Economic Facts and Fallacies – Part Two

Anne Marie Waters

September 22nd 2020

 

In the first of this blog series (you can read part one here) I looked at the concept of fallacy as put forward by noted economist Thomas Sowell in his book ‘Economic Facts and Fallacies’.

In part one, I described Sowell’s definition of the word ‘fallacy’, which he applies to economic scenarios to reveal that things are not always what they seem, and good intentions can lead to not-so-good outcomes.

In part two, we look at ‘Urban Facts and Fallacies’.  These refer to aspects of city life, economic problems faced there, and how politics has got it wrong on the solutions to those problems.

Sowell begins by asking what urban areas actually are, and from where they emerged.

Cities came about for a couple of reasons; transport being the primary one.  As Sowell notes, many cities have developed on or near a major waterway.  Most European capitals for example, as well as big US cities like New York, are based on rivers or coastlines.  This is certainly the case in Europe where centuries-old cities developed around the only method of transporting goods; the water.

Sowell states: “A city must continually transport in vast amounts of food alone to feed its concentrated population, and it must also transport out the goods it produces to elsewhere in the country or around the world.  Given these imperatives, it is hardly surprising that most cities throughout history have been built on navigable waterways – whether rivers, lakes, or the sea”.

The arrival of the car in to common life in the 20th century entirely changed transport and with it, city life.  Cars also meant economic transformation.  They allowed people to commute to jobs further from home, and they allowed for the transit of goods far beyond anything permitted by waterways.

Transport is obviously a major policy area for leaders and the introduction of cars in to our economy has provided examples of some of the dual-consequence policies Sowell discusses.  Initially, cars were a major boom to the economy but as policies surrounding them began to be introduced, the twists and turns began.

“While the advent of the automobile allowed people to live farther from where they worked, the need for large numbers of people to arrive at work at about the same time from widely varying distances and directions created a problem of rush-hour traffic congestion.  In fact such congestion on highways and city streets during rush hours became a common problem in cities around the world”.

In keeping with the theme, solutions to congestion problems in some cities have caused economic damage. London for example has a congestion charge and other fees to be paid upon entering the city.  The consequence is that fewer people use cars to enter London, meaning fewer people will come to the city and spend money there.

Furthermore, it will lead to even more overcrowded public transport, and a whole new set of problems for government to deal with in that respect.

The second major aspect of urban economic life is housing.  Sowell writes:

“The biggest fallacy about housing is that “affordable housing” requires government intervention in the housing market, perhaps with subsidies, rent control, or other devices to allow people with moderate or low incomes to be able to have a decent place to live without paying ruinous prices for homes or apartments”.

On the formation of policy in this regard, Sowell claims that “it is precisely government intervention in housing markets which has made affordable housing unaffordable”.

He describes the 1970s as being the period in the United States housing market which saw both greater government intervention and an explosion in house prices.

In places where restriction and regulation were particularly stringent, prices went even higher.  In other words, the more regulation, the greater the cost and the greater the price.

Sowell points to zoning laws, environmental protection laws, historic preservation laws and others which limit or restrict house building, keeping prices high.  He gives the following example:

“Contrasts in housing prices are sharp between places that have numerous or severe restrictions and places that do not.  Houston, Texas for example, does not even have zoning laws, much less the array of severe housing restrictions found in other cities”.

The result is that a house worth $152,000 in Houston, will cost around $300,000 in Portland, or $900,000 in Long Beach, California.

This is certainly food for thought, and Sowell puts forward an entirely hands-off government approach to the economy.  This might make good economic sense, but one might argue that governments are responsible for more than economic growth; I would tend to agree.

Do we need decent housing that the average person can afford?  Yes.  But does this come at the expense of all else?  Should we fail to protect the environment or historic sites in the name of economic growth, there may be little left worth enjoying.  There is little point in having lots of money if one does not have an environment in which to enjoy it.

Next week, we’ll look at a current and topical aspect of economics; the so-called “gender pay gap”.  Is it real and if so, why?  What is the real reason women apparently earn less than men, and what should governments do, if anything, to narrow this gap.  Join me then.

 

Anne Marie Waters 

Leader 

For Britain 

 

 

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