Rick Perry’s New Look

In my book, Ben Bernanke is a hero for making US monetary policy as good as it was in the aftermath of the Financial Crisis of late 2008 and during the Great Recession that followed. So I will not easily forgive Rick Perry for calling Ben’s actions “almost treacherous – or treasonous in my opinion” in a speech back in August, 2011

Yet, I was intrigued by Rick Perry’s emphases said in what the Wall Street Journal called “Perry’s Race Talk,” that happened on July 2, 2015. In addition to education reform and criminal justice reform to reduce the number of Americans in prison, Rick talked about the importance of allowing enough construction so that more people can live in our most attractive cities without subsidies:

There is a lot of talk in Washington about inequality. Income inequality. But there is a lot less talk about the inequality that arises from the high cost of everyday life,” Mr. Perry says. “In blue state coastal cities, you have these strict zoning laws, environmental regulations that have prevented builders from expanding the housing supply. And that may be great for the venture capitalist who wants to keep a nice view of San Francisco Bay, but it’s not so great for the single mother working two jobs in order to pay rent and still put food on the table for her kids.

I began to more fully realize the importance of this issue when I wrote “The Wrong Side of Cobb-Douglas: Matt Rognlie’s Smackdown of Thomas Piketty Gains Traction.” Here is a key paragraph from that post (which is well worth reading in its entirety):

Above, I wrote that developers should have to pay some of the costs of reductions in the quality of life nearby when higher density is unpleasant to live nearby–say by blocking out the sun. In an earlier version of this post, I actually made the serious mistake of saying they should pay for the reduction in “land values” from development nearby. But that is wrong by a cost-benefit test. Suppose a particular housing development is neutral for the quality of life nearby. Then it would still reduce the values of land nearby by providing more housing competition. This is not a social loss but rather a shift in wealth from landowners renters and future buyers of land, which reduces inequality. So a key conceptual issue for appropriate land policy is to not think of everything that reduces neighboring land values as a bad thing, but to distinguish when (and how much) it brings down land prices by reducing the quality of life nearby from when (and how much) it brings down land prices by providing additional housing competition.

To put a point on it, a simple political economy analysis indicates that, whatever the right amount of housing in an area from a cost-benefit point of few, the local homeowners and building owners will tend to want too little of it, since any extra housing provides competition for one of their assets. If they were to get their hands on some type of government machinery allowing them to hinder the construction of additional housing …

This is a problem in most advanced countries. For example, the Sveriges Riksbank, the central bank of Sweden, is quite concerned about financial stability. But a few inquiries indicated that this was primarily a concern about the skyrocketing prices of houses in Stockholm. Those prices have at least as much to do with barriers to the construction of new housing as they do with any monetary policy action.

In general, I think the issue of allowing enough construction so that people who are not rich have a chance to live in attractive cities is important enough that it should come to mind whenever one thinks about supply-side reforms. It is also an affront to human dignity to lean toward excluding people, as I discussed in “’Keep the Riffraff Out!’” and “The Message of Jesus for Non-Supernaturalists.”