Liftblues – Econlib

I often hear people on the right claim that the New York Times is a crappy newspaper. This is not true because they confuse quality and bias. The NYT is an excellent newspaper marred by an unfortunate bias toward left-wing views.

Someone once joked that they weren’t libertarians because of “ways.” I suppose I could answer that I’m a libertarian because of the “elevators.” Or more specifically: lifts times a thousand.

a recent NYT piece does an excellent job exposing the gross inefficiency of the American elevator industry. Due to a very complex web of counterproductive government regulations, elevators in America cost many times more than in Europe. Not surprisingly, America has far fewer elevators, even for buildings of a certain type. (So ​​it’s not just our preference for single-family homes; even our apartment buildings have far fewer elevators.)

The lesson here is not that the US is worse than Europe; it would be easy to find hundreds of examples in which American efficiency was higher than in Europe. Instead, the lesson here is that elevators are just one of thousands of examples of where government overregulation leads to inefficiency.

When most people go about their daily lives, they don’t think about the ways in which government regulations make their lives more difficult. In almost every case I encounter with systematic inefficiency, the root cause is counterproductive regulation. Free market companies screw up every now and then, but… systematic problems are almost always due to poor incentives created by regulations.

The inability of most Americans to understand the role of regulation leads to widespread misunderstanding about issues such as stagnant living standards. Ask most Americans why real wage growth has slowed since 1973, and they will cite factors like “inflation,” “the demise of unions,” “neoliberalism,” “monopoly profits,” “the China shock” and a host of of other factors.

In fact, the impact of all these factors is trivial compared to the inefficiencies caused by government regulation and subsidies.

1. Healthcare regulations and subsidies have driven US medical spending to 18% of GDP, compared to 5% in Singapore (or perhaps 9% given US demographics).

2. Government subsidies and regulations have led to wildly inflated spending on education, which does not lead to any improvement in education.

3. Regulations have dramatically increased the cost of new homes, especially in large cities and coastal states.

And yet I doubt that one in a hundred Americans would argue that health care regulation is a major factor driving down real wages.

I could mention many more such examples, but let’s focus on housing because it is so important. In manufacturing industries that are less heavily regulated, such as clothing, consumer electronics and home appliances, prices have typically risen much more slowly than incomes. Housing is an exception, and given its share of consumer budgets, it is an important exception.

To its credit, the NYT piece suggests that the problems in construction go well beyond elevators:

Beyond the elevator itself, you’ll find a byzantine mess of absurdities and contradictions behind the slowness, inefficiency and costs of the American construction industry. For example, Americans cannot use the latest heat pumps – a crucial tool to combat climate change by electrifying heating systems – because of the same types barriers imposed by US regulators. Instead, Americans rely on outdated heat pumps that have no market abroad. And America’s plumbing codes require an entire network of ventilation pipes that are largely considered unnecessary in much of the world.

They also discuss the problem of residential zoning and then note that zoning reform is not enough. Regulatory barriers are especially important for the construction of larger multi-family buildings:

The average construction costs for detached single-family homes are approx $153 per square foot. In America’s most in-demand coastal cities, multifamily construction costs have exploded. Even subsidized multi-family housing in California this can cost $500 per square foot (or more).

A generation of young, would-be homeowners locked out by skyrocketing housing costs have taken notice. Their first goal was a century of stricter land use regulations, during which existing homeowners enriched themselves by blocking development through restrictive zoning measures. In recent years, the rise of so-called YIMBY – or “yes in my backyard” – movement has succeeded all But abolish single-family zoning on the west coast.

But as zoning regulations were liberalized, architects and developers quickly began sounding the alarm bells about the hurdles hidden in the finer points of building codes and standards and other, more technical rules.

This is what most progressives don’t understand. Stagnant Real income does not transfer incomes; they are about ‘real’. Ultimately, our standard of living depends on our ability to produce real output. In the short term, you can help workers a little by redistributing money from capital to labor. But in the long run, this will reduce capital formation and make workers worse off. The overwhelmingly dominant factor driving real wages is productivity. Swiss workers do not earn much more than Bangladeshi workers because of strong unions; they earn more thanks to dramatically higher productivity.

What kinds of things could increase workers’ living standards? Cutting back on healthcare from 18% to 9% of GDP. Drastic reduction in spending on education. Deregulate housing to sharply reduce house prices. And there are thousands of other small reforms that could boost productivity across the economy.

Elevators may seem like a small problem, but the problems in the elevator industry are indicative of why real wage growth slowed after the early 1970s.

I often get frustrated with the NYT, which has a strong left-wing bias. But honestly, they’ve made a lot of excellent stories over the years. I’d love to see someone dig up 30 or 40 NYT stories similar to the elevator story I linked to in this post. Then collect the stories in book form. Give the book a title:

The New York Times Case for Libertarianism