From my 2008 post about A Farewell to Alms:
[economics professor Gregory] Clark starts with a defense of Malthus. In most societies at most times in human history, Malthus was right. The population expanded until everyone was living at a subsistence level. Given an improvement in technology or health care the long-term result was not that people on average had an improved standard of living, but rather a population of increased size living at an even lower material standard. You had to be robust in filthy Europe to survive infections, but even an underfed weakling was relatively safe from disease in hygienic Japan and China. The consequence was that China and Japan were more densely populated and strikingly poor by European standards right up to the Industrial Revolution.
Population growth combined with personal income growth is an anomaly, according to Malthus and Clark. The U.S. population has been growing steadily in recent years and our average inhabitant is no better educated than before. Politicians stand up and angrily ask why average personal income hasn’t grown. The real question is why average personal income hasn’t shrunk.
The past 100 years hasn’t fit Malthus well, perhaps due to the Green Revolution and tapping into fossil fuels on an industrial scale for the first time. But maybe Malthus is being proved right by the real estate market?
As noted previously here, a friend said that his daughter was “making a ton of money” at Goldman. It then transpired that the young woman couldn’t afford an apartment on her own, even spending half of her after-tax income. The “ton of money” was entirely captured by Manhattan landlords, reducing the young lady to the same standard of living as an entry-level office worker in Manhattan circa 1960.
“Affordable Housing Crisis Spreads Throughout World” (WSJ, April 2, 2019):
Across 32 major cities around the world, real home prices on average grew 24% over the last five years, while average real income grew by only 8% over the same period, according to Knight Frank, a London-based real-estate consulting firm. Economists say it is striking that affordability has worsened even during a period of global prosperity over the last six years. But income growth has been unable to keep pace with a rapid run-up in home prices.
Americans often blame local policies, e.g., zoning regulations, for the inability of today’s median-income urban residents (among a population of 330 million) to afford what would have been considered a normal-sized apartment back in 1970 (U.S. population 205 million). But the WSJ article shows that the trend is consistent almost everywhere in the world. Tokyo is a notable exception, which the authors attribute to a free market in housing (why not to the lack of Malthusian population growth? Japan has roughly the same number people today compared to 30 years ago).
Readers: What do you think? In 1910, Haber and Bosch came up with a clever trick for a dramatic boost in agricultural production. So it looked like Malthus was wrong. But there haven’t been any clever tricks for boosting the production of housing, so we’ll have 8 well-fed urbanites sharing a 2BR apartment originally built to accommodate 1-2 people. Can we rely on robots to get us out of this? Human population can expand exponentially while maintaining a high standard of living because solar-powered robots will be able to build residential skyscrapers at ridiculously low prices?
Related:
- analysis of whether it is possible to run all government functions via a land tax (Henry George proposed this back in 1879 when government was a much smaller fraction of GDP)
Why Henry George had a point
Ideal in theory, elusive in practice: the case making landowners pay for the benefits which location gives them
https://www.economist.com/free-exchange/2015/04/01/why-henry-george-had-a-point
Good point, Brian. I have added a “related” link to an analysis of that Economist article. I think the main problem is that government spending has grown even faster than the value of land!
https://en.wikipedia.org/wiki/Land_value_tax says that many of the world’s smartest countries already run something like this, though, to fund at least part of their governments: “Denmark,[8] Estonia, Lithuania,[9] Russia,[citation needed], Singapore,[10] and Taiwan.”
A landowner already pays city and/or county tax. Doesn’t this serve the same purpose? Taxes in NYC are clearly more than taxes in a small fly-over city.
Clever trick for increasing housing supply could be undocumented construction – not having to wait for various permits should reduce costs (buildings without permits such as zoning, environmental, etc. don’t have to be illegal, but just undocumented…)
Malthus was also right in a sense of large carat diamonds. Just trying to make a point that statement should be “Malthus was right if you substitute food for any currently scarce product” In the times of Malthus half all large families lived in one room houses with no running water.
It was definitely a thing 10 years ago for a millenial to seek the lifestyle of an expensive urban apartment over the wealth of a rural suburb. Now the complaints about low standard of living have overtaken the praise of having a lifestyle. Businesses are chasing higher priced urban areas while employees are trying to get jobs in lower priced rural areas.
The “modern monetary theory” (MMT) economists are mostly a bunch of money-printing Keynesians, but they do make a convincing argument that all land should be exclusively owned by the govt. Instead of being sold, land would be leased by citizens (no foreigners). Upon the leaseholders death, the land would be available for lease by someone else. This prevents an inequitable, unearned accumulation of wealth by inheritance. Additional benefit would be that lease payments go to the govt, instead of the pockets of real estate speculators.
That is kind of brilliant, except that we stole the land from the Native Americans! So if we’re doing a big restructuring, shouldn’t Native Americans get some or all of the revenue from the leases?
Blame also the transit-first ideology of city planners who go out of their way to make life miserable for car drivers, thus increasing competition for urban real estate.
But, but, but… food is real estate… for free-range chicken
Due to a series of blown opportunities, corporate layoffs, crushing competition, and career-limiting personal preferences, my salary today is exactly what it was in 1998 when I left my defense industry computer programming job and started my MBA degree at a Top 40 school. If it wasn’t for the real estate crash and a couple of serendipitous, but timely, very lucrative real estate transactions, I wouldn’t have become very financially secure before age 50.
I recall similar post on this blog from several years ago and I read it from time to time. Is it a common thing? I guess it is.
Higher interest rates will do the trick, looks to me like Trump wants interest rates higher.
How? Driving mortgage rates up will put farther upward pressure on renters market. Or is it about real estate in cities that serve as centers of finance? Hedge funds will switch from equities to fixed income. It will cool business activity in Detroit but already houses can be had there for $0 dollars and with local tax exemption.
And Trump voiced exact opposite this past fall, he disagreed with his Fed decision to drive interests rates up. Makes sense from presidential “greatness” point of view, why he is treated differently from Obama in this respect with Obama Fed almost driving rates into negative territory to enable borrowing, with little impact on real economy but propping stock market.
PREFACE: I’m posting this because I respect and admire Philip’s style of questioning the status quo and the stale ideas and perspectives that keep leading us back to it. He asks questions with interesting juxtapositions, often odd-sounding parallels, and looks at things from unorthodox and provocative angles. I think the subject of this post did much the same thing, using the kinds of thinking we’re going to need a lot more of. There’s certainly nothing more unorthodox than proposing to build a huge city-within-a-city a mile across – without traditional financing! – to provide 2,500 square foot homes to 25,000 families in a poor, declining American city. East St. Louis has been declining since – my God, since before I was born.
I don’t think Malthus was necessarily right about housing, and there are people who have proposed some clever, beautiful and forward-thinking ideas for producing housing that are not 100 square foot repurposed garden sheds where you have to stick your foot out the window to stretch out your legs.
Buckminster Fuller had ideas back in 1971 that I’d like to see updated today with new materials and construction techniques. There will be the usual groaning. I know, he fit the definition of “utopian” (read: lunatic) to many people, but he also received the Presidential Medal of Freedom from Ronald Reagan in 1982.
The following is in his own words, and I always found the project fascinating and beautiful. From a design point of view the only thing I really question about it now is its ability to withstand a big tornado. Presumably Fuller took them into consideration in his design, but I don’t know for sure.
http://solutions.synearth.net/a-community-dwelling-machine/
It has gone almost nowhere. Fuller convinced the people who sought his help to eschew any of the traditional financing schemes that would be dangled in front of them. Thus, there wasn’t any money or great politics in it for the people who usually benefit from such projects, and therefore bupkis. But he believed to his last that eventually it would happen, when the world was ready to receive it. That may be pretty soon.
“Old Man River’s City is intended to replace the poverty stricken, hopelessly obsolete city of East St. Louis, IL. Bucky specifically recommended that government money not be sought, for it always comes with a grievous burden of interest which eventually saps the local economy for the benefit of banks and other parasitic operators.To the organizers’ credit, they refused millions of dollars saddled with restrictions that would have compromised the project.”
What has happened recently in East St. Louis? In 2015 they were relying on one of America’s few remaining growth industries to pay their public employees. Five months of gambling revenue from Illinois, to be exact, that couldn’t be released until Illinois passed a budget:
https://news.stlpublicradio.org/post/illinois-gaming-revenue-saves-east-st-louis-potential-payless-paydays#stream/0https://news.stlpublicradio.org/post/illinois-gaming-revenue-saves-east-st-louis-potential-payless-paydays#stream/0
I haven’t ever been there and I can’t vouch much for this website but the closing paragraph rings very true:
https://www.historyandheadlines.com/east-st-louis-and-the-old-man-river-project/
“When the Old Man River project was unveiled East St Louis had about 70,000 residents. It now has less than 27,000 and is dropping every year. A typical block in East St. Louis is empty ground dotted with a few standing houses, many of which are empty and ready for demolition. The federal courthouse and the Shriner’s temple are about the only landmarks of better days. Dunham’s three houses are vandalized, the walls kicked in to steal the copper wire and pipes, and her museum is barely hanging on. By any measure the city has failed. Every effort to improve the city, utopian or cynical, has failed. East St .Louis has only succeeded at one thing: presenting a lesson to the rest of urban America.”
Related: Fuller collaborated with economist Louis Kelso (ESOP – Employee Stock Ownership Plans) while he was working on the Old Man River project.
https://en.wikipedia.org/wiki/Louis_O._Kelso
I posted a too-long reply this morning, it’s probably still in moderation or has been rejected. I should have cut a couple hundred words from it. Anyway, for what it’s worth, the majority of what that post contained can be summarized thus:
There are people who have thought about the problem of providing good, affordable, humane and desirable housing on a large scale. They put a lot of effort into it, and it went nowhere, for reasons you’ll have to read the article to think about. Buckminster Fuller’s 1971 idea would have meant 2500 square foot homes for 25,000 families of four (125,000 occupancy, 1 square mile in diameter). OK, it’s pretty far out but we need to encourage that, not discourage it.
http://solutions.synearth.net/a-community-dwelling-machine/
https://www.bfi.org/dymaxion-forum/2014/06/comprehensive-design-science-st-louis
Why do I think this isn’t totally crazy? Have you ever seen Co-Op City in the Bronx? One of our Supreme Court Associate Justices lived there (Sotomayor). It’s 35 high rise buildings housing more than 45,000 people. It’s had its share of problems over the years (constructed 1973) but it’s still there. Can’t we do better in 2019 than we could in 1973?
It is possible to work from home for most office workers
https://github.com/about/careers/remote
Even bosses
https://blog.stephenwolfram.com/2019/02/seeking-the-productive-life-some-details-of-my-personal-infrastructure/
(I quite liked this one)
It is true that incumbents/lords/landlords live off of the productive members of society
https://en.wikipedia.org/wiki/The_Landlord%27s_Game
But it does not have to be as bad as Manhattan.
Looking at the problem through the lens of Henry George
https://en.wikipedia.org/wiki/Progress_and_Poverty#Notable_recognition
is more productive than looking at it from a Malthusian persepctive.