Tag Archives: free market

An American right to a good deal?

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Amid inflation and high prices, the Chicago Tribune editorial board ended an editorial on prices at Starbucks this way:

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It’s no sin to offer good value. Americans are practical people. We’re betting most of those who duck into a Starbucks would be pleased to see some special deals on the menu.

What American does not like a good deal? At the same time, Americans tend to say that the market sets prices. So what happens if prices seem unfair or unreasonable?

Two recent phenomena highlight this tension:

  1. Higher levels of inflation coupled with higher set prices. Is this fair? Sure, Americans keep buying during this time but they are spending more money on goods that used to be cheaper.
  2. High housing costs. Americans want to benefit as homeowners from rising property values but do not like paying high housing prices.

At what point do Americans deserve a good deal? Or when should non-market forces jump in to change conditions? This could depend on the particular context, leaders and influential actors, and what the public wants. Regarding the second example above, Americans have worked over decades to back up mortgages so that more people could pursue homeownership while not providing much public housing.

Even as Americans do not have a right to good deals, they tend to have at least some companies willing to offer goods or services at prices lower than others. This does not always occur and there are situations – such as with monopolies – where the government will step in. Without intervention, individual consumers are left trying to find a bargain or going without in a country devoted to consumerism.

25% of Parisian residents live in public housing; hard to imagine this in the United States

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A sizable portion of Paris residents live in public housing:

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This summer, when the French capital welcomes upward of 15 million visitors for the Olympic Games, it will showcase a city engineered by government policies to achieve mixité sociale — residents from a broad cross-section of society. One quarter of all Paris residents now live in public housing, up from 13 percent in the late 1990s. The mixité sociale policy, promoted most forcefully by left-wing political parties, notably the French Communist Party, targets the economic segregation seen in many world cities.

“Our guiding philosophy is that those who produce the riches of the city must have the right to live in it,” said Ian Brossat, a communist senator who served for a decade as City Hall’s head of housing. Teachers, sanitation workers, nurses, college students, bakers and butchers are among those who benefit from the program.

Making the philosophy a reality is increasingly hard — the wait list for public housing in Paris is more than six years long. “I won’t say this is easy and that we have solved the problem,” Mr. Brossat said…

City Hall has a direct hand in the types of businesses that take root and survive in Paris because it is the landlord, through its real estate subsidiaries, of 19 percent of the city’s shops. Nicolas Bonnet-Oulaldj, the city counselor who oversees the city’s commercial landholdings, said his office is constantly studying neighborhoods to maintain a balance of essential shops and limit the number of chains, which can usually pay higher rent.

Three related reasons come to mind for why this would not happen in an American city, even with significant needs for housing:

  1. A supposed free market approach to housing. Americans prioritize policies and programs for single-family homes, not denser urban housing with subsidized rents. Why should public housing take up valuable real estate that would go for much higher prices on the open market?
  2. Many Americans think public housing has already failed in the United States. The story might go like this: the limited project that began in the first few decades of the twentieth century led to disastrous high-rise public housing projects in big cities and a subsequent retreat from public housing (shifting to providing housing vouchers).
  3. Less interest in centralized planning and government control. Would Americans want the government choosing housing and business opportunities in major cities? You mean Paris is not organically developed?

Overall, American cities pursue market approaches to social issues.

An example of running into an academic argument that causes one to pause

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I like to read and I see a lot of texts and information. But, sometimes a sentence or paragraph or idea sticks out and makes me stop. Here is one such recent example:

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Adam Smith wrote the Wealth of Nations (1776) in a mercantilist era, when the only free market was the slave trade, about which he wrote nothing (Appleby 2010). He was thus not describing existing conditions. Instead, he was proposing an answer to the most important question to thinkers of his time: how to sustain a social order outside of a theological framework in which God served as both keystone and source of legitimation (Dumont 1977; Rosanvallon 1979; Carrier 1997). Early industrialization and the rise of the bourgeoisie had threatened the theological foundations of monarchical and noble rule. In response, Enlightenment political philosophy produced two conceptual pillars for the new society. One was the State, founded on popular sovereignty and the social contract. The other was the Market, based on a supposed natural right to property and the freedom to exchange (Donegani and Sadoun 2007; Audard 2009). The Classical economists’ ideal, self-regulating market, in other words, was a mechanism to replace God. (Gauthier, Francois and James Spickard. 2023. “”Pay No Attention to That Man Behind the Curtain”: a Critique of the Rational Choice Approach to Religion.” Method and Theory in the Study of Religion 35:151)

I do not have the expertise to weigh these claims. But, the final sentence caught my attention: in the shift away from religion, the market could be a substitute. Appealing to the workings of the market could fit where previously people and institutions might have appealed to religion. Where might this fit with Weber’s argument that the intertwining of religion and capitalism faded away as economic and rational logic took over? How does this fit with certain religious traditions and institutions that embrace a free market logic that might have attempted to replace them?

Because it is the end of the semester, I have limited time to follow up on this. Yet, I will explore more later. And I can clearly remember other books and articles that produced “aha” moments or unlocked a series of thoughts and other ideas that proved interesting. Maybe someday I will compile a list of such sources; they do not necessarily come along often and they are worth noting.

Encourage more and more building in cities – and get more and more luxury apartments

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Efforts to encourage more housing in big American cities can often lead to more units for the wealthy:

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Academics, developers and people in their 20s and 30s—particularly those most active on social media—have reached an unusual level of consensus. Their solution, supported by a wealth of scholarly research, is simple and elegant: Loosen regulations, such as zoning, and build more homes of any kind—cheap, modest and palatial…

Inconveniently for the Yimbys, Austin, like other cities, is still way more expensive than it was years ago, even though it’s built so many apartments. As a result, a small group of academics is starting to question the free-market path. These critics note that the market leads developers to build luxury housing on scarce and sought-after property to maximize the return on their investment. “Yimbys say, ‘We have to let the market build,’ ” says Benjamin Teresa, an urban planning scholar at Virginia Commonwealth University. “But what kind of housing are you building, and for whom?”…

But the very popularity of these places with the affluent drives up housing costs, making it harder for companies to find workers and pushing firms to relocate elsewhere. The Austin metro area, one of the fastest-growing in the US, with a population exceeding 2 million, has benefited from corporations fleeing the high cost of housing elsewhere, particularly on the east and west coasts of the US. Home of the University of Texas’ flagship campus, it’s lured Elon Musk’s Tesla, along with Oracle, from Silicon Valley. JPMorgan Chase and Charles Schwab are expanding there, too...

Frustration over rising rents has led cities to consider government interventions that were once deemed discredited. Boston, Orlando and Kingston, New York, have taken fresh looks at rent control, which had been blamed for distorting the market and raising the cost of other apartments.

If a builder or developer gets the green light to build housing, why would they choose to build cheaper units if they can build more expensive units and make more money?

As the article notes, perhaps this requires cities to see housing as not just a market good or something subject to market fluctuations. If housing is just another commodity that requires a big return on investment, why not go big in asking for expensive rates? Rent control or publicly subsidized housing may require more intervention, but they could also be necessary to provide any housing within the reach of residents with fewer resources.

Which cities are able to successfully buck these trends will be interesting to see. If policies become more explicit about affordable housing units, will developers push back publicly? Will an important city then see a downturn in building and investment?

Who should be able to live on or near the coast?

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A new federal government flood insurance plan highlights an ongoing question: should living near the ocean coast be available to many?

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At the center of the fight are the questions of who gets to live by the water, and who should shoulder the burden of costs that rise with the sea level. The estimated 13 million people who reside in the officially designated floodplain are divided between those who can buy pricey waterfront homes and those consigned to live in less desirable, low-lying areas because that’s all they can afford. Some of the people hardest-hit by major recent storms have been vulnerable communities in New Orleans; Port Arthur, Texas, outside Houston; and poor neighborhoods in the farthest reaches of New York City. The updated flood-insurance system is designed to help those populations, but in coastal communities across the country, uncertainty about the new prices is spreading fear that however well intentioned, the administration’s policy will exacerbate the inequality of beachfront living, pushing out homeowners most sensitive to climbing insurance rates.

Real estate is famously about location, location, location with recent examples – COVID-19 migration and opportunities in the metaverse – illustrating this maxim. The coast may be one of the most desirable locations as there is only so much of it and people like the views and access to the water and beaches. Even though not all coastal properties are really expensive, such land near big cities and destinations can be very pricey with high demand.

Even as the insurance program is updated, perhaps the real long term question is just how many people should be able to live on the coast at all given climate change, environmental concerns including erosion and habitat degradation, and an interest in keeping shoreline available for public use. Is there any chance more coastline in popular areas is protected fifty or one hundred years from now or are the market pressures just too strong?

Where is the construction of cheaper homes in the United States?

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One recent analysis suggests a major contributor to the lack of homes for sale is limited construction of new homes:

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Earlier this year, Realtor.com estimated the gap between the number of homes needed and the number of homes available at 5.24 million. That estimate in June represented an increase of 1.4 million above the estimated 3.84 million gap in 2019, primarily because residential construction hasn’t kept up with household formations.

From January 2012 to June 2021, 12.3 million new American households were formed, but just 7 million new single-family houses were built, according to Realtor.com.

The housing shortage is particularly acute in the more-affordable range. Newly built houses with a median sales price of $300,000 represented just 32 percent of builder sales in the first half of 2021, compared with 43 percent during the first half of 2018, according to Realtor.com. To close the gap between demand and supply, builders would need to double their pace of construction for five or six years, Realtor.com economists estimate.

I have been trying to keep track of this for several years now: where are the new cheaper homes? If home builders are interested in selling homes, why not also create products for this part of the market?

There could be lots of reasons for this present state. But, this is not just a problem of 2021; this has been going on for at least a few years. Who can or will act to address this? Is this a pressing social concern that requires attention or just something to note every so often?

Imagine a time in the near future after this trend of the last ten years or so has truly piled up. How will younger adults pursue homeownership, a goal many Americans still say is desirable? Will a lower end of the housing market simply disappear to be overshadowed by more expensive, larger homes that truly generate profits?

If this continues, I would not be surprised to see more calls for housing interventions beyond the market.

Starting work on a 105 mile long linear city in Saudi Arabia

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The proposed linear city of Neom is underway:

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Saudi Arabia has started moving earth and tunneling through mountains to build a futuristic linear city that officials hope will host its first residents in 2024, the project’s chief executive said.

Employees are still developing regional master plans and a “founding law” for the mega-project called Neom, Nadhmi Al-Nasr said in an interview in Riyadh. But they’ve already started early infrastructure work on its main feature – a 170-kilometre (105-mile) long car-free city called “The Line” that could begin welcoming inhabitants and tourists as early as the first quarter of 2024, he said…

His plans to turn the remote region on the kingdom’s northwest Red Sea coast into a futuristic tech hub encapsulates the major elements of his so-called ‘Vision 2030’ to diversify away from crude, loosen social restrictions and boost investment…

One of the next steps could be the approval of the special regulations that will govern Neom as a “free zone”, with different laws than the rest of Saudi Arabia, Al-Nasr said. That could be completed around the first quarter of next year, he said.

Two features of this possible city are not a surprise. The emphasis on tech is a feature of many city plans, whether for whole new cities or for existing places. Everyone sees opportunity, money, and status in tech. Similarly, the idea of a “free zone” is common as it opens possibilities for business and international culture. Theoretically, a country could reap the benefits of such a location while also overseeing a uniquely setting with fewer regulations.

What may be most unique here is the concept of a linear car-free city. The world’s largest cities today are huge sprawling areas. But, starting with no cars and having a linear city rather than one expanding out from some center sound different. How exactly such a large expanse could be connected to itself so hat it feels like the same community remains to be seen.

Such construction will be a lengthy process, even in a country with lots of resources. And then there is a process of developing a community which adds time. At some point, Neom might join other free zone cities as new kinds of global places.

Private city for business opens in Honduras

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A Honduras city primed for business will soon open for remote operators:

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Próspera is the first project to gain approval from Honduras to start a privately governed charter city, under a national program started in 2013. It has its own constitution of sorts and a 3,500-page legal code with frameworks for political representation and the resolution of legal disputes, as well as minimum wage (higher than Honduras’s) and income taxes (lower in most cases). After nearly half a decade of development, the settlement will announce next week that it will begin considering applications from potential residents this summer.

The first colonists will be e-residents. Próspera doesn’t yet have housing ready to be occupied. But even after the site is built out, most constituents will never set foot on local soil, says Erick Brimen, its main proprietor. Instead, Brimen expects about two-thirds of Prósperans to sign up for residency in order to incorporate businesses there or take jobs with local employers while living elsewhere…

The idea behind charter cities, along with their predecessor seasteading, which sought to create independent nations floating in the ocean, is to compete for citizens through innovative, business-friendly governing systems. For some reason, the idea has long been linked to Honduras, an impoverished country whose governing system is classified as “partly free” by the human rights organization Freedom House. Paul Romer, an American economist who pioneered the idea of charter cities, tried to start one in the country a decade ago. It failed, but Honduras has spent much of the time since then writing a law to enable such cities, which are known in the country as Zedes, short for zonas de empleo y dessarollo económicos (employment and economic development zones).

But the prospect of creating pockets of prosperity that play by their own rules is controversial for obvious reasons. Próspera has drawn protests from local residents who see a lack of transparency and little to gain from its existence, and a group of local political leaders signed a letter of opposition in October. This month, an arm of the Technical University of Munich said it’s reevaluating its relationship with Próspera and that it generally withdraws from projects if there are indications of human rights violations. Representatives for TUM didn’t respond to requests to elaborate. A spokeswoman for Próspera says it has had a “great working relationship with TUM over the years.” 

Although this city has been in the works for years, it seems appropriate that is will open for remote businesses in the COVID-19 era. Even without a physical presence in the city, corporations will be able to incorporate there and enjoy the benefits.

Down the road, it is interesting to imagine what a thriving or beleagured charter city could be like. For some reason, I am thinking of some of the more colorful communities from Star Wars where all sorts of characters come together to conduct their activities. How many people would come to live and work versus how many will access the city’s benefits from afar? What kinds of alterations to the regulations might be necessary? How many free market cities might this inspire elsewhere?

Housing appraisals reflect existing racial inequalities in housing

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A new published sociology study connects housing appraisals and race:

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For decades, research has shown that houses in predominantly Black neighborhoods have been generally appraised at lower values than houses in majority-white neighborhoods. This is true even when comparing housing stocks that have the same characteristics (age, square footage, number of rooms, etc.) and neighborhoods of equal socioeconomic status.

The new study finds that the racial composition of a neighborhood was an even “stronger determinant” of a home’s appraised value in 2015 than it was in 1980, to Black homeowners’ increasing disadvantage. Analyzing reported home values, Howell and Korver-Glenn found that the race appraisal gap has doubled since 1980: The difference in average home appraisals between neighborhoods that are majority-white and those that are predominantly Black and Latina was $164,000 in 2015, up from about $86,000 in 1980.

Rather than explaining the racial inequity as a vestige of historic segregation, the study finds more culpability in a method used to calculate appraisals today, the “sales comparison approach,” which determines a home’s appraised value by looking at the prices of other similar homes that were recently sold from the same neighborhood. The real estate industry sees this as a race-neutral way of appraising homes so that it doesn’t run afoul of fair housing laws, and it is one of the key criteria used for determining property values. But what makes this method problematic, according to the study, is that it basically grandfathers in racist home pricing that existed before fair housing legislation.

In other words, if an appraiser is calculating  the value of a home in a Black neighborhood by comparing it to houses recently sold around it, then chances are she is comparing it to other Black-owned houses that, because of the legacy of segregation, have handicapped values in the market compared to similar homes in white communities appraised at higher prices. The unfairly valued prices of homes in Black neighborhoods before the 1970s thus serves as the baseline for how homes are appraised and priced today. While the Fair Housing Act and Community Reinvestment Act forbade practices like redlining and denying mortgage loans based on race, they did nothing to readjust housing prices in segregated neighborhoods after they were passed.

In other words, past decisions and actions valued homes in white neighborhoods more than homes in black neighborhoods because of racism. Today, appraisals that typically compare homes in like neighborhoods perpetuate those different homes values. The system carries on these inequities even if no appraiser is intentionally racist; the way things are done continues the patterns set decades before.

There is another question here as well: what exactly are appraisals and housing values based on if they contingent on factors like race and not just on the characteristics of the home? Is there inherent value in a particular configuration of home traits – say a three bedroom, two bedroom home with a two car garage – or is the value completely dependent on what society says it is? I know the market is involved and the head of an international appraisal association is quoted later in the article cited above talking about supply and demand. But, if supply and demand says some homes are worth more because of the people who own them and the people in the neighborhood, this does not exactly sound like a desirable “free market.”

Argument: “the real civic religion of America, business at all costs”

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Which values should guide decisions in a time of crisis? Here is one argument regarding how decisions are made in the United States:

These approaches are the horns of America’s corona-dilemma. Every society has reacted to COVID-19 according to its principles or, if no principles were to hand, its habits. It has been America’s misfortune that its principles and habits are ill-suited to managing an epidemic. The federal system, by functioning as it should, prevented the kind of nationwide shutdown that worked in smaller countries like Austria. The real civic religion of America, business at all costs, can accept the redirection of the economy by the Defense Production Act, but it cannot tolerate the suspension of all economic activity. Yet a powerful counter-impulse — averse to risk, trusting of authority, and hence likely to seek out niches in the economy which are immune to booms and busts — prefers to shelter in place.

It is hard to make sweeping claims about cultural values in the midst of significant social change. At the same time, understanding “patterns of meaning-making” (the definition of culture from sociologist Lyn Spillman) is invaluable for analyzing why certain actors respond as they do in such times.

This reminds me of two sociological works that get at the same issue:

1. Emerson and Smiley’s 2018 book Market Cities, People Cities examined cities around the United States and the world to see if they put markets or people first. On the whole, American cities privilege markets with their policies and rhetoric. In American communities, growth – usually measured as economic growth and/or population increases, is always good. (See an earlier post on this book here.)

2. Dobbin’s 1994 book Forging Industrial Policy suggests in the early decades of the railroad the United States pursued a public-private policy regarding develpoment compared to the laissez-faire approach of Britain and the top-down, centralized approach of France. Yet, in the last few decades, a growing chorus of voices argues the United States privileges the interests of corporations over the welfare of all residents.

There could be other contenders for the civic religion of Americans including individualism, the civil religion described by sociologist Robert Bellah, middle-class values, and the importance of private property and private spaces. But, in this particular situation, what exactly should be done regarding businesses and the economy is a particular hot point.