In a recent Bloomberg column, Tyler Cowen discussed the difficulties involved in paring back regulation:
The basic paradox is this: Government regulations are embedded in a large, unwieldy and complex set of institutions. Dismantling it, or paring it back significantly, would require a lot of state capacity — that is, state competence. Yet deregulators are suspicious of greater state capacity, as it carries the potential for more state regulatory action. Think of it this way: If someone told a libertarian-leaning government efficiency expert that, in order to pare back the state, it first must be granted more power, he would probably run away screaming.
Tyler was focusing on the federal government’s role in regulation, but a recent twitter thread by Brian Hanlon illustrates a similar problem at the state level:
YIMBY attempts to promote housing construction have proceeded along two different dimensions, deregulation and mandates. To paraphrase Tyler, if 5 years ago you’d asked me about housing mandates for local governments, I “would have probably run away screaming.”
I’m still not at all sure that this is a good idea. But I do sort of see the logic of this approach. State governments are trying to deregulate the housing market, and local governments continually offset their moves with ever more onerous regulatory barriers. Mandates are obviously not the first best solution—it would be better if local governments put up fewer barriers to building houses. But mandates are one tool that might actually force action on the issue.
For instance, most state governments engage in lots of revenue sharing. One could imagine making the size of the local grant be proportional to the quantity of new housing being constructed. Because NIMBY policies impose negative externalities on the rest of the state, a financial penalty for burdensome regulations would force local governments to bear at least part of the cost of their barriers to new construction. This would nudge them toward policies that allowed for more home building.
To be clear, I am not at all confident that this would work in the real world. In states like California and Massachusetts, the state government might attach requirements that construction use union labor, or that a certain percentage of housing be “affordable”. By the time legislation gets through the sausage making process in the legislature, it rarely resembles the ideal concept drawn up by policy wonks. Nonetheless, there are things in the world that are worse than housing mandates, and I suspect that certain parts of the US already have them.
READER COMMENTS
David S
Aug 30 2024 at 7:07am
I like the approach you discuss at the end of your post. Massachusetts is tentatively doing this with the MBTA Communities Act which mandates looser building regulations near T stops. Not surprisingly, some rich towns are trying to fight this and it will be interesting how tough the state gets with them and if the courts uphold the law. California has also been doing the right thing with the Builder’s Remedy legislation.
As a general note, building construction of any type can take a long time to increase output. It enjoys none of the efficiencies associated with nearly every other consumer product. The situation in California is particularly bad—Brian Potter has a very good article on this at Construction Physics. However, I think that if they stay the course on positive regulatory changes the next decade could see larger buildings in L.A. and S.F.—as well as more single family homes on the coast and the inland empire.
nobody.really
Aug 30 2024 at 7:37am
This post raises questions of subsidiarity: What is the lowest level of aggregation at which a decision should be made? In other words, what role should any given unit of government play relative to other units?
Do local NIMBY policies impose negative externalities on the rest of a state? The answer depends upon an understanding of the legitimate interests of the various units of government.
1: I accept the idea that people will use their private property selfishly: “It is not from the benevolence of the butcher, the brewer, or the baker that we expect our dinner, but from their regard to their own interest.” Adam Smith, The Wealth of Nations (1776). Shouldn’t I also accept the idea that democratic governments may do likewise? To the extent that a democratic government is “responsive”—that is, reflecting the parochial biases of its voters—is this a bug or a feature?
Pierre Lemieux recently linked to a Tyler Cowen essay stating that economist have tended to favor analyzing policies by giving an equal weight to all perspectives, including the perspectives of members of marginalized groups (black people and women). Cowen then argued that we would recognize the overwhelming net benefits of permitting greater immigration if we would only give equal weight to the perspectives of all affected parties—including the perspectives of the would-be immigrants. But such immigrants lack voting power in the jurisdictions creating the immigration laws, so their interests tend to be ignored. It is not from the benevolence of the citizen butcher, brewer, or baker that we can expect support for relaxed immigration policies….
2: If I conclude that this parochial interest generates externalities, what remedies? Gödel’s incompleteness theorems show that there are true statements about any system of mathematics that cannot be demonstrated within that system; a person must appeal to a broader framework to demonstrate aspects of the narrower one. Analogously, perhaps the remedies to governmental externalities cannot be found within that level of government; a person must appeal to a higher level of government for a remedy. While individuals may behave ethically and altruistically, “[t]he selfishness of human communities must be regarded as an inevitability. Where it [the selfishness] is inordinate, it can be checked only by competing assertions of interest, and these can be effective only if coercive methods are added to moral and rational persuasion.” Reinhold Niebuhr, Moral Man and Immoral Society (1932).
But if higher level government is justified in coercing lower level government, it is also justified in similarly coercing private citizens?
And, of course, at some point you reach the highest level of government, with no other levels to provide coercion. Here we really do need insert that elusive discussion about spontaneous order.
Grant Gould
Aug 30 2024 at 9:26am
Because the most-affected constituency for some policies is people who are outside of the polity, any system of allocating political power to bounded polities is going to be unjust or undemocratic or both. Housing is a perfect example: The net occupants of increased housing stock in jurisdiction A are not eligible to vote in jurisdiction A before the housing stock increase occurs.
Allocating that power upward (state control of zoning, national mandates, …) helps to restore representative decision making, but it also scales up the stakes the higher you go, creating winner-takes-all politics that also hollow out representative decision-making. Allocating that power downward (property rights; abolition of zoning, …) reduces the sphere of democracy and political decision making, which might be good or bad depending on your point of view.
But in the end, like immigration and voting rights and war, zoning is policy that allows the government to choose the people rather than vice versa. It’s never not going to be ugly and bring out the worst people and the worst in people.
Scott Sumner
Aug 30 2024 at 12:08pm
“What is the lowest level of aggregation at which a decision should be made?”
For education and police provision, the local government. For drinking age, the state government. For rules on free interstate trade, free speech, and freedom to build housing, the national level.
Warren Platts
Aug 30 2024 at 2:24pm
Man, I dunno, Scott. Sounds like a case of be careful what you wish for. Should we expect that what’s best for California will necessarily also be what’s best for West Virginia? Or vice versa! Plus, it’s hard to see how local zoning ordinances violate the interstate commerce clause and then there’s the 10th Amendment…
Scott Sumner
Aug 31 2024 at 12:09pm
I was asked how things should be, not how there are.
Robert EV
Sep 1 2024 at 2:08am
9th amendment as well, unless there’s no precedent at the founding of the country for local polities to regulate their land usage.
John
Aug 30 2024 at 10:23am
While it may seem like a great idea to impose a fine onto local governments that impose dumb mandates, the reality is that these local governments never actually pay these fines. Their citizens do in the form of increases in property taxes and the creation of or increase in localized sales taxes. These, in turn, cause inflation, and thus destroy the local economy further.
The solution is to pass a law at the Congressional level making it illegal to add barriers to entry for the housing sector. This, in turn, will make it illegal at all other levels due to the Supremacy Clause and many years of Supreme Court precedent.
Jim Glass
Aug 31 2024 at 2:55am
Local citizenries really do not like to pay more local taxes and notably vote against them. Politicians know that. Property owners really do not like them, have wealth and the motivation to protect it, lawyers and the power to organize. Studies regularly find them to be the most powerful interest group at the local level.
Tax increases cause inflation?
Dmm
Aug 31 2024 at 9:54am
I don’t understand why, as a libertarian-leaning person, you give prefer larger collectives (states) to smaller ones (counties, cities, towns). Why shouldn’t a local community be able to protect its character by establishing its own laws?
Scott Sumner
Aug 31 2024 at 12:13pm
So you oppose the 1st amendment to the Constitution? You oppose the interstate commerce clause? I believe that the right to build housing should be enshrined in the Constitution. If the land is precious for historical or environmental reasons, we have the takings clause. Buy it and compensate the owner.
Dmm
Sep 6 2024 at 6:51am
I don’t oppose them ceteris paribus; I oppose ceteris paribus. 😄 I support decentralization of power, which, in the U S , would not result in the scenario you envision, which I think is a bit hysterical.
I realize most of your posts accept a great majority of the status quo and nibble at the edges. You might, because you’re a macroeconomics specialist, call it realistic, but as a libertarian leaning person myself, I find it pessimistic.
Robert EV
Sep 1 2024 at 2:05am
I understand that there’s a national housing shortage, which is even more acute regionally. But is the solution more housing in those acute regions, or addressing the reasons why employers aggregate so densely?
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