The Pope's Medieval Economics - Still and Again

With a brief respite for Thanksgiving, social media and the blogosphere have been astir with conversations about Pope Francis' new apostolic exhortation, Evangelii Gaudium ("Joy of the Gospels"), which, despite being a lengthy disputation on the Trinity and other aspects of Catholic theological dogma, has had its few passages on economics singled out for praise and criticism.

I have earlier written about how the top ranks of the Catholic hierarchy are stuck in the Middle Ages when it comes to economic thinking, including Pope Emeritus Benedict XVI.

The core problem in the current Pope's thinking is found in this passage from Evangelii Gaudium (slightly truncated):

"In this context, some people continue to defend trickle-down theories which assume that economic growth, encouraged by a free market, will inevitably succeed in bringing about greater justice and inclusiveness in the world. This opinion, which has never been confirmed by the facts..."

This has been "confirmed by the facts" so many times I am confounded by the Pope's ignorance of free-market economics, whose theoretical principles were first propounded by the Spanish Scholastics of the early Renaissance.

This Pope, like his predecessors, adheres to a medieval mode of thinking about economics in which wealth distribution is a zero-sum game: Some people are rich because other people are poor. It completely ignores how wealth can be created (making a bigger pie, not just cutting up smaller and smaller pieces to share) through human ingenuity facilitated by the rule of law, respect for property rights, and freedom of thought and information.

The rise of capitalism -- or, as I prefer to call it, free enterprise -- has historically been the most effective driver of wealth creation and lifting people out of poverty. In the past 30 years alone, a billion people who were once living in dire poverty are now middle-class and even rich (by any standard) just in China and India, where liberalized economic policies have freed them from lives that were, by all accounts, nasty, brutish, and short (if not solitary, given those countries' large populations).

As Matt Welch, writing in Reason, put it in a slightly different way:

More people have escaped poverty the past 25 years than were alive on the planet in 1800. Their "means of escape" was largely the introduction of at least some "laws of competition" in endeavors that had long been the exclusive domain of authoritarian, monopolistic governments.

To be fair, the Pope comes from Argentina, where cronyism and mercantilism have long been presented (falsely) as free enterprise. In that context, it would be easy to assume that capitalism creates poverty rather than eliminates it. The affluence and abundance of the modern world were never envisioned by the Bible, which incorrectly prophesies that "the poor will be with us always."

As we have seen in the unprecedented progress of the past 200 years, there is no inevitability to poverty.

Charlottesville's 'Affordable Housing' Trap

The announcement that Charlottesville's City Council wants to increase the stock of so-called "affordable housing" by a significant fraction sent me back to look at one of my earliest blog posts.  Before revisiting that piece (which was the republication of an article I wrote in 1997, for what it's worth), let's look at this week's news.

Rachana Dixit wrote in the Daily Progress on February 1:

The City Council has agreed that Charlottesville’s affordable housing stock should increase to 15 percent of all city housing in the next 15 years.

“Housing is just as important as the other infrastructure we invest in in our community,” Councilor Holly Edwards said during the council’s meeting Monday.

Upping Charlottesville’s affordable housing percentage from 10 percent — the current amount, according to an affordable housing report completed by the city’s Housing Advisory Committee — to 15 percent would require the city to commit an average of $1.7 million each year until 2025, or a total of roughly $25.7 million. This would be needed to add and preserve 2,350 affordable housing units, the report states.

Now, take a look at what I wrote on December 23, 2004, but replace references to "Arlington" and "County Board" with "Charlottesville" and "City Council," and fast-forward dates from 1997 and 2047 to 2010 and 2060. (Just thinking of those upper-digit years sends shivers up one's spine.)

Moreover, Arlington suffers many of the same problems that communities across the United States do. Housing policy expert William Tucker explained in Reason magazine that "researchers estimate that zoning delays and building- code requirements add some $15,000 to $30,000 to the price a new home in many parts of the country. ‘Starter homes' -- simple, no-frills structures that first-time home buyers can afford -- are almost impossible to build in exclusive suburbs. Apartments are fought everywhere. . . . Then people wonder why we have an 'affordable housing problem.'"

We need to reframe the debate by removing the term "affordable housing" from our lexicon. "Affordable housing" is a weasel word that confuses more than it assists us in discussing housing policy. All housing is affordable to somebody. We should rather talk about low-income or moderate-income housing. That's the real issue.

Most low-income housing in Arlington was once owned or rented by middle- and upper-middle income residents. Colonial Village and Buckingham, for instance, were built almost 60 years ago to house well-paid New Deal bureaucrats who came to Washington from around the country and needed a place to live.

Over the past six decades, that housing has deteriorated and lost its value for upper-income people. It has therefore become available to lower-income groups. This scenario has been played out across the country. In cities like Philadelphia, Cleveland, Milwaukee, and Richmond, houses that were once mansions owned by rich people have been subdivided into apartments for low- income tenants.

County Board Member Eisenberg and others would like to see a greater emphasis placed on low-rent units today, so that 10 percent of the county's housing stock falls into that category. Can you imagine what low-rent units built for 1997 will look like in 50 years? They will decay so rapidly that by 2047, they will be -- as one homeowners' advocate so aptly put it -- "mere shells," inviting disintegration, grime, and crime. Such decay may happen even sooner.

The flexible and adaptable housing market provides better long-term prospects. Whenever a developer builds a rental unit for a middle- or upper- income tenant, he frees up a unit that tenant formerly occupied for a lower- income resident to move into. That resident's former apartment then becomes available for someone from an even lower income group.

When government intervention -- whether in the form of subsidies or rent control -- takes place, the housing cycle becomes disrupted. The supply of housing does not circulate fully or smoothly, driving prices up. This makes rents and mortgage payments higher for everyone.

Little has changed in the past five (or even 13) years that would make me amend what I wrote back then, except to state it more baldly:  "Affordable housing" by design has to be cheap or low-quality housing.  If it isn't, the builder has to lose money on it (in the absence of a transfer payment from taxpayers).  Government intrusion in the marketplace interrupts the circulation of housing that makes older units "affordable" (relatively less expensive) and brings new, higher-quality units onto the market.  It may seem paradoxical, but if we want "affordable" housing in the future, we should be building "unaffordable" housing today.

Even though Charlottesville is a small city and Arlington is about five times as large (and is an urban entity overlaid with -- or masquerading as -- a county-government structure), the problems and solutions remain the same.  The economic realities of the housing market apply across the board, whether we are talking about large cities or rural areas, suburbs or exurbs, Manhattan (Kansas) or Manhattan (Big Apple).

Mayor Dave Norris and his fellow council members are well-intentioned.  It is good to make home ownership available to as many people as possible, and also to prevent homelessness.  Intervening in the housing market through subsidies and regulation of housing providers, however, will do little more than shift the problem either from one taxpayer to another or from one jurisdiction to another.  After all, the housing market of the City of Charlottesville is not self-contained; it is integrated with the markets of Albemarle, Fluvanna, and Nelson counties, and other areas beyond the our metropolitan area are affected, as well.




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