New podcast episode finally out. I interviewed Carson about The Ethics of Locavorism. Essentially, the question is: if we want to be ethical consumers, should locavorism be a priority in our consumption habits? I won’t spoil the answer, but we examine the case for locavorism through the environmental lens, economic lens, and trying to foster communities. Find the RSS feed here, iTunes here.

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I’m currently reading Bourgeois Equality, Deirde McCloskey’s final installment in a trilogy. I have a lot of thoughts that will be for another day, but for now a quick observation…

Among the many ideas and arguments brought up in the trilogy, McCloskey criticizes modern-day economic thought as relying only on one of the seven principal virtues: prudence. Ethical philosophers and psychologists throughout time have recognized that human behavior is (and should be) guided not just by prudence (“rational self-interest”) but also by temperance, justice, courage, love, faith, and hope. Adam Smith, in Theory of Moral Sentiments, argued wonderfully about how human behavior guided only by any one of the four cardinal virtues (the first three plus prudence) was unreasonable and unethical. More to the point, mainstream economic analysis today is both incomplete and unreasonable to reduce all human behavior down to a rational utility maximization.

What dawned on me is how the economics discipline today is full of people worshipping this prudence-only mindset. I think the causation works both ways. On the one hand, individuals who themselves see problem-solving and behavior as largely rational calculated decisions will be disproportionately drawn to economics…because the framework they are going to be working with jives better with their own approach to life. On the other hand, students who study economics often start to shape their approach to life problems and policy decisions as if human behavior is only understood through prudence. After studying economics for a couple years, I recognize that I started to oversimplify behavioral analysis and ethics as “well, yeah, it’s in their self-interest.”

To non-economists the following parable may seem absurd, but to me at the time it sounded oddly sensical: the girlfriend of a roommate was visiting for the weekend; the roommate without the girlfriend felt this was a burden on his space and lifestyle, so he did some Coasean bargaining to allow this roommate’s girlfriend to visit and stay with them. They worked out some monetary deal to make the visit an agreeable event. Since they were sharing a room, the girlfriend visit meant the single roommate would have to sleep on the couch. What a drag! (For the record: I was not directly involved in this situation)

Another quick bit of evidence can be seen in experimental economics. Some experiments, like the dictator game or ultimatum game, are meant to isolate how altruistic humans can be in different scenarios when money is involved. Non-economists demonstrate more charity and altruism, even when the experiments are anonymous and no “self-interest” can be ascertained from their behavior. Undergraduate economics students, on the other hand, follow more closely to what “maximize utility” models would predict. Basically, they know the models. They know how they’re “supposed” to act. In a sense, they have shifted their decisions to emphasize prudence more than the other virtues. Like I said, the causation can work both ways, but I doubt that roommate would have engaged in some Coasean bargaining absent learning about the concept in economics classes. No society that I know of imposes a norm of private bargaining in such a household situation.

This reality unfortunately reinforces itself. Prudence-driven individuals are more likely to go into economics, economics is more likely to draw people towards a more prudence-based approach, and the discipline ends up staying focused on prudence only. People who are so aghast at the idea of rational self-interest being the sole driver of human behavior stop after Intro to Micro and go into other disciplines. In addition, the credibility of the subject to outsiders diminishes. On some levels, this is a fair decrease in credibility. In others, it means non-economists wrongly dismiss economic realities of scarcity and the laws of supply and demand when they shouldn’t.

Many left-leaning urbanists* try to prevent the perceived injustices from gentrification through an unrealistic combination of goals and means.

The trilemma that many city-dwelling progressives face in urban policy comes down to wanting three things that cannot simultaneously exist: 1) Maintenance of city charm via restrictions on building and construction; 2) Affordability; 3) Maintenance of existing neighborhood ‘character’ and demographic identity.

I’ll go into a little more detail on all three before proceeding:

  1. San Francisco maintains its charm by having short historic buildings that don’t give the feeling of congestion or block the sunlight. Paris keeps that cutesy feeling by not allowing building above the Eiffel Tower in the bulk of the city. If either of these cities became dominated by tall/ugly/modern condominiums, residents and visitors wouldn’t enjoy them as much.
  2. People from all ends of the socioeconomic spectrum should be allowed to access the amazing advantages cities have to offer, from jobs to ideas to cultural experiences.
  3. Neighborhoods that have served particular groups (ethnic, religious, socioeconomic) should be protected from an invasion of yuppies that threaten the existing neighborhood character because of their ability to pay much higher rents and shift demand to different business establishments.

So let’s start with the premise that policy should generally make a neighborhood safer, more beautiful to walk through, and easier to get around. Or at least, if these things happen we shouldn’t stop them. The desirability to live there will increase. An increase in desirability means an increase in demand. If this is not met with an increase in the supply of places to live or work, rents and property values will go up. This is supply and demand, and those laws have not been repealed.

Policies that maintain bullet point 1 take the form of construction regulations, height restrictions, and Floor Area Ratio laws. No one wants a billboard, casino, or ugly condo blocking a great view of the Washington Monument. Shorter buildings allow more sunlight, fresher air, better vibes. Historic buildings look nicer. So almost all cities put in place limits on the type and height of construction. The whole point of these laws is to make it harder to build. Often their stated intention is often to just give oversight to the process so that the community has a voice in what’s being built. But it’s fair to say that these are more restrictive than just a typical paperwork formality. As San Francisco has exploded in popularity, supply has not kept up. So what would we expect to happen to price?

Bullet point 2 is a goal all cities should aim for. Cities are tremendous sources of ideas, culture, and professional opportunities that everyone should have access to. When rents and property prices are too high, only those who start off with a high income can afford to access the amazing parts of cities. Social mobility decreases, productivity suffers, and innovation declines. People now settle to live in places they can most afford, not in places where they are most productive. This is bad.

Bullet point 3 is one of the trickier parts to maintain. The character of a neighborhood – including its desirability and hence property prices – do not stay static over time. The Upper East Side is oddly becoming one of the more affordable Manhattan neighborhoods below 95th street while Chelsea is solidifying its spot as one of the most expensive. 40 years ago? The roles were switched. Should policies really be focused on stopping the unpredictable dynamism of city culture? What if SoHo was legislated to stay as a garment district or the Meatpacking District as a meatpacking district? Everyone seems to want the mom-and-pop sandwich shop that’s been there for a hundred years over the boring chain, but who’s to say laws should determine which preferences should prevail?

What about rent control? The flaws in these policies are well-documented, so I’ll just give a quick rundown. Just as price controls caused long lines at gas stations in the 70s, rent control’s main effect is to cause a shortage of housing. Those that are lucky enough to get in rent-controlled buildings are drastically outnumbered by those that do not. Cities like Stockholm or Copenhagen that have a decent amount of rent control can have waiting lists of up to eight years (!) – of course, that’s unless you know the right person or are politically connected. Rent control pushes the air in the balloon to the other side of the balloon. The remaining properties become even more in demand and more unaffordable. In addition, rent control can incentivize building owners to sell on the buyers’ market rather than the renters’ market. When this happens, the supply of housing available for rent goes even further down. Rent control has also been proven to lead to inefficiently maintained buildings – landlords will only keep the apartments up to the quality the price determines they should.

What I want to scream from the rooftops to those disappointed with the results: do you expect these neighborhoods to stay exactly as they are forever and always, with affordability staying the same? If a neighborhood ‘improves,’ why do you think it will not get more expensive unless you allow for more building? No one wants a casino, billboard, or ugly condo in their backyard. But peeps gotta live somewhere!

The unfortunate political equilibrium is that those with any political voice in cities are the ones who already live there. They want to keep their property prices high, their views undistorted, and their neighborhoods just as they are. They are fine with change, and would never call themselves that dirty word ‘conservative,’ but they’d rather it be Not In My BackYard. The large swath of people who would love access to the Bay Area’s treasure trove of ideas, cultural capital, and jobs don’t vote on the laws in those towns because they don’t live there.

I’ll state the obvious admission that I am the white yuppy people say is ‘the problem’ when it comes to gentrification. I know that when I talk about neighborhoods changing, I am much more likely to be the beneficiary than the person kicked out. But I still stick to my guns that city-dwellers need to accept a) things change, and not always in a way that is immediately pleasing; b) as the benefits of living in a city continue to increase WE NEED TO BUILD MORE.

 

*For the record, regardless of whether people identify as left- or right-leaning, I think the majority of people living in cities engage in NIMBYism and want to keep their settings the way they are. It’s just kind of human nature. I chose to pick on ‘progressives’ here because they especially emphasize the desire to stop gentrification and increase housing affordability.

I have written a concept album with a band called The Benevolent Dictators all about Adam Smith, and the first song was just released.

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My motivations for writing the album and general vibe will be left for another time, but I feel inclined to discuss more about this particular song’s thematic significance. The song is inspired by text from The Wealth of Nations, Book 3, Chapters 2-4. The summary: commerce liberated the masses from the feudal system.

[Adam Smith was an 18th century Scotsman. His first book, Theory of Moral Sentiments, is about morality and human nature. His second book, Wealth of Nations, is considered the starting point for modern economic thought.]

The story begins just after the Roman Empire’s demise. Everything is in chaos and eventually order is restored via different sovereign monarchs throughout the former Empire. The monarchs don’t have the capability to enforce laws and protect everyone in their respective polities, so they enlist the help of others in exchange for big chunks of land. These estates produce enough food for the feudal landlords to survive. But, Smith observes, our desire for food is limited to the extent our bellies can make space. To utilize the surplus food, the feudal lords give their additional food to individuals in exchange for their servitude in the feudal estate. At the time, the feudal lords had no other outlets for their surplus food. Thus, their best option was to increase their power by making commoners dependent on them for food.

Meanwhile, a bunch of city dwellers (called “Burghers”) were given a special exemption by the king to start making stuff. These are the artisans and merchants. Soon, the Burghers had shiny baubles and trinkets that they were looking to sell. The feudal landlords might have limits for their desire to fill their bellies, but they have no boundaries on their childish vanity. The feudal lords wanted to show off how great they were and get their hands on these diamond trinkets. As a result, they started to trade their surplus food not for the servitude of commoners, but for the luxury goods the merchants were selling.

What they used to exchange for the servitude of hundreds, sometimes thousands of men, was now going to service their childish vanity. As the demand for these trinkets went up, so did the supply, so the previously dependent commoners now could join in on the market. Before, when the commoners were given subsistence-level resources in exchange for their work, there was of course no incentive to innovate or increase efficiency. They did the bare minimum that allowed them to survive, because any extra work would go unrewarded. Now, they began to cultivate different areas, knowing the fruits of their labor would mean more money for themselves. Prosperity follows.

In addition to the cultivation, this new market brought about interdependence where dependence used to be. In a sense, all of the parties involved were just as reliant on each other as before. The commoners of course needed the landlords as consumers of their goods, and the landlords needed an outlet for their surplus food. The difference now was that the power was completely decentralized. Rather than a commoner being subjected to the whims of one feudal lord, the market gave him the ability to appeal to the childish vanity of all the landlords to which he could ship his goods.

What is more exciting than reading about how peaceful commercial exchange liberated the masses from the tyranny of the feudal system? Smith emphasizes how this ‘silent revolution’ came about not because a top-down authority dictated it, and not because anyone was consciously trying to bring about positive change for the masses.

A revolution of the greatest importance to the public happiness was in this manner brought about by two different orders of people who had not the least intention to serve the public. To gratify the most childish vanity was the sole motive of the great proprietors. The merchants and artificers, much less ridiculous, acted merely from a view to their own interest, and in pursuit of their own pedlar principle of turning a penny wherever a penny was to be got. Neither of them had either knowledge or foresight of that great revolution which the folly of the one, and the industry of the other, was gradually bringing about.

There are free PDFs all around the internet if you’d like to read the passages in their entirety. Here is one.

I leave you with the lyrics of Silent Revolution:

They say beauty is in order
What’s left over in so few hands
But the landlords spell their doom
Wanting the jewelry the merchants have

The price they paid could buy them
A thousand different men
And though they get the diamond
Power leaves them
And commerce wins instead

Here comes the silent revolution
Moving slowly, no certainty
Interdependence, cultivation
From no design comes prosperity

Without any intention
Without beneficence
The feudal system’s dying
Lords made obsolete from
Their childish vanity

Without any intention
Without beneficence
The feudal system’s dying
Lords made obsolete from
Their childish vanity

A new post at Novel Stance is up about the fragility of the euro currency given its current institutional structure.

The institutional arrangement is not set up to support a stable currency area and the cultural differences across the eurozone make it nearly impossible to move towards a regime that makes the currency integration beneficial. As countries experience more frustration and powerlessness from giving up significant political and economy autonomy, the arrangement will come apart and the currency will no longer exist in the same form as it does today.

And:

Simply put, the United States got to be where it is today after more than two centuries of friction and it wasn’t easy. Even with all that, it benefitted from having tremendously more linguistic homogeneity than Europe has and it didn’t have millennia of regional identity baked in to individual identity. Furthermore, Project Euro has attempted to expedite this tough process of integration and identity in a mere 17 years. Having eurozone citizens suddenly consider themselves “European” before considering themselves “German” or even “Bavarian” isn’t going to happen anytime soon.

Do read the whole thing.

For those of you not aware, I did a podcast series with the Development Research Institute at NYU earlier this year. It was nine episodes focusing on development that happens on a level other than the nation-state. Each episode featured me discussing a paper with its author and is worth checking out. My favorite one is probably the fourth episode, focusing on the centuries-long history of one New York City block. Here’s the summary:

Between Houston and Prince Streets on Greene Street in lower Manhattan, one city block has undergone dramatic changes over the course of four centuries. Today this Greene Street block is home to luxury retail and expensive residences, but not too long ago it was filled with art galleries, brothels, and garment manufacturing. The shifts in the block’s physical character and value were often sudden and totally unanticipated. Looking only at the nation-state level can obscure meaningful growth that occurs on much smaller levels, but how much can we learn from looking at just a city block? William Easterly of New York University tells us about this exciting and surprising history of one New York City block and what it can teach us about development.

Here’s a link to the iTunes page.

I’ve got a new post over at Novel Stance about putting the “economic anxiety” of the Western working class in the greater context of global income trends. A couple excerpts:

Whatever legitimate economic anxiety Brexiteers and Trumpkins have from the last few decades of increasing globalization, it is dwarfed by the historic rise in living standards nearly everywhere else in the world.

In a sense, we can think of the “Western working-class” being pushed aside by an “Emerging Market working-class.” Emerging market economies like China, India, Brazil, and Indonesia are building their own middle classes, simultaneously lifting hundreds of millions out of poverty and displacing the Westerners that used to do that work.