Neat, Plausible, and Wrong


The Antiplanner is frequently reminded of H.L. Mencken’s statement that “there is always a well-known solution to every human problem: neat, plausible, and wrong.” Millennials, for example, blame baby boomers for ruining the world. Most of the mistakes that baby boomers made were in adopting simple and plausible but wrong solutions to complex problems. Now the millennials are promoting their own simplistic and wrong solutions to the problems created by the baby boomer’s errors.

For example, around 1970 people accurately pointed out that there were environmental problems with American lifestyles, including air pollution, water pollution, and loss of wildlife habitat. These were complex problems, and one of the simplistic solutions was to draw urban-growth boundaries around cities to protect wildlife from urban sprawl and reducing pollution by encouraging people to drive less. Growth boundaries didn’t solve any of those problems, but they created a lot of other problems, such as unaffordable housing, traffic congestion, and increased taxes.

Instead of abolishing the growth boundaries, millennials want to solve the problems the boundaries created using such techniques as rent control and regulations on landlords. Washington DC, for example, passed an ordinance giving tenants first right of refusal if a landlord decides to sell a dwelling. This has led to a “cottage industry of attorneys who use this law to prey on homeowners.”

Here’s the thing. Most of our problems are ones of resource allocation: who gets to consume how much of what. After thousands of years of social evolution, humans have developed three main tools for allocating resources: government, religion, and markets. Government and religion always come up with simplistic solutions that usually don’t match the complexity of the problems they are trying to solve.

Markets, however, have the unusual property of being able to use simple rules to solve complex problems. That’s because markets depend on the simultaneous processing of billions of computers called human beings. Those human beings base their individual decisions on two simple metrics.

The first metric is price. Prices determined through supply and demand give consumers incentives to conserve valuable resources and produces incentives to produce more of those valuable resources. Through the laws of supply and demand, there will always be enough supply of any given resource to meet the demand for that resource (provide there is no interference from politics or religion).

The second metric is reputation. So long as transactions are repeated, people making those transactions develop reputations. Even if you haven’t had a transaction with someone else, you can rely on the reputation they have developed in their transactions with others — something that has become even more powerful using internet tools such as eBay and Amazon reviews, though consumers have to be wary of false reviews.

Some may complain that markets are biased by the initial allocation of resources, enabling the rich to get richer at the expense of the poor. But history shows that few families stay very rich for very long, and those that do become adept at using the power of government, not markets, to maintain their preeminence. In general, poor societies have higher levels of inequality, and since market economies tend to be wealthier, they tend to reduce inequality.

Portland’s latest simplistic solution to housing affordability problems is to take the money “freed up” from expiring tax-increment finance (TIF) districts and spend it on construction of affordable housing. But TIF was a theft in the first place from schools, fire, and other programs funded out of property taxes aimed at promoting economic development. Usually, in Portland, that meant building high-density housing and forcing other taxpayers to pay for the urban services consumed by the residents of that housing (since their taxes were going for the TIF subsidies).

TIF apologists always said that the schools and other property-tax-dependent services would benefit in the long run because they would get the higher revenues paid by the developments after TIF bonds were paid off. But now it appears the TIF diversions will go on indefinitely, forcing residents of unsubsidized housing to choose between receiving a lower level of urban services or raising their taxes to maintain their services and pay for those consumed by the high-density and affordable housing developments.

Another name for TIF is value capture, the claim that some new project (such as transit) enhances property values and so the taxes from such properties should be used to subsidize the project. But, as New York City mayor Bill de Blasio recently learned, it all depends on whose value is being captured. That city recently raised property taxes and now New York governor Cuomo wants to divert half of those taxes to mass transit under the guise of value capture. de Blasio hates that idea.

The Antiplanner admits that there are some projects that do increase the total value of a city, but transit projects are generally not among them. But even if we could identify for certain a project that did increase total values, attempting to tax the city to subsidize that project would only invite backers of every other project to make similar claims, with the result that allocation of the tax benefits would be made on political, rather than economic grounds.

Fortunately, transportation and housing are among those resource allocation problems that can be solved entirely through markets. Forget about TIF. Forget about value capture. Forget about subsidies. Just get the government out of the way and let the market work.

This piece first appeared on The Antiplanner.

Randal O’Toole is a senior fellow with the Cato Institute specializing in land use and transportation policy. He has written several books demonstrating the futility of government planning. Prior to working for Cato, he taught environmental economics at Yale, UC Berkeley, and Utah State University.

Photo by Diana Robinson via Flickr, using CC License.