts to make this clear. In all of our hypersimplified drawings, the x-axis will define three groups, which we’ll call “poor”, “middle”, and “rich”. For our purposes, it matters not at all whether we are talking about income, wealth, health, or ponies. There is some good thing and two alternative arrangements. We can think of one arrangement as the status quo and another one as a proposed new policy. Or we can think of both arrangements as hypotheticals we are considering and comparing.

Let’s first look at an example under which one alternative is plainly more progressive than the other:


Arrangement B is plainly more progressive than Arrangement A. The distribution of, um, ponies is more equal across the distribution. Both the rich and the poor are brought towards the middle.

However, suppose we are evaluating the following two policies for their relative “progressivity”:


Very few people would, I think, describe Arrangement B as “more progressive” than Arrangement A, because Arrangement B clearly screws the poor. The term “progressive” is garlanded with moral connotations about helping the poor, so this would not qualify. However, Arrangement B does include a transfer from the rich to the middle, and it reduces the inequality between the rich and the middle substantially. If your definition of progressive is “redistributes from richer to poorer”, you cannot definitively order one arrangement as more or less progressive than the other.

One might describe a proposal to go from Arrangement A to Arrangement B as “insider-outsider egalitarian”. It is not an irrelevant case. Although historical experience suggests they are mistaken, people who oppose unions frequently argue that they have precisely this effect. A better-off, unionized portion of the workforce, in this story, sees wages increases, at the expense of wealthy owners and managers (who have to pay unionized workers more), but also at the expense of the not-unionized (or not-employed) portion of the workforce, who see wages stagnate and prices rise.

While “insider-outsider egalitarian” is not an irrelevant case, it is not an ethically confusing one either. Holding constant the identity and the ordering of the humans, very few people explicitly argue that screwing the poor for the sake of egalitarianism among insiders is a good thing. Arguing that this will be the effect of a policy is a way of opposing it. (When identities are not held constant, the moral intuitions become less clear. Suppose under Arrangement B the poor are new immigrants whose poverty masks a great improvement relative to circumstances in their home country?)

Let’s consider a third case:


This is the case I want to call quasiprogressive. Again, if our definition of “progressivity” is redistributing from richer to poorer, we can’t rank Arrangement A against Arrangement B. Going from Arrangement A to Arrangement B, ponies flow in both directions, to the poor, sure, but also to the rich from the middle. Nevertheless, people are tempted to call a shift to Arrangement B “progressive”, because it is good for the poor. Our ethical intuitions about this change may be positive. Or we may describe it negatively, call it a “hollowing of the middle class”. Is it a vase or a love affair? Suppose that a trade agreement will put middle-class workers in developed countries in competition with low wage workers elsewhere, leading to both a decline of middle-class wages and a proliferation of cheap consumer goods. The poor will benefit from cheap stuff, the rich will benefit from cheap stuff and cheap help, but the middle class will get screwed. Should we call this agreement “progressive” or “regressive”? Taking into account only domestic welfare, would it be a good thing or a bad thing?

If our only choices are Arrangement A and Arrangement B, we might be tempted to dispel once and for all with this fiction that Barack Obama doesn’t know what he’s doing. Short circuit. It doesn’t compute. Do we screw the poor or gut the middle class?

Fortunately, those are our choices only if the space of available policies is constrained artificially. In reality, our decision space usually looks more like this:


The black bars in this chart represent the status quo. We are decided to enact a reform. Shall we jump to Arrangement A or Arrangement B? Absent political considerations, most of us would go for A. But suppose, not implausibly, that an ideological and institutional apparatus exists whose function is to defend the material interest of the wealthy? Then perhaps only Arrangement B will seem “politically possible”. Since Arrangement B does help the poor, it may seem unethical not to take it. If (as is usually the case) the harms to the middle are indirect — no one will “take” anything from anyone, market forces will do the dirty work — wealthier people of good will be tempted to support the reform. They stand to lose nothing, and maybe to gain something. The poor will be made better off! Harms to the middle will seem hypothetical, and in any case will amount to just desserts adjudicated by an impersonal market. Didn’t Rawls tell us that the welfare of the poorest should be our touchstone? Less wealthy people of goodwill may not be so sanguine about the reform. They may be torn. When a union member opposes a trade agreement that she understands will lower prices on many goods, but that also might put her out of a job, is she fighting the good fight for the middle class, or is she just a special interest screwing others to preserve her place at the trough? So long as Arrangement A is off the table, it will be very hard to mount an effective opposition to accepting Arrangement B, which after all benefits the poor so greatly.

Policy changes all the time, and the circumstances that favor reforms that look like Arrangement B over those that look like Arrangement A are permanent. Since wealth and influence correlate, each accommodation tilts the political economy towards the next capitulation. A weaker middle is less and less capable of opposing quasiprogressive alternatives that look both desirable and virtuous to the rich. In a world where the wealthy are genuinely interested in helping the poorest off but also vigilant caretakers of their own interests, quasiprogressive solutions are a political-economic sweet spot. The only way to prevent this dynamic without actively screwing the poor is to fight for solutions that work for the poor without sacrificing the middle. Those solutions will always be politically challenging. Even where a policy change is “positive sum”, as trade agreements are argued to be, policymakers almost unconsciously gravitate towards arrangements that segregate benefits towards the powerful rich and the sympathetic poor but shift burdens towards the less salient, less powerful middle.

This sounds very abstract, so let me name some examples where I think the American polity has chosen quasiprogressive solutions. We’ve talked about trade. The choice of quantitative easing rather than fiscal policy to stimulate the economy at the zero-lower-bound is another example. QE-assisted asset-price rises undoubtedly helped people at the margins get or keep their jobs while they also helped wealthy assetholders. Fiscal stimulus would have helped the marginally employed at least as well and might have put pressure on middle class wages too. But bonds might not have performed so well. The bank bailouts of 2008-2009 are frequently justified on quasiprogressive terms. Surely, had there been a catastrophic financial collapse, the poor would have suffered most of all! Of course they would have. They always do, that is the essence of poverty. But we might have averted a financial collapse with transfers to underwater homeowners, for example, or to be more fair, with helicopter money for everyone. Instead, we let middle-class homeowners collapse into negative equity and, too frequently, foreclosure, even as we provided generous support and regulatory forbearance to ensure that financial institutions and their creditors would be made whole. Most of the fiscal stimulus came not from Obama’s headline $800B program, but via automatic stabilizers that kick-in for the poor and unemployed. We rescue the rich. We congratulate ourselves for paying so much to help the stigmatized, traumatized poor. We tell the middle to suck it. That’s the quasiprogressive way, and it’s at the heart of American political economy.

Let’s do one more chart.


Which one, Arrangement A or Arrangement B is more progressive? If our definition of “progressivity” is redistributing from richer to poorer, we absolutely can rank a shift between these two arrangements. Going from Arrangement A to Arrangement B is clearly progressive. Ponies are shifted from both the rich and the middle to the poor.

So should our moral intuitions applaud this change? I don’t think so. I call this one “token progressivity”. While helpful to the poor, a transition from Arrangement A to Arrangement B extracts a small concession from the wealthy but burdens the middle disproportionately.

A lot of conversations bog down into arguments over whether the effects of some event were quasiprogressive or token-progressive. It just doesn’t matter very much. Uniformity of the direction of altered outcomes is too simplistic a criterion to rest moral intuitions on. A society is more than a summation of hypothetical utilities. The shape of the distribution of ponies matters as well. If we want to live in a middle class society, we have to fight for policies that protect the middle class. If we content ourselves with a progressivism of the politically achievable, we may find ourselves torn between doing nothing at all or celebrating accomplishments that may genuinely help the poor, but at the expense of an erstwhile middle class on a path of downward convergence. The work of good policy lies more in expanding the menu of choices than in optimizing over what is straightforwardly achievable.

At this particular moment, I want to emphasize “expanding the menu” needn’t mean preferring single-payer healthcare to reforming ObamaCare, or preferring universal free tuition over means-tested financial aid. But it is an implication of this analysis that the centrist acceptance of net budgetary impact as a criterion for valuing programs — where “net” means net of user fees like insurance premiums or tuition contributions — deserves special scrutiny. The first question should always be “value for the money”. Regardless of how a program will be financed, are the goods to be purchased worth the opportunity cost of the resources that will be expended? If we decide that a program is worthwhile, we then face a political trade-off. The smaller its net budgetary impact, the easier our program will be to pass. However, every shift in financing from general revenue towards means-tested user fees moves us precisely along a path from progressive, to token-progressive, to quasiprogressive, as defined in the discussion above. There are sometimes colorable reasons for user fees, besides political expedience. User fees can address fairness concerns about programs whose benefits aren’t universally available and yield few positive spillovers. Importantly, program value may not be independent of fee-structure. For example, copays may discourage frivolous doctor visits, and so enhance “bang-for-the-buck” of expenditures overall. These are sometimes valid concerns, but they often serve as fig leaves for imposing fees just to reduce net budget impact. That is, they serve as politically motivated excuses to reduce the progressivity of programs in order to increase their burden on the middle class relative to counterfactuals under which the programs would be financed from general revenue.

Update History:

  • 11-Feb-2016, 3:20 a.m. PST: “Holding constant the identity and orderingsthe ordering of the humans”; “new immigrants whose relative poverty masks a great improvement relative to circumstances”; “They stand to lose nothing, and maybe to gain something.”

There’s nothing smart in surrendering bargaining power for policy details

While we are taking lessons from the ugly compromises FDR accepted in order to get Social Security passed, we might also consider other events. FDR, you probably don’t recall because it has oddly been erased from conversational history, pursued almost as an idée fixe a cap on incomes of $25,000 (call it $360K in today’s money). The idea was as divisive then as it would be today, and despite dogged efforts, the proposal did not succeed. But, as Sam Pizzigati reminds us

[T]he setbacks the Roosevelt administration had suffered on the $25,000 salary cap executive order, on pay-as-you-go tax forgiveness, and the Revenue Act veto were obscuring a much more fundamental reality…

Roosevelt’s relentless drive to make sure the war created “not a single war millionaire” had made an incredible difference. His refusal to take “no” for an answer on his $25,000 income cap proposal had kept the entire war finance debate revolving around the rich and how much they ought to be paying in taxes. Conservatives didn’t want that debate. They wanted a national sales tax that would shunt the war’s heavy burden onto average Americans, but FDR’s aggressive advocacy for equity never allowed a sales tax to gain traction. Roosevelt would not get all he wanted on the tax equity front. But he did get plenty, enough to deliver against plutocracy a staggering knockdown.

The odds of enacting decent single-payer health care in the United States, given the broad range of powerful and not always unsympathetic stakeholders in the current system, are modest. But a modest chance is very different from no chance at all. The deep aversion among current stakeholders that makes single payer politically hard also makes any chance it might happen a potent motivator for those same stakeholders to accept or even propose meaningful alternatives. Taking single payer off the table, promising to build from the status quo, leaves the comfortable with nothing to fear from the many people for whom American health care remains a nightmare. It strikes me as more a license for inaction than a sensible plan of action.

(Dean Baker has made a similar point.)

Home is where the cartel is

Housing is a bitch.

A case can be made that divisive hot-button issues like inequality and immigration ultimately derive from housing dysfunction. Kevin Erdmann eloquently tells the tale. Matt Rognlie has famously argued that the increase in capital’s share of income, often blamed for inequality, is due largely to housing, once depreciation is taken into account. All of this reinforces the thesis of people like Ryan Avent, Edward Glaeser, and Matt Yglesias who have argued for years that housing supply constraints are to blame for high rents in powerhouse cities, and may constitute an important drag on productivity growth and a cause of macroeconomic stagnation. (See also Paul Krugman, quite recently.) Several of these writers argue that cities should eliminate restrictive zoning and other regulatory barriers to development, then let the free-market create housing supply. In a competitive marketplace, high prices are supposed to be their own cure. Zoning restrictions, urban permitting, and the de facto capacity of existing residents to veto new development are barriers to entry that prevent the magic of competition from taking hold and solving the problem.

My view is that the “market urbanist” diagnosis of the problem is more persuasive than its prescription for addressing it. As a positive matter, they just won’t win the political fights they propose. On normative grounds, I’m not sure that they should. The market urbanists present themselves as capitalist deregulators but I think they can be described with equal accuracy as radical redistributionists. The customary property rights surrounding homeownership in many cities and suburbs include much more than the use of a square of earth and whatever is built on it. Existing homeowners bought into particular neighborhoods in large part because of their “character”, which includes nice-sounding things like walkability or “charm”, as well as not-so-nice-sounding things like access to exclusionary education. Newer residents have bought and paid for those amenities, while older residents may feel they have earned them by helping to create them. Economists describe houses as a form of capital that provides a stream of services, rather than a cash flow, to owner-occupants. We should also describe the arrangement of neighborhoods as a form of capital that provides services people value. Property owners have disproportionate use of, and, informally, enjoy substantial control rights over this “neighborhood capital”, and these benefits have been capitalized into residential real-estate prices. (Location, location, location!) “Zoning reform” is an anodyne way to describe an expropriation of those customary rights. It amounts to diminishing residents’ ability to preserve or control the evolution of their neighborhoods, in order to challenge the exclusivity on which the value of existing neighborhood amenities may be based.

Market urbanists sometimes respond that eliminating restrictions should, in economic terms, be good for existing property owners. Suppose I own a plot of land, and today I’m only allowed to have a two story house on it. If tomorrow I suddenly have the right to build ten stories, but I can still keep the little house if that’s what I prefer, the new option can only improve my property’s value, right? Surely de-zoning would be a windfall for property owners, as land prices would include part of the capitalized stream of rents from the ten urban lofts that could now, potentially, be built there.

This is unpersuasive “partial-equilibrium” reasoning, which explains why homeowners are usually unpersuaded. Any given property owner rationally wants restrictions lifted on the use their own property, but lifting restrictions on neighbors’ use of their properties creates risks and costs. The ultimate effect of a general upzoning is hard to predict and may not be positive for incumbents, especially when potential impairment existing amenities — “neighborhood capital” — is factored in. Far from being a sure gain to existing residents, upzoning is a form of risky investment, the proceeds of which will be shared with developers and new residents, the costs of which will be concentrated on people whose financial statements and human lives are deeply exposed, with little diversification, to the quality of their neighborhoods. Even if, in aggregate, land values increase, densification of an existing neighborhood creates risks for individual property owners they many not wish to bear. If an apartment block is built next door, my old neighbor may have gotten rich from selling, but my plot may not be suitable for putting up yet another tower, and my home may be worth less for its busy, unquaint new neighbor. People experience individual not aggregate outcomes, and individual outcomes are usually riskier than aggregate outcomes. Absent some insurance mechanism, it is rationally hard to persuade individuals to consent to policy changes that, in aggregate terms, would meet a return-to-risk hurdle but at an individual level might not. When market urbanists point to how much more productive and awesome the city as a whole might become, they are missing this point.

Finally, whatever economic gains might accrue to existing property owners from rezoning has to be traded off against a huge cost, the loss of existing monopoly rents. If you buy a home in San Francisco today, the last thing you want to happen is for the housing affordability problem to be solved next year. If apartment prices become reasonable, you’d find yourself with a huge financial loss and an underwater mortgage. Residential property is expensive in power cities because it includes the capitalized value of the large incomes streams one can earn from accepting tenants. (Now more than $5K/month for the median 2BR apartment in San Francisco I hate this city.) Making housing affordable means that value goes away. High rents are like poverty at the Brookings Institution, a problem we claim we desperately want to solve but don’t really want to solve because the things we would have to do to solve it would be costly and disruptive to the people whose interests get termed “we” in a sentence like this one. So we make other stuff up, hey, how about a little affordable housing requirement with a poor door you’ll have a 1/1600 chance of getting into? The home cartel is stable by virtue of regulatory coordination, which cannot be undone by adversarial political action because cartel members practically define the enfranchised municipal community.

Home is where the cartel is. I use the word “home” not “housing” advisedly. Homeowners understand their actions not as monopolizing the housing market but as protecting their homes and neighborhoods from the market. The libertarian “deregulatory” rhetoric by which market urbanists sometimes make their case is counterproductive. Telling people to think of their homes as a commodity upon which market forces should be brought to bear in order to ensure production of housing services at competitive prices is obtuse. People purchase property, rather than renting, largely to gain security and control, to escape the vicissitudes of the market. The worst place to emphasize “deregulation” is in dense urban environments, where almost every sort of action has spillovers. Construction in dense cities will always be heavily regulated, and should be. There can be good regulation and bad regulation, but talking about “deregulation” in an urban context is just self-branding. Dense cities in developed countries expand their housing stock as a policy choice, not because anonymous producers respond to price signals. Price signals — high market prices — give cities the option to expand their housing stock without financial subsidy by reregulating to attract developers. But nobody is dumb. You actually have to persuade an urban polity to choose to permit development, in a particular place, over the objections or with the consent of diverse stakeholders.

The deregulatory narrative not only fails to help, it very directly hurts. If you frame your solution as being about “freeing markets”, you are likely to oppose rent control on naive and misleading Econ 101 grounds. Price controls, you have been taught, create scarcity, by eliminating the incentive to produce up to the market-clearing quantity. But to claim “the rent is too damn high” implies directly that housing prices are already above the level that would inspire further production, if there weren’t other regulatory barriers. In the prosperous cities where we perceive housing crisis, market-rate housing is already priced at levels that would attract further development, if only the polity could be persuaded to allow it. New construction is market-rate housing: It is almost never subject to rent controls. The existence of rent controls on older buildings does suggest a danger that housing built today might someday be placed under rent controls too, sure. But that risk is already priced into market-rate development. If market-rate apartments sell for substantially more than their physical cost of replacement, then the market deems the risk of future value-impairing rent regulation to be sufficiently small, or sufficiently distant, or the present demand for housing to be sufficiently acute, as to cover that risk. The Econ 101 case against rent controls only holds if the threat of controls prevents the market value of newly produced rentable properties from substantially exceeding the cost of development after regulatory hurdles have been overcome. [1] This is not what we observe in real life. Impaired prices are simply not the binding constraint on new development. Market urbanists unnecessarily make enemies of a critical constituency, tenants in rent-stabilized apartments who have extraordinarily much to lose. Renters should be cities’ natural advocates for new supply. But when proposals to build come bundled with an ideology that would price people out of their current homes, renters’ enthusiasm is unsurprisingly muted. [2]

Market-centered narratives about homeownership are the source of housing supply problems at least as much as they might suggest solutions. As Daniel Hertz has observed (ht Ryan Cooper), there is a fundamental contradiction at the heart of housing capitalism. We encourage people to take on highly leveraged, undiversified exposure in homes with promises that they are good “investments”, meaning they will increase or at least retain their values over time. We also claim that housing is a consumption good that should be efficiently provided, a good for which competitive markets should expand supply to drive prices down to a technologically declining marginal cost of production. Housing cannot be both of those things at once. Much of the work we have to do if we wish to increase housing supply is to deemphasize the housing-as-investment narrative in favor of housing-as-consumption-good. Price ceilings would prevent windfall investment gains (and so investment-motivated purchases). Price ceilings would also new prevent buyers from becoming levered against much-higher-than-replacement-cost home values, and therefore lobbyists for housing scarcity. Surprisingly from an Econ 101 perspective, the best way to encourage housing supply might be to cap home prices, at a level sufficiently above physical construction cost to keep development profitable when consumption demand is strong, but no higher than that, to discourage the use of homes as speculative financial investments and to prevent scarcity rents from getting capitalized into prices.

I don’t advocate trying to impose price ceilings on existing market-rate housing. That would be an expropriation at least as unfair and politically challenging as eliminating zoning restrictions. Plus, maximizing the quantity of housing supplied cannot be our sole, overriding objective. There is much to be said for encouraging “neighborhood capital” production, incentivized in part by the prospect of rising home values, as a means of increasing quality of life and sheer aesthetic joy, despite the “NIMBY-ism” it rationally provokes. There are trade-offs. However, when we build new neighborhoods, we might want to be open to new regulatory ideas. As long as builders and buyers know the rules of the game up front, anything is fair. Experimentation should be encouraged. “Deregulation” cannot be our touchstone. The word is meaningless (it sneaks in some definition of neutrality which is wholly arbitrary), and discourages creative thinking or even looking around to see what works.

I don’t know what will work. But, looking around a bit, I’d suggest we take a look at two particularly promising examples. The housing policies of Singapore and Germany couldn’t be more different. But both countries have been remarkably successful.

Singapore never solved the problem we are banging our head against, how to take existing prosperous neighborhoods and make them more dense. It never tried. Instead, Singapore expanded its housing supply, at remarkable speed and scale, by building out extremely dense but nevertheless green, livable, and attractive “new towns“. Rather than restricting our attention to putting more housing in existing desirable neighborhoods, why not follow Singapore and build new neighborhoods, and when we run out of space for those, new ring cities? Singapore has done a ton of experimenting, in regulation, architecture and urban design, in putting greenspaces around (and on) increasingly creative high-rise developments. Obviously, Singapore is very different, socially and politically, than the United States and other Western countries. Some things won’t (and shouldn’t) translate. But we still have a lot to learn from their experience. Are we really incapable of building new, compact, microcities without their becoming Cabrini-Green or the banlieues of Paris?

Germany’s virtues are less sexy than Singapore’s sci-fi eco-towers. But they are great virtues nonetheless. Somehow, Germany has managed to avoid the price booms that in so many countries (including the Scandinavians) have segregated society between those who were homeowners at just the right times and those who were not. Germany’s path is ideologically mixed. On the one hand, German property owners have a right to build within broad planning parameters. On the other hand, what we in the United States call rent controls are universal in Germany. (German leases are implicitly “rent stabilized”. Berlin has recently begun an experiment with old fashioned administered prices.) Lending for home buying is regulated and conservative in Germany, preventing joint credit/housing booms. (You’ll recall that German banks had to dive headlong into American junk housing securities and Southern European bonds to get themselves into trouble, since their own economy wouldn’t produce enough product.) Homeownership and renting are roughly balanced, and home prices have had no tendency to increase dramatically. Homes in Germany are what a naive economist might predict they should be, a very durable consumption good that provides a stream of housing services, not a ticket to financial gain at all. Germany’s cities are very affordable relative to their counterparts elsewhere in Europe and in the United States. Germany’s housing success seems boring, in the way that your chest might seem boring to a guy who has just been stabbed and is spurting blood from a ventricle. Boring, but wonderful.

Boring Germany, sci-fi Singapore, or something else entirely. Urban housing is a really hard problem. We’ll need lots of inspiration. That economics textbook might help a little, but don’t try to use it as a cookbook.

FD: I’m very grateful to live in a rent-stabilized apartment in San Francisco.

[1] One might be tempted to argue that regulatory hurdles are themselves a “cost”, so very high prices are necessary to incentivize developers to do the necessary lobbying and lawyering. If that were a good model, the housing problem in places like San Francisco and New York would already have been solved. There is no fixed cost of permission that high property values can overcome. The political process doesn’t set a price in lobbying and paperwork and bribery and then let the supply of permits and variances expand elastically once that price is met. A better approximation is that the political process fixes a quantity and uses price to ration permission, so that any additional willingness of developers to bear regulatory costs feeds into a bidding war that feeds lawyers and architects and bureaucrats (and generates free amenities to buy off the neighbors!) but does not greatly expand the number of permits granted, or, therefore, the quantity of dwellings supplied.

[2] There is one channel through which existing rent control really might discourage new supply in high market-price neighborhoods, and it has nothing to do with supply and demand diagrams. In order to increase the housing stock of an existing, well-utilized neighborhood, one often has to knock down buildings that exist in order to put up something denser and/or taller. The prospect of this sort of “redevelopment” is always going to anger humans, who sometimes grow attached to their homes. For people in rent controlled housing in very hot markets, the threat of redevelopment is existential. Rent control in America is mostly “second generation rent control” or “rent stabilization”. You rent at market rates, or even some premium to market rates, but thereafter rent increases are tied to some administrative measure of inflation. If the building that you’ve lived in for years gets torn down to build something new, the clock starts over and you have to rent at current market rates, even if you find a new rent stabilized apartment. Many (probably most) current residents of rent-stabilized apartments would not be able to afford to live in their neighborhoods at market rates, or even in their cities. “Affordable housing” programs (of which I have a low opinion) may offer sanctuary to some of the displaced, but they offer at best an uncertain prospect. Because the stakes are so high, residents of rent-stabilized apartments become a political constituency implacably opposed to redevelopment. The long-tenure rent-stabilized are a precise mirror image of property owners who prefer constrained supply to support prices. Both have rents (in the economist’s sense of the word) to protect, benefits that markets would compete away under a different set of regulations. Both perceive securing those rents not as cashing in, but as protecting their homes and their families. Both will work (in coalition with one another) to prevent redevelopment, densification, upzoning, etc. “Reduces the future flexibility of neighborhoods” may be a colorable reason to have opposed rent stabilization back in the day. You may be cruel enough to simply wish to end it abruptly now, on the theory if those people are kicked out anyway they’ll have nothing left to oppose. You may wish that, but if you are smart you will shut up about it.