Economic literacy and the housing debate

Published in The National Business Review (Auckland), 3 August 2018

“If all the economists were laid end to end, they’d never reach a conclusion,” said Irish dramatist George Bernard Shaw. Or at least that is who the quote is attributed to.

I always thought that was prejudicial because there are things that economists agree on. And these issues are also the most fundamental ones.

So try to find an economist, any economist, to question that people respond to incentives. Find anyone denying that supply and demand affect the price. Or any economist to dispute that property rights matter.

Well, the reason you will find no such economists is that they do not exist. There is fundamental agreement within the profession, at least on such fundamental propositions.

However, simple economic truths become questionable assertions once discussed outside the economics profession.

I was reminded of that when I recently sat on a panel to discuss New Zealand’s housing crisis. I was the only economist, so I should have been warned.

Worse, it was an event mainly attended by socially conscious millennials. The degree of economic illiteracy required all my politeness to remain calm.

I was allowed to present first. So I quickly went through the basic facts of the New Zealand housing debacle. The housing market has been supply-constrained for decades, and we are miles away from the consenting figures last recorded in the early 1970s.

I then explained how restrictive planning rules combined with insufficient infrastructure funding options had become a constraint on new development. I mentioned that other countries with different models had better kept house price inflation under control.

We can discuss the finer details behind these points. But it was a standard way of presenting an economic argument.

My fellow discussants were luckier than me. They were not bound by any conventional wisdom or economic logic. They could say whatever made them feel better. Or whatever they thought the audience wanted to hear.

And so one of my fellow panellists, an architect, started off with the assertion that there was a three-word explanation for the housing crisis: “free market capitalism.” Never mind that land use and construction are two of the most highly regulated areas of the economy. It remained her secret where the free market was within the regime defined by the Resource Management Act.

It got better. Discussing home ownership, my fellow discussant explained that she had considered buying a house but wanted none of the hassles that comes with it. She much preferred the ease of being a tenant with fewer responsibilities.

Fair enough. Except moments later she declared that she found it unfair that her 80-year-old, rich, Pakeha landlord received her rent week after week: “Because he has enough money and does not really need my payments.”

Maybe it did not occur to her that the reason her landlord got paid was precisely to provide the services she did not want to organise herself? Apart from the fact that without the prospect of receiving rent no one would even consider accommodating strangers.

The issue of profits in the housing market was also raised by the audience. Indeed it was one of the highest rated questions in the discussion moderation system: Can it be morally justifiable to make a profit from housing when housing is such a basic human right?

Well, if you are not an economist, phrasing it this way probably gives you warm fuzzies. How could you better virtue-signal your care for the poor and homeless? Of course, any righteous person must believe housing is so fundamental that no one should squeeze a profit out of it.

Except we do that with most other essential products. Food, for example. Imagine a world without things to eat – you would not survive for long. Or clothing. All these greedy capitalists making a living from keeping us warm in cold weather. Or travel. Paying for petrol to visit your loved ones, how unfair is that?

From an economist’s perspective, things look different. We think of Adam Smith’s famous saying that “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.” But try telling that to a millennial socialist. Not that they knew who Adam Smith was.

As I was enduring the session with these well-meaning but mostly clueless discussants, I yearned for a debate with an actual socialist intellectual. Someone who would have at least read his Marx, Engels and Lenin and could give me a utopian, unrealistic, unworkable and yet seemingly intelligent alternative to our capitalist system.

Instead, I found myself not so much in a post-modern but also post-rational, post-economics and maybe even post-Marxist debate. Where stating goals is more valuable than explaining methods. Where vision beats plausibility. Where emotions trump knowledge.

Being an economist has always been tough. Non-economists were never particularly good at understanding our discipline. But now they do not even pretend to try anymore.

At my next housing discussion, I will not mention I am an economist. Instead, I will demand that houses grow on trees, that infrastructure funding falls from heaven, and that people stop charging each other for products and services. Kumbaya, kumbaya.

And if I am lucky enough to have an activist-minded, millennial audience, that would at least for once make me the most popular speaker.

Until then, I will detoxify from such close encounters with the world’s raging madness by watching Jordan Peterson videos on YouTube.

It will change nothing but at least it makes me feel better. And that is exactly how those people on the other side of the spectrum live their lives, too.

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