Malthus was right in rural America too?

In https://philip.greenspun.com/blog/2019/04/03/malthus-was-right-but-it-is-real-estate-not-food-that-is-limiting/ we looked at data from cities around the world. “Housing’s hidden crisis: Rural Americans struggle to pay rent” (CBS) says that a lot of Americans can’t afford housing even in thinly populated areas of the U.S.

Since there is plenty of land in rural areas, I’m wondering if high costs can be partly explained by high materials prices due to demand from a growing economy worldwide. The 25th percentile American worker can’t afford cement for a home foundation because a 75th percentile worker in China or Mexico has purchased the cement instead.

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  • “Bay Area Housing Struggles Extend To Farm-Rich Salinas”: “Salinas families earn a median income of $69,000, while the region’s 90,000 farmworkers bring in far less. They face a median home price of nearly $550,000 and two-bedroom apartments costing roughly $1,800 a month, according to Zillow.”
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Wouldn’t sending migrants to sanctuary cities enrich them?

“Trump claimed Oakland’s mayor doesn’t want released immigrants. Her response: We welcome all.” (Washington Post):

President Trump threw more fuel on the flames of the immigration debate Saturday night in a series of tweets that singled out Democrats and news outlets that had reported on his administration’s plan to relocate migrants to so-called “sanctuary cities.”

Trump specifically singled out the mayor of Oakland, Libby Schaaf (D), who had criticized a proposed policy to relocate detained immigrants to sanctuary cities as an “abuse of power and public resources.”

Then the president claimed that the mayor does not actually want the detained immigrants to be released into her city. In fact, Schaaf’s administration strengthened Oakland’s sanctuary policy in 2018 and had warned residents last year of an upcoming raid by U.S. Immigration and Customs Enforcement.

On Saturday night, she responded to Trump’s attack with a clear message: “Oakland welcomes all.”

In a federally funded welfare state such as the U.S., aren’t poor people an asset for a lot of the politically influential folks within a city? Migrants should be entitled to Medicaid, right? That helps the local health care industry. Migrants should be entitled to food stamps. That is a boost to local supermarket owners. Migrants should be entitled to housing subsidies and/or will have to do some work to pay rent. That’s a boon to anyone who owns an apartment building.

California funds schools centrally. Every migrant child who shows up for a day in an Oakland school, for example, will result in a transfer of funds from Sacramento to Oakland. There should also be federal funds for every new student from a low-income or no-income family.

Might it be an economically rational strategy for political and economic elites in Oakland to pursue a leadership position in the hosting of migrants?

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Malthus was right, but it is real estate, not food, that is limiting?

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?

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It is madness to want to leave the E.U., but it doesn’t make sense to join

“The United Kingdom Has Gone Mad; The problem with holding out for a perfect Brexit plan is that you can’t fix stupid.” (nytimes) is by Thomas Friedman, a guy whom nobody can accuse of being stupid (he married the daughter of a billionaire and lives (large) in Maryland, an awesome jurisdiction for divorce litigants who can claim to be the less wealthy spouse).

What I can’t figure out how it is logically consistent for Americans to criticize the Brits for wanting to be independent and fully sovereign. We spend way more money on our military than would be necessary to prevent an invasion from Canada or Mexico. Why are we spending that money if not to preserve full sovereignty and not have to listen to anyone else in the world?

From a strictly dollars and cents point of view, if being part of the E.U. is so great,why doesn’t the U.S. seek to join? In our age of telecommunications, container shipping, and air travel (preferably by Airbus!), geography should not be a barrier.

If we want to say that anyone in the UK who opposes EU membership is “stupid”, as the giant brains of the NY Times have concluded, shouldn’t we also be trying to become part of the EU ourselves?

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Germany reparations at 200% of GDP were unpayable; national debt of 200% is no problem

An Economic History of the World since 1400 by Donald J. Harreld takes the conventional view that the reparations Germany was obligated to pay following World War I were so large that they forced the company into an economic death spiral. The professor says that Germany was to pay $30 billion over a 70-year period that this was roughly 2X the German national income (a book that I reviewed in 2011 puts the number at 83 percent of GDP) at the time. Germany could “never hope to pay” this amount and the debt made World War II more likely.

The lectures also say that Germany made things worse by printing money to meet government expenses. [Though the Germany government stopped making reparations payments in 1933 after Hitler was elected.]

What are Americans’ best ideas in the econ department lately? Pushing government debt from its current 106 percent of GDP (already more than the Germans owed, according to the 2011 book) up and over 200 percent so that we can pay for things we want such as the Green New Deal. At the same time we will apply Modern Monetary Theory so that we can simply print more dollars whenever we need to buy something. (I like this idea, but I think it would work even better if we ask Zimbabwe to print Zim Dollars to pay for the stuff that we need/want. They’re already doing a lot of printing so if we send them some paper and ink they shouldn’t mind printing more.)

The professor himself seems unaware of this apparent contradiction. He is a Big Government, Keynesian Spending, and Welfare State enthusiast. He does point out the Keynes said that governments should spend less during boom times and that modern governments never implement this part of the theory. But he never explains why it is obvious that Germany could never pay an amount comparable to its GDP while it is simultaneously obvious that modern Welfare States can meet their debt and entitlement obligations (closer to 500 percent of GDP for the U.S. when you add in Medicare and Social Security; see this 2010 chart in the New York Times in which Greece owed 875 percent total while the U.S. was at 500 percent (i.e., the U.S. owes 5 years of GDP)).

Separately, the professor notes that the U.S. and Germany had the longest and deepest economic depressions during the 1930s and pursued similar economic policies:

The two countries hardest hit by the Great Depression were the United States and Germany—countries that hadn’t left the gold standard. And both Germany and the United States adopted several practices to stabilize their domestic economies in the 1930s that were amazingly similar. … Both countries used similar strategies to combat unemployment and poverty in their populations, including poor relief and public works programs. Both governments also set up work camps for young men from rural areas, primarily to keep them from migrating to the industrial workforce.

Countries such as England that relied on market economics came out of the Depression much faster, according to the class.

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City rebuilding costs from the Halifax explosion

Catching up on 2017 must-reads for Bostonians, I recently enjoyed The Great Halifax Explosion: A World War I Story of Treachery, Tragedy, and Extraordinary Heroism by John U. Bacon.

The main story is familiar, but worth retelling.

All explosives require two components: a fuel and an “oxidizer,” usually oxygen. How destructive an explosive is depends largely on how quickly those two combine. With “low explosives,” like propane, gasoline, and gunpowder, it’s necessary to add oxygen to ignite them and keep them burning. If a fire runs out of oxygen, it dies. Another factor is speed. The rate of the chemical reaction, or decomposition, of low explosives is less than the speed of sound, or 767 miles per hour. In contrast, a “high explosive” combines the fuel and the oxidant in a single molecule, making each one a self-contained bomb, with everything it needs to create the explosion. To ignite, a high explosive usually requires only extreme heat or a solid bump. Once started, the dominoes fall very quickly, ripping through the explosive material faster than the speed of sound.

“She had a devil’s brew aboard,” Raddall states of the Mont-Blanc, a perfect combination of catalysts, fuel, and firepower. The ship’s manifest included 62 tons of gun cotton, 250 tons of TNT, and 2,366 tons of picric acid, the least understood of the chemicals on board, but the most dangerous.

After the shipwrights had so carefully built the magazines, hermetically sealing each compartment, and the stevedores had packed it all systematically, the French government agent operating out of Gravesend Bay received a last-minute order from his superiors in France to pack what little space remained on Mont Blanc with urgently needed benzol, an unusually volatile fuel, the latest “super gasoline.” The stevedores followed orders, swinging 494 barrels containing 246 tons of the highly combustible accelerant into a few unused spaces belowdecks, on the foredeck, and at the stern, where they stacked the fuel three and four barrels high and lashed it with canvas straps, a somewhat slapdash approach compared to the thoroughness with which the shipwrights had built the magazines. When the crew walked past the drums on deck, they could smell the unmistakable reek of the benzol. With the final addition of the benzol, Mont Blanc now carried an impressive array of the most dangerous chemicals known to man at that time. While benzol can’t match the pure power of gun cotton, TNT, or picric acid—all high explosives—what the stevedores probably didn’t know when they stacked the barrels of benzol on deck was that the airplane fuel needed only a spark to ignite, while picric acid doesn’t explode until it reaches 572 degrees Fahrenheit, and TNT does not detonate until it reaches 1,000 degrees. But by making the last-minute decision to store most of the fuel on the deck and the TNT and picric acid below, the crew had unwittingly constructed the perfect bomb, with the easy-to-light fuse on top, and the most explosive materials trapped in the hold below.

Canada had a much larger stake in the war than did the U.S.:

Halifax sent 6,000 sons to the Great War, roughly a quarter of its male population. It seemed almost every home had sent a brother, a husband, a father, or a son. The Great War drained the town of its able-bodied young men and left behind women, boys, girls, and men too old or infirm to fight.

One question worth pondering is why more people didn’t chicken out and escape to the U.S. They knew what the trenches were going to be like:

When fresh recruits got to Halifax, they frequently made a beeline for any place that sold alcohol, where they met soldiers who had been recently discharged, were on leave, or were about to head back to the trenches. They told the recruits stories so horrifying that they might have been tempted to think they were exaggerating. The experienced soldiers knew the average infantryman lasted only three months before getting wounded or killed, so they were determined to make the most of their time on the safe side of the Atlantic. Their hard-earned fatalism fostered a devil-may-care disposition and all the elements that came with it, including scores of prostitutes from across Canada and bootleggers so fearless that they set up shop in the downtown YMCA—which was probably not what the YMCA’s benefactor, Titanic victim George Wright, had had in mind when he wrote his will. During the war years, Halifax experienced a spike in venereal disease and out-of-wedlock births. Local orphanages had to expand.

The Mont-Blanc makes it from New York to Halifax without incident, but before the sailors can go to the YMCA for a drink, there is a low-speed collision with another ship. The author describes the impact that resulted in the explosion as entirely the fault of the Imo‘s captain and pilot (see Wikipedia for a quick summary, but I highly recommend this part of the book). More than 10,000 people were killed or wounded. The book covers this staggering tragedy, but this post is about the physical destruction and the estimated cost of rebuilding:

The explosion destroyed 1,630 buildings and damaged 12,000 more, leaving some 25,000, almost half the population of Halifax-Dartmouth, without adequate housing and dangerously exposed to the elements.

After the fires had been extinguished and the wounded tended to, Colonel Robert S. Low assembled an army of carpenters, masons, plumbers, and electricians to rebuild the city, which had incurred more than $35 million in damages in 1917 U.S. dollars, or $728 million today.

It cost only $728 million to rebuild a whole section of a city. Our town will soon spend $110 million to renovate/rebuild a school that can hold only about 600 students. I talked with a guy recently who is involved in a $1.5 billion project to create 2,700 “affordable” apartments here in the Charlestown section of Boston (story). That’s $555,555 per apartment (less than 1,000 square feet on average) on land provided for free (city already has a housing project on the same footprint). Presumably these will be higher quality than whatever was built in Halifax in 1918.

[Note: poor people who are selected by the housing ministry to move into one of these apartments would actually be rich almost anywhere else in the world if they could only get their hands on the $555,555 capital cost as a direct grant instead of as an in-kind service! If they could also get their hands on the monthly operating cost and combine that with interest on the $555,555 they would be able to enjoy, without working, a middle class or better lifestyle in many of the world’s beach destinations.

How about folks who work at the median wage? That’s about $23/hour in Massachusetts (BLS) or $46,000 per year. NerdWallet says that someone earning this much in MA can afford a $258,500 house if he or she has saved $60,000 for a down payment, has a top credit score, and spends $0/month on food and other non-housing expenses. Zillow says $274,416 on a nationwide basis. So a dual-income couple in which both partners earn the median wage wouldn’t be able to afford one of these units without a taxpayer subsidy, even if landed were free and the unit were sold at zero-profit construction cost. The U.S. has apparently become a society in which Americans can’t afford to live like Americans!]

Maybe costs are lower up in Canada? Yes, but only a little:

Instead of drifting back into another long sleepwalk, Halifax has been accelerating, spending $11.5 million in 1955 to build its first bridge across the channel, another $31 million to build the second, right over the Narrows, and another $207 million in 2015 to raise the first bridge a few meters so container ships could get all the way to a dock in Bedford Basin. The city has spent $350 million to build a boardwalk along the bay and $57 million for a shiny new library downtown, an architectural centerpiece CNN judged to be the ninth most beautiful library in the world.

How about some other costs? A survivor of the explosion gets “$100 to enroll at the University of Michigan in 1919”. That’s $1,500 in today’s money, less than 1/30th of current tuition. He marries an American (same word “marriage” used, but really a different activity in those days before no-fault divorce):

Shortly after that invitation, Barss asked Helen to marry him. She said yes, but asked him to keep it between them until February, “so that if either of us wanted to get out of the deal, no one would be hurt.” Further, if Barss’s professors found out he was getting married, which med school students were forbidden to do, he could be expelled. “My father liked Joe & asked if he were a Republican or a Democrat,” Helen wrote. “He said he was a Canadian and voted for the man—Father said ‘If you ever live here and have anything or hope to have anything, you’ll be a Republican in self defense.’

Maybe it is good that this guy died before Elizabeth Warren and Alexandria Ocasio-Cortez proposed their latest tax plans!

I found the numbers in the book sobering. If we wear down the infrastructure that we have or if perhaps it is destroyed for some reason, it doesn’t seem as though we could afford to rebuild it.

More: Read The Great Halifax Explosion: A World War I Story of Treachery, Tragedy, and Extraordinary Heroism

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Immigration is the Reverse Black Death?

Let’s consider the political goals of righteous Americans today:

  • higher wages for the average person
  • an improved environment with less human impact on the land
  • less concentration of wealth in the hands of real property owners
  • more affordable housing for the working class

While listening to An Economic History of the World since 1400 by Professor Donald J. Harreld, I learned that all of the above goals were achieved in the 14th century via the Black Death, which reduced the European population by approximately one third.

  • wages for workers, including unskilled agricultural workers, increased as much as 40-50 percent
  • food prices fell
  • land and housing prices fell
  • the least productive farmland was allowed to return to natural forest (contrast to conditions before, from the course notes: “By about 1300, Europeans had just about all arable land under cultivation, including marginal and poorly producing lands, to sustain the growing population”)

Is it fair to think of immigration as the reverse of the Black Death? We’re dramatically growing our population via immigrants and children of immigrants (see “Modern Immigration Wave Brings 59 Million to U.S., Driving Population Growth and Change Through 2065” (Pew)).

What seems surprising, then, is that the people who say that they want to see all of the economic results of the Black Death simultaneously say that they want to adjust U.S. demographics in precisely the opposite direction of the Black Death.

Is the apparent inconsistency resolved because only about 2 percent of U.S. workers are directly employed in agriculture?

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Financial Times: People turn socialist when they can’t afford an apartment

“Quantitative easing was the father of millennial socialism” by David McWilliams, an Irish professor (Financial Times), says that the bailouts following the Collapse of 2008 helped out older property owners, by reflating the prices of the stuff that they had unwisely purchased, on the backs of millennials.

He notes that “the worst of investments are often taken in the best of times.” (Maybe good to point out to anyone with money or income considering getting married and living in one of the U.S. states that provides for winner-take-all divorce litigation!)

He notes that average hourly earnings have gone up 22 percent in the past 9 years while property prices are up 55 percent in Houston, 67 percent in LA, and 96 percent in San Francisco: “The young are locked out.”

(The article says that 79 percent of the same folks who can’t afford apartments also think that “immigrants strengthen the US”. Certainly every landlord would agree that more demand is a good thing, but why are landless peasants happy to see another caravan of housing-seekers arrive?)

Why are people so obsessed with wealth inequality these days? The author says that “wealth inequality was not the unintended consequence, but the objective, of [quantitative easing] policy.”

The close:

For the purist, capitalism without default is a bit like Catholicism without hell. … what if the day of reckoning was only postponed? What if a policy designed to protect the balance sheets of the wealthy has unleashed forces that may lead to the mass appropriation of those assets in the years ahead?

Appropriation? Could it happen here? Elizabeth Warren has proposed to take wealth gradually, via a 2 percent tax on rich bastards (over $50 million in wealth). If they try to escape by renouncing their U.S. citizenship, she’ll hit them with a 40 percent exit tax. (Slate) Not too scary to the merely comfortable, right? Remember that income tax started out in 1913 between 1 and 6 percent and it was limited to those with incomes over $103,000 in today’s mini-dollars ($4,000/year for a married couple at the time). Once the structure is in place, the rates and thresholds can be tweaked as necessary.

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Google shows that James Damore and Econ 101 were right?

James Damore, the Google Heretic, was cast out for saying that intelligent people who identify as “women” did not enjoy staring at a screen and typing out pages of boring C and Java code (while simultaneously wearing headphones and rubbing elbows with other nerds?).

Damore suggested that the programming job be reconfigured so that it would be more appealing to people identifying as women. Instead of doing that, Google fired him for his thoughtcrime.

If Damore were correct, Econ 101 would predict that women at Google would be getting paid more than men for doing the same job. Otherwise, why would they be there doing something that was distasteful to them?

“Google Finds It’s Underpaying Many Men as It Addresses Wage Equity” (nytimes):

When Google conducted a study recently to determine whether the company was underpaying women and members of minority groups, it found, to the surprise of just about everyone, that men were paid less money than women for doing similar work.

Doesn’t this tend to show that both Damore and Econ 101 are correct?

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Energy and cost efficiency of different forms of transportation

“Lesson From The A380 And California HSR: Smaller Is Better In Transportation” (Forbes), by Brad Templeton, contains a lot of interesting numbers:

In the Department of Energy Transport Energy Data Book you will see some surprising numbers. For example, for transit buses you’ll see that the average American bus uses 4,102 BTUs per passenger-mile, while the average car uses 2,939. (A gallon of gasoline is around 115,000 BTUs.) Yes, US bus ridership is so poor that it would use less energy to move all bus riders in cars, at the national average of 3 people for 2 cars. You don’t even need to fill all the seats, and the cars are just average efficiency. The Toyota Prius is twice as efficient as that average car. People driving around alone in hybrid cars out-green the bus system.

You can compare what you would guess is an efficient electric train, the New York MTA subway. The DoE reports it uses 503 BTUS (of electricity, not heat) per passenger-mile. Even measuring the heat, that’s better than those cars and buses, but about the same as that Prius.

Looking at the MTA again, it spends about $16B to for 13B passenger miles, or $1.23 per passenger mile. Typical car ownership costs in the USA for late model cars is 50-60 cents per vehicle-mile, plus parking. Drivers get subsidies (though they pay gas taxes and other taxes for the roads) but the MTA isn’t paying for its tunnels either.

This is consistent with what I’ve heard from other sources: The idea of building and maintaining rails is obsolete for passenger transportation.

Separately, the article covers the demise of the Airbus A380, which saddens me because I’ve heard that it had the lowest level of cabin noise of any airliner ever produced (the A350 is a close second) and I never got to experience it (there have been some A380 flights in and out of Boston, but they are not common).

Maybe the countries that say they are morally obligated to assist refugees will snap up all of the A380s and send them out daily to pick up 1,000 refugees at a time from the world’s poorest and most troubled regions. If you are sincere about wanting to help people, why demand that they walk 1,000 miles to get that help?

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