July 25, 2023
Mark Paul has done a useful public service in etching out the goals of progressive economic policy. Many of us get bogged down in debate over things like whether the Average Hourly Earnings series is more accurate than the Employment Cost Index, or whether Section 230 protection is giving Facebook, Twitter and other Internet giants a subsidy compared to competitors in print and broadcast media.
But the technical aspects to these arguments at the end of the day are not important. Few of us aspire to be experts on wage indexes. We care about these issues because we care about building a fair economy: an economy that allows people to live decent lives and to achieve their aspirations for themselves and their children. Mark Paul’s book is a reminder of what that society looks like.
The book is an effort to lay out and expand upon the goals etched in Franklin Roosevelt’s Four Freedoms and the often-neglected economic agenda that Martin Luther King espoused in his speeches and writings. In these troubled times, it is refreshing to be reminded of the aspirations of these great progressive voices of the last century.
The economic rights that Paul wants to add to our political rights are the right to a job, the right to housing, the right to an education, the right to health care, the right to a basic income and banking, and the right to a healthy income. This is a big agenda, which is the point.
I won’t go through each of these (get the book), but I will make a few points on some of them, starting with the right to housing. In ensuring that housing is affordable, Paul revives the argument for rent control. He compares the conventional attitude of economists to rent control to their view of the minimum wage before the 1990s. It was standard for economists in the 1980s to be dismissive of minimum wages, claiming that the result of setting a wage above the market-clearing wage will simply be to create unemployment among the low-wage workers we want to help.
Three decades of research have overturned this view. It turns out that monopsony is a common feature of labor markets. As a result, a law that requires employers to pay a higher wage may often lead to little or no effect on employment levels. In the last quarter century, many states and cities have raised their minimum wage well above the national level, increasing the income of low-paid workers by thousands of dollars a year.
I am not sure that we can tell a similar story of monopolistic landlords, but I think economists have been guilty of the same sort of narrow thinking on rent control as they had been with minimum wages in prior decades. Paul is well aware of the fact that rent controls can be poorly implemented, noting the failures of the “first generation” rent controls put in place doing World War II. However, he points to a second generation of controls, which have allowed for greater flexibility, most importantly allowing rents to rise with costs, which have been more successful in allowing people to stay in their homes with an affordable rent.
Another key part of the second-generation rent control story is the exemption of new construction from controls, at least for a substantial period of time. This means that builders will not be discouraged from adding new units, since they will be able to get market rents for a long enough period of time to cover their investment.
When I taught intro economics several decades ago, I used to have fun with the conventional argument about rent control leading to housing shortages. I would draw a vertical supply curve and then a downward-sloping demand curve. I would then draw in a rent-controlled price at a level below the intersection of the two lines. I would then point to the fact that demand exceeded supply at the rent-controlled price. Everyone could then see that we had a shortage of housing.
Then I said, suppose we eliminated the control, do we still have a shortage? Students would all nod and say that we got rid of the shortage.
Then I would ask them how many more people now have housing? The correct answer is of course zero. If the supply curve is vertical, there is no more housing for people to get, we eliminated the shortage by making it unaffordable for a substantial segment of the population.
Supply curves are never literally vertical, but if we ask about the supply of housing at a point in time, a fixed supply can be a reasonably good approximation. Our choice is whether we allow tenants to get affordable housing, or whether we let landlords profit from a housing shortage. There is not an obvious economic case for the latter option.
Paul points out that people who own a home in effect have rent control. They have paid a fixed price for their house, which does not increase if the value of the property goes up. In fact, they get to pocket an increase in property values when they sell the house. And, because of our perverse tax code, they are likely to avoid paying taxes on their gains.
A person who lives in a house for five years and sees a gain of $400,000, gets to keep this money tax free, at least at the federal level. On the other hand, if they earned $400,000 from working five years ($80,000 a year) they would pay around $80,000 in income taxes, not counting their Social Security and Medicare taxes. In this context, it is hard to get upset about people, including some relatively well-off people, benefitting from rent control.
Paul recognizes that ultimately, we need more housing. He notes that NIMBYism has limited construction in many areas and argues that we will have to overcome it if we are to get an adequate supply of housing.
He also suggests that public housing can play an important role. This is likely to raise a few eyebrows. While there are places around the world where public housing provides comfortable middle-class shelter, the record in the United States is at best mixed.
Part of the story is racist policies designed to keep Black migrants from the South out of white communities. But there are other problems associated with public housing, like corrupt contracts, excessive bureaucratic delays, and the persistence of racism. It would be nice to think that public housing can play an important role in solving the country’s housing problems, but it is hard not to be a bit skeptical.
There is a similar story with Paul’s advocacy of a job guarantee supported by public service jobs. The obvious reference point here is the Civilian Conservation Corps (CCC), which provided jobs to millions of workers at the worst points of the Great Depression.
The CCC was tremendously valuable in providing jobs to workers who desperately needed them, and also in building many infrastructure projects that still serve us today. But there is little downside risk to putting people to work on infrastructure projects when we have 25 percent unemployment relative to the current situation where the unemployment rate is under 4.0 percent.
The basic issue is that we presumably want any jobs in a federal jobs program to be decent jobs in terms of pay and work conditions. But this would mean pulling people away from private sector employment. There is no problem in principle in giving people working at unpleasant low-paying jobs in the private sector a public sector alternative. But if we do this and end up with tens of millions of workers in public sector jobs, then we have to be damn sure that these jobs are productive.
That might be possible, but we can’t just wave a wand and make it so. To my view, the best way to go in this direction would be to do some trial projects. Have public sector jobs in areas of especially high unemployment or restrict them to workers who have been unemployed for at least a year. This sort of trial will both demonstrate that a public sector jobs program can be successful and also provide a chance to address some of the problems that will inevitably arise.
Paul pushes for a universal Medicare program as a way of guaranteeing the right to healthcare. He argues that this is far more efficient than our current healthcare system, where an enormous amount of money is wasted on administrative costs. It is also a cesspool of rent-seeking activity, which allows people to get rich, often at the expense of patients.
This is very much on the mark, but the political path to getting to universal Medicare is chock full of land mines. The bad guys have a lot of political power and are quick to use it to protect their pocketbooks.
Anyhow, we know the route to a good society is not easy, but it is useful to have an outline of what it looks like when we get there. This is what makes The Ends of Freedom most worthwhile.
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