Tag Archives: CityLab

Lockdown Illusions

16 Thursday Apr 2020

Posted by in Federalism, Liberty, Pandemic

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Analytical sins have occurred with great regularity in popular discussions of the Covid-19 pandemic and even in more scholarly quarters. Among my pet peeves are cavalier statements about the number of cases or deaths in one country or state versus another without adjusting for population. Some of this week’s foibles also deal comparisons of the pandemic and public policy across jurisdictions, but they ignore important distinctions.

No matter how you weigh the benefits and costs of lockdowns or stay-at-home orders, there is no question that maximizing social distance can reduce the spread of the virus. But stories like this one from Kansas dispute even that straightforward conclusion. As evidence, the author presents the following table:

Now, I fully support the authority of states or local areas to make their own decisions, but this table does not constitute valid evidence that stay-at-home orders don’t reduce transmission. There are at least three reasons why the comparisons made in the table are invalid:

  1. The onset of coronavirus in these states lagged the coastal states, primarily because…
  2. These are all interior states with few direct arrivals of international travelers;
  3. These states are all more or less rural with relatively low population densities, ranking 40, 41, 42, 46, 48, 49, 52, 53, and 55 in density among all states and territories.

All of these factors lead to lower concentrations of confirmed cases and Covid deaths (though the first applies only on the front-end of the epidemic). The last two points provide strong rationale for less restrictive measures to control the spread of the virus. In fact, population density bears a close association with the incidence of Covid-19, as the table at the top of this post shows. Even within low-density states, residents of urban areas are at greater risk. That also weighs heavily against one-size-fits-all approaches to enforced distancing. But instead, the authors fall over themselves in a clumsy attempt to prove a falsehood.

Even highly-educated researchers can race to wholly unjustified conclusions, sometimes fooled by their own clever devices and personal mood affiliation. This recent study directly controls for the timing of stay-at-home orders at the county level. The researchers attempt to control for inherent differences in county transmission and other factors via “fixed effects” on case growth (which are not reported). This is an excuse for “assuming away” important marginal effects that local features and conditions might play in driving the contagion. The authors conclude that stay-at-home orders are effective in reducing the spread of coronavirus, which is fine as far as it goes. But they also leap to the conclusion that a uniform, mandatory, nationwide lockdown is the wisest course. Not only does this neglect to measure the differential impact of lockdowns by easily measured differences across counties, it also assumes that the benefits of lockdowns always exceed costs, regardless of density, demographics, and industrial composition; and that a central authority is always the best judge as to the timing and severity of a mandate.

The national crisis engendered by the coronavirus pandemic required action at all levels of government and by private institutions, not a uniform set of rules enforced by federal police power. State and local police power is dangerous enough, but better to have decisions made by local authorities who are more immediately accountable to citizens. Government certainly has a legitimate role to play in mitigating behaviors that might impose external costs on others. Providing good information about the risks of a virus might be a pivotal role for government, though governments have not acquitted themselves well in this regard during the Covid crisis.

It’s also important for federal, state and local authorities to remember that private governance is often more powerful in achieving social goals than public rule-making. People make innumerable decisions every day that weigh benefits against risks, but public authorities are prone to nudging or pushing private agents into over-precautionary states of being. It’s about time to start easing up.

 

Relieving the U.S. Public Toilet Shortage: User Fees

12 Wednesday Dec 2018

Posted by in Price Mechanism, Social Costs

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The musical comedy Urinetown opened in 2001 and ran for 965 performances, not a bad run by Broadway standards. The show, which is still performed in theaters around the country, is a melodramatic farce: a town tries to deal with a water shortage by mandating that all townspeople use pay toilets controlled by a malevolent private utility. Despite the play’s premise, pay toilets are a solution to the very real problem of finding decent facilities, or any facility, in which to relieve oneself in public places. Anyone who has ever strolled the streets of a city has encountered this problem from time-to-time. But in the U.S., where local budgets are typically strapped, the choice is often between scarce and decrepit free toilets or no toilets at all. Otherwise, those seeking relief must rely on the kindness business owners or pass laws allowing non-patrons to commandeer businesses’ bathrooms at will. Toilets with user fees, however, are an alternative that should get more emphasis.

In part, the theme of Urinetown reflects a longstanding notion among anti-capitalists that pay toilets are a disgustingly unfair solution to these urgent needs. One can imagine the logic: everyone has a need and a right to make waste, so we should all have access to sparkling public toilets for free! There is also the presumed misogyny of charging at stalls but not urinals (which are cheaper to maintain, after all), but overcoming that problem should not present a great technical hurdle. And surely pay toilets could be made to accept EBT cards, or locally-issued pee-for-free cards for the homeless.

Yes, we all make waste. However, most of us are so modest and fastidious that we quite literally “internalize the externality” we’d otherwise impose on others were we to seek relief in the street or behind trees in the park. We hold it and sometimes incur high costs in search of a restroom. Those are costs many of us would willingly pay to avoid.

As Alex Tabarrok says in “Legalize Pay Toilets“, outrage over pay toilets, very much like the kind expressed in Urinetown, is what led to outright bans on pay toilets in America during the 1970s (also see Sophie House’s discussion of the need for pay toilets at Citylab). According to Tabarrok, “In 1970 there were some 50,000 pay toilets in America and by 1980 there were almost none.” Many travelers know, however, that pay toilets are fairly commonplace in Europe.

In the wake of pay-toilet bans in America, and without the flow of revenue, those one-time pay toilets were not well-maintained nor replaced. In that sense, hostility to the concept of pay toilets is responsible for the paucity and abysmal condition of most public restrooms today. Public restrooms are often plagued by a tragedy of the commons. And when you do see a “free” public restroom in relatively good condition (in an airport, on a turnpike, or elsewhere), it is usually because its costs are cross-subsidized by payments for other goods and services offered in those facilities. It’s not as if you don’t pay for the bathrooms.

There is no question of a willingness to pay, but legal obstacles to pay toilets remain. Pay toilets are still very uncommon. New York City actually decriminalized public urination a few years ago, an odd way to deal with the shortage of restrooms. Some cities, such as Philadelphia, have initiated efforts to bring back pay toilets, but they have made little headway. Just last year, the toilet paper producer Charmin ran a successful publicity campaign in New York City by testing a mobile toilet-sharing service (à la Uber ride-sharing) called Charmin Van-GO. The company described the test as a big success in terms of publicity, but apparently the service has not been offered on a continuing basis.

The economic problem posed by full bladders and bowels on the public square can be solved with relative efficiency using the price mechanism: pay toilets. The flow of revenue can defray the costs of restrooms and their maintenance, easing the strain on public budgets and covering the cost of keeping them clean. Pay toilets can be provided publicly or built and operated by private providers. Pricing the use of toilets, whether offered publicly or privately, helps focus resources at the point of need. Free public toilets, in contrast, are scarce and typically unsanitary. Funding public restrooms through taxation, rather than user fees, involves a loss of efficiency because taxpayers are often distinct from actual users. Forcing purveyors of food and drink (or anything of value) to offer bathroom access to “free riders” creates another obvious source of inefficiency. Allowing the use of EBT cards at pay toilets, while overcoming certain objections, would also involve inefficiencies, but at least they’d be limited to subsidies for a small proportion of the bathroom-going public. Given the alternatives under the status quo, our cities would be far more pleasant if they were flush with pay toilets.

How We Hinder Mobility

06 Monday Feb 2017

Posted by in Labor Markets, Mobility

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moving

 

 

 

 

 

 

 

A plethora of regulations and subsidies established by governments at all levels is making it more difficult for Americans to move, especially from one state to another. Yale Law Professor David Schleicher identifies these barriers to mobility and writes that they compromise the nation’s ability to match jobs with workers. Thus, these laws beget economic immobility as well. His paper, “Stuck in Place: Law and the Economic Consequences of Residential Stability“, describes a number of the barriers:

“Land-use laws and occupational licensing regimes limit entry into local and state labor markets; differing eligibility standards for public benefits, public employee pension policies, homeownership subsidies, state and local tax regimes, and even basic property law rules reduce exit from states and cities with less opportunity; and building codes, mobile home bans, federal location-based subsidies, legal constraints on knocking down houses and the problematic structure of Chapter 9 municipal bankruptcy all limit the capacity of failing cities to ‘shrink’ gracefully, directly reducing exit among some populations and increasing the economic and social costs of entry limits elsewhere.“

To get a sense of the magnitude of declines in mobility over the past three decades, see Figure 3 in this discussion about mobility by Richard Florida at CityLab. The percentage of homeowners who move declined from almost 10% annually in the late 1980s to about 5% in 2016. The biggest declines occurred during the periods of economic weakness in 2001 and 2008. For renters, the percentage of movers declined from just above 35% in 1988 to less than 24% in 2016.

Workers who might otherwise migrate to jurisdictions with better economic opportunities often cannot do so. Schleicher notes that low-income workers suffer the most from these obstacles, which he divides into entry and exit barriers. Most of the obstacles he cites are compelling, though at times his emphasis veers toward enabling more effective government management of the macroeconomy, which is very unappealing to my libertarian instincts.

Entry Barriers

Schleicher emphasizes two major ways in which entry barriers are created. One is the spread and severity of land use restrictions such as zoning and construction laws, which have become so severe in some areas of the country that they have led to drastic inflation in housing prices. In a review of Schliecher’s paper, Ronald Bailey at Reason.com illustrates the disparities created by this process:

“According to the Trulia real estate market analysis, the median house price in San Francisco is $1.2 million, with a median rent of $4,100 a month; in Youngstown it’s $93,000, with a median rent of $650. In other words, a Youngstown worker who sold his home for full price would receive enough money to rent a place in San Francisco for 22 months.“

The contrast in the economies of these two cities is stark. The San Francisco Bay Area has experienced vibrant job growth over the past several years, while Youngstown has been struggling for decades. Given the difference in housing prices and rents, it would be almost impossible for a worker from Youngstown to pursue an opportunity in the Bay Area without a accepting a severe decline in their standard of living. Joel Kotkin makes a similar point in discussing the high cost of housing in some areas, but his focus is on the difficult prospects for economic mobility and homeownership among Millennials.

The second major entry barrier discussed by Schleicher takes the form of occupational licensing laws. They differ across states but have multiplied since the 1950s. According to Richard Florida (linked above), the share of American workers subject to some form of licensing requirement rose from just 5% in the 1950s to 25% by 2008. Schleicher cites low rates of interstate mobility among professions that typically require a license to practice. Veterans of those occupations tend to have an established book of business, however, so it’s reasonable to expect fewer distant moves. Nevertheless, the cost of obtaining a license in a new state and differing licensure requirements are likely to inhibit the mobility of licensed professionals.

Exit Barriers

One of the most interesting sections in Schleicher’s paper is on exit barriers. Locations are always “sticky” to the extent that local ties exist or develop over time, both between people and between people and local institutions. But some institutions create ties that are severely binding. For example, state and local government employees are often enrolled in defined benefit plans with lengthy vesting periods. Remaining in one system throughout a career can be a huge advantage. Other exit barriers involve differences in eligibility and levels of aid under federal programs managed by states such as Medicaid, Temporary Assistance to Needy Families (TANF), and the Supplemental Nutrition Assistance Program (SNAP — food stamps). Beyond the actual benefits at stake, administrative costs and delays in re-enrollment might hinder a needy family’s attempt to make an interstate move.

Local and state law on property transfers can also impinge on mobility. Real estate transfer taxes in some states certainly create an incentive to stay put. Also, while tax reassessments occur with regularity in most jurisdictions, some impose limits on the amount of the annual change in valuation, requiring a full tax revaluation on resale, so a seller must forego such a tax discount. Rent controls reward renters who stay in place, creating another exit barrier. And rent controls prevent entry as well, as they invariably reduce the supply of quality housing, thereby inflating the rents of vacated apartments available to new residents.

Finally, federal policies designed to encourage homeownership create exit barriers across the country. Ownership of a residence increases the “stickiness” of any locale, but the loss of a mortgage interest income-tax deduction adds to the sacrifice of a move to a rental unit in a more expensive location. So does the interest rate subsidy inherent in the implicit federal guarantee against default on mortgages securitized by Fannie Mae and Freddie Mac. Finally, when local economies are in a state of decline, home prices usually follow. Consequently, owners are likely to suffer reduced or negative equity in their homes and may be “locked in”, unable to pay off their mortgage on a sale, and therefore unable to leave their current residence.

Rent Seeking and Good Intentions

Some of the policies discussed above are the handiwork of those powerful enough to enlist government power in their own self-interest. That includes zoning laws, by which property owners can prevent land uses they deem undesirable. It also includes occupational licensing, a political avenue through which established business interests limit competition by new entrants. Of course, licensure is typically sold to voters as consumer protection, a claim that is often dubious.

Other policies that hinder mobility can be characterized as well-intentioned, like the old-style, defined benefit plans still in use by many state and local governments, or federal subsidies for homeownership. Many such policies are, or have been, promoted on the basis of the obvious gains they create for individuals, with little thought given to the “unseen” but damaging economic consequences. Rent controls fall into this category as well, but are very damaging in the long-term.

The Labor Market Ossified

All of the mobility-limiting policies discussed by Schleicher have a detrimental effect on the performance of labor markets. Workers tend to get stuck in depressed areas, where their value as human resources is diminished even while employers in other markets face limited supplies of qualified labor. This leads to higher structural unemployment, lower growth in output, and more difficulty for the private sector in meeting the needs of consumers than otherwise be possible.

I haven’t dealt with one other national policy dealing explicitly with geographic mobility: immigration. Restrictions on legal immigration and the issuance of green cards are often sought by interests hoping to protect Americans from competition for jobs. Suspending competition is never a good idea, however, as it leads to higher prices and undermines consumer interests. To the extent that businesses face a shortage of qualified talent to fill particular jobs, as is often the case, such restrictive policies are unequivocally damaging to the economy for the same reasons as barriers to interstate migration. Liberalized immigration allows more foreigners with peaceful, productive and often entrepreneurial intent to contribute to the country’s ability to create wealth.

Prescriptions

What can be done to promote interstate mobility? Here is a list that is undoubtedly incomplete: encourage state and local governments to end rent controls; liberalize zoning laws; reevaluate construction restrictions; liberalize occupational licensing; reduce real estate transfer taxes and smooth the timing of tax revaluations. Governments should also transition from defined benefit to defined contribution benefit plans, a step that would also allow them to avoid persistent overoptimism about their ability to meet future pension obligations. As long as states manage federal aid programs and have leeway in setting eligibility requirements and their share of benefits, there will be exit barriers to low-income recipients. Perhaps states should be required to coordinate benefits, with strict time limits, when recipients move interstate to pursue employment opportunities. Finally, subsidies encouraging homeownership should be phased out, including the federal tax deduction for mortgage interest and full privatization of Fannie Mae and Freddie Mac. A neutral stance with respect to homeownership would allow the market to seek an optimal balance in residential property ownership without creating excessive locational anchors.

Schleicher devotes a large part of his paper to the implications of reduced mobility for macroeconomic stabilization policy. In particular, he contends that measures intended to stimulate the economy cannot be as effective when labor supplies are inflexible. That might be true, but I’m loath to endorse Keynesian activism. Still, there is no doubt that geographic stasis of the kind described by Schleicher contributes to immobility in incomes as well. The main conclusion I draw from his paper is that governments ought to be very cautious about interfering in market transactions, even when convinced that their cause is noble. The law of unintended consequences has a way of foiling the best laid plans of social engineers.