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My Journey from Free Market Ideologue, Part 5: Commercial Development

75 points by oftenwrong 7y ago

whatshisface 7y ago
>Last month, the Utica Observer-Dispatch reported: Fort Stanwix a $6.1M Economic Boon for Rome Area. That sounds good. That sounds really good. In fact, if I were still the same free market ideologue I was back in the day, the kind that looked at ratings agency reports and bond market yields as affirmations, I would say that this sounded a lot like success. Even if the fort was a big government project, now we’re seeing the free market respond and generate a whole bunch of economic activity. That’s good for Rome! Not to be the guy that always jumps in to defend the market, but it sounds like this business park was a case of the government throwing away money and using the market to decide who would get to take it. The free market will eat up free money like nothing you've ever seen, which is why some of the worst failures have come from a well-intentioned government policy getting extracted like a natural resource. It's a fallacy to think, "the market is like a friend, tax it and it won't help you, give to it and it will." The reality is closer to, "the market is an angry dragon that just so happens to be pulling your plow."
davidw 7y ago
Worth reading the whole series and other Strong Towns pieces too. Chuck is not anti-market, he's just going into a lot of the details about how this stuff works out in practice.
ksdale 7y ago
This is a super interesting series, but I'm failing to see how most of the issues he covers are market failures. I love the way he explains infrastructure as an investment, but it seems like most of these infrastructure projects would... not be pursued by someone who was responsible for the full cost (naturally, negative externalities can be market failures, but are they in this case?)? I suppose it's some sort of market failure that municipalities are allowed to basically kick the can down the road, building ever more infrastructure without the revenue to sustain it, but that's generally not at all what people mean when they talk about market failures, is it? As I said, I love this series, and he sounds right about everything, but calling it a journey from free market ideology seems odd, since most of the issues he has are with governments making bad investment decisions (unless I'm completely misreading this). If they were companies they would have gone out of business and lost their ability to make such bad decisions (hopefully, if not, that would also be a market failure). It just seems odd to describe actions by governments as actions by market participants when the line is usually drawn between government actors and market participants.
- winstonewert 7y ago
  I think his free market ideology wasn't "the government ruins everything it touches" or "there are no market failures" but rather "anything that grows the market is good." He considered it to be "free market" when cities did things that contributed to economic growth even if the cities were doing it. Consequently, his point isn't about showing that there were market failures, but that you can't just assume that the choice which grew the market was the right choice.
  - LyndsySimon 7y ago
    I agree completely. I would absolutely consider myself a "free market ideologue", but my definition of that seems to be a far cry from the author's. From the city's perspective, they have to at least cover their expenses. Infrastructure may be an acceptable place for them to have a net loss as long as it's made up somewhere else in the budget, but municipal infrastructure investment should not viewed as a means of maintaining solvency in and of itself. Considered in the author's perspective, a municipality differs from a for-profit company only in that it also has the responsibility to provide services that are not otherwise profitable; in short, they coerce their residence to pay for things - by force if necessary. If it were profitable to run a $7m (or $13m, as it turned out) infrastructure project to support a proposed airport business park, then why would the government need to do it? Why wouldn't the developer of the business park do it?
  - whatshisface 7y ago
    >you can't just assume that the choice which grew the market was the right choice. If the wasted money was taken from taxes that were taken from the market, can we really say the market grew? It sounds like the business center project shrunk the economy overall.
- burlesona 7y ago
  As a friend of Chuck, I can tell you he means it as follows: Originally he believed that we had a well-functioning free market, and that everything that got built was just the market expressing consumer preferences. Over time he (and I and many others) began to realize that the system was not a functioning free-market at all, but rather a strange amalgam of layers of public policy and social engineering with really bad side effects. This isn’t super easy to see because it’s hidden in a bunch of cultural stuff we just take for granted. Things like how so many postwar neighborhood have 40’ wide paved streets with curb and gutter, sewer, and buried utilities. That must be because it’s practical and affordable, right? But when you really dig into it you find that the homes lining that street don’t even pay a meaningful fraction of the maintenance cost of that infrastructure... so where does the money come from? That turns out to be very opaque and hard to answer. (You can read about it here: https://www.strongtowns.org/the-growth-ponzi-scheme https://www.strongtowns.org/the-growth-ponzi-scheme) And so on. So as we began to figure this stuff out, we built Strong Towns to share what we were finding and try and get a lot more people to look at it in their own communities so we could figure out how widespread these phenomena were, and start to figuring out what to do about it. That journey is still in progress.
g_langenderfer 7y ago
If the market decided, these small towns with all their centralized services wouldn't last. Either people would move from rural to urban areas or private, decentralized, and economically viable services would develop.
- TheOtherHobbes 7y ago
  If the market decided, the planet wouldn't last, because markets are absolutely incapable of long-term strategic planning - long-term meaning half-century or more. When your accounting system includes biases that specifically exclude certain kinds of value - i.e. anything currently labelled an externality - there's going to be a hard limit on the rationality and foresight of any decisions that rely on it.
  - orthecreedence 7y ago
    So my question is this, then: are there ways of meeting demands and distributing goods that a) price in externalities b) are not centally-planned? Anarcho-capitalists will tell you that by privatizing everything, you eliminate externalities. But taking their logic further, the only way to prevent pollution or climate change is essentially millions of people suing each other. I don't think I've heard many ideas that are quite as stupid. The thing is, I'm not a fan of markets and I'm not a fan central planning. I like the Marxian ideas of building/distributing things for-use (aka, at-cost as opposed to at market value), but then that still doesn't account for externalities. Even in a system where banking is socialized and allocations are made democratically, you still can't easily price in externalities. So what would a system look like that priced pollution, carbon output, and cost of disposal/recycling of each product into the product itself? The only thing I can think of is government regulation, but even that seems to work via disincentives vs incentives, so you're constantly having to police people to do the right thing. Is this the only way?
  - g_langenderfer 7y ago
    Markets are incapable of optimizing against externalities. For example, no one owns the air, so no one pays for the exhaust produced by their cars as they drive to work. If there were air rights-say every property owner gets rights to the air one mile up from their property-, the holders could sue polluters for the damage they cause.
smacktoward 7y ago
> Outcomes I Like = Result of a Free Market > Outcomes I Don’t Like = Result of a Distorting Government Intervention A modified version of this can frequently be observed in right-wing media, where the generally accepted term is "crony capitalism." When capitalism produces outcomes they approve of, it's because capitalism is good. When capitalism produces outcomes they don't approve of, it's because what was going on wasn't really capitalism, it was its debased, photo-negative, bearded-Spock version, "crony capitalism." In other words, it's a form of the "No true Scotsman" fallacy: true capitalism wouldn't have done those bad things. Which is frustrating, because "crony capitalism" is a real thing that actually means something specific: see https://en.wikipedia.org/wiki/Crony_capitalism https://en.wikipedia.org/wiki/Crony_capitalism. But in this usage it's just a convenient way to handwave away market failures by dumping them at the feet of a straw man.
- bkohlmann 7y ago
  Its not just right wing media - this is the very definition of confirmation bias. Socialists do the same thing. Outcomes they like can be attributed to collectivism and those they don’t like they attribute to capitalism / free markets. All ideologies have costs, benefits, and results that deviate from the ideal. Doesn’t mean they are “wrong.”
  - g_langenderfer 7y ago
    Wouldn't it be nice if we could have a true A/B test? Peter thiel starts his Sea steading libertarian paradise and Bernie gets his very own socialist heaven. We use US as the control.
- opo 7y ago
  Cronyism is found in all political systems and in some systems like fascism might even be considered a defining characteristic. People trying to manipulate the political system for economic gain is unfortunately always going to happen whether there is little or a lot of economic freedom in the system. >...When capitalism produces outcomes they approve of, it's because capitalism is good. When capitalism produces outcomes they don't approve of, it's because what was going on wasn't really capitalism, it was its debased, photo-negative, bearded-Spock version, "crony capitalism." Can you give an example?
UK-Al05 7y ago
Surely these are problems with a lack of market. If your building something without the revenue support it then you would normally go out of business
cabaalis 7y ago
> These city governments needed revenue in order to operate. In fact, they needed to run a profit; that is, they needed their revenues to be at or above their expenses, and that needed to continue indefinitely. What exactly is being argued here? That the local cities should be market players, and join in the income from growth they help stimulate? Local governments have a method for doing that, taxation. > Rome’s local government is funded largely by property taxes. ...... But for the Rome city government, tearing down multiple blocks of taxpaying properties—even if they were in terrible shape at the time—and replacing them with a tax-exempt property, under the guise of creating economic activity, is a really terrible transaction. Absolutely devastating. You're right, it would be a terrible transaction. They cannot be a market player in growth under their current structure. So as I see it, what you're arguing for is that Rome and Brainerd implement more transaction-based taxation. Which would be absolutely fine, as they then have a proper incentive to increase growth.
- mywittyname 7y ago
  It seems like less of an argument and more of a demonstration on how local governments are getting swindled by property developers. These developers make promises that all this money will be generated in the local economy if local governments agree to subsidize development. The agreements these developers make with the governments effectively ensure that most of that economic activity goes into their pockets, while ensuring that locals end up bearing the costs of maintaining the new facilities through increased property taxes. In essence, these deals get sold on the fact that they will bring $X million dollars into the local economy, but nobody realizes that 0.95*$X million dollars is going right back out again until it's too late. After a few years, the city coffers would be empty and maintenance costs of the infrastructure built for these developments would leave them insolvent. The tie back to the "free market" is a little less clear. But it seems to be to be a collection of anecdotes that "economic activity" doesn't magically flow into government coffers. The whole concept of cutting taxes to raise revenue is a joke and doesn't work. Small towns need to operate like a for profit business and take a hard look at the ROI for infrastructure investments, and this means collecting taxes.
deleted 7y ago
[deleted]

75 points by oftenwrong 7y ago

>Last month, the Utica Observer-Dispatch reported: Fort Stanwix a $6.1M Economic Boon for Rome Area. That sounds good. That sounds really good. In fact, if I were still the same free market ideologue I was back in the day, the kind that looked at ratings agency reports and bond market yields as affirmations, I would say that this sounded a lot like success. Even if the fort was a big government project, now we’re seeing the free market respond and generate a whole bunch of economic activity. That’s good for Rome! Not to be the guy that always jumps in to defend the market, but it sounds like this business park was a case of the government throwing away money and using the market to decide who would get to take it. The free market will eat up free money like nothing you've ever seen, which is why some of the worst failures have come from a well-intentioned government policy getting extracted like a natural resource. It's a fallacy to think, "the market is like a friend, tax it and it won't help you, give to it and it will." The reality is closer to, "the market is an angry dragon that just so happens to be pulling your plow."

davidw 7y ago

Worth reading the whole series and other Strong Towns pieces too. Chuck is not anti-market, he's just going into a lot of the details about how this stuff works out in practice.

ksdale 7y ago

This is a super interesting series, but I'm failing to see how most of the issues he covers are market failures. I love the way he explains infrastructure as an investment, but it seems like most of these infrastructure projects would... not be pursued by someone who was responsible for the full cost (naturally, negative externalities can be market failures, but are they in this case?)? I suppose it's some sort of market failure that municipalities are allowed to basically kick the can down the road, building ever more infrastructure without the revenue to sustain it, but that's generally not at all what people mean when they talk about market failures, is it? As I said, I love this series, and he sounds right about everything, but calling it a journey from free market ideology seems odd, since most of the issues he has are with governments making bad investment decisions (unless I'm completely misreading this). If they were companies they would have gone out of business and lost their ability to make such bad decisions (hopefully, if not, that would also be a market failure). It just seems odd to describe actions by governments as actions by market participants when the line is usually drawn between government actors and market participants.

winstonewert 7y ago
I think his free market ideology wasn't "the government ruins everything it touches" or "there are no market failures" but rather "anything that grows the market is good." He considered it to be "free market" when cities did things that contributed to economic growth even if the cities were doing it. Consequently, his point isn't about showing that there were market failures, but that you can't just assume that the choice which grew the market was the right choice.
- LyndsySimon 7y ago
  I agree completely. I would absolutely consider myself a "free market ideologue", but my definition of that seems to be a far cry from the author's. From the city's perspective, they have to at least cover their expenses. Infrastructure may be an acceptable place for them to have a net loss as long as it's made up somewhere else in the budget, but municipal infrastructure investment should not viewed as a means of maintaining solvency in and of itself. Considered in the author's perspective, a municipality differs from a for-profit company only in that it also has the responsibility to provide services that are not otherwise profitable; in short, they coerce their residence to pay for things - by force if necessary. If it were profitable to run a $7m (or $13m, as it turned out) infrastructure project to support a proposed airport business park, then why would the government need to do it? Why wouldn't the developer of the business park do it?
- whatshisface 7y ago
  >you can't just assume that the choice which grew the market was the right choice. If the wasted money was taken from taxes that were taken from the market, can we really say the market grew? It sounds like the business center project shrunk the economy overall.
burlesona 7y ago
As a friend of Chuck, I can tell you he means it as follows: Originally he believed that we had a well-functioning free market, and that everything that got built was just the market expressing consumer preferences. Over time he (and I and many others) began to realize that the system was not a functioning free-market at all, but rather a strange amalgam of layers of public policy and social engineering with really bad side effects. This isn’t super easy to see because it’s hidden in a bunch of cultural stuff we just take for granted. Things like how so many postwar neighborhood have 40’ wide paved streets with curb and gutter, sewer, and buried utilities. That must be because it’s practical and affordable, right? But when you really dig into it you find that the homes lining that street don’t even pay a meaningful fraction of the maintenance cost of that infrastructure... so where does the money come from? That turns out to be very opaque and hard to answer. (You can read about it here: https://www.strongtowns.org/the-growth-ponzi-scheme https://www.strongtowns.org/the-growth-ponzi-scheme) And so on. So as we began to figure this stuff out, we built Strong Towns to share what we were finding and try and get a lot more people to look at it in their own communities so we could figure out how widespread these phenomena were, and start to figuring out what to do about it. That journey is still in progress.

g_langenderfer 7y ago

If the market decided, these small towns with all their centralized services wouldn't last. Either people would move from rural to urban areas or private, decentralized, and economically viable services would develop.

TheOtherHobbes 7y ago
If the market decided, the planet wouldn't last, because markets are absolutely incapable of long-term strategic planning - long-term meaning half-century or more. When your accounting system includes biases that specifically exclude certain kinds of value - i.e. anything currently labelled an externality - there's going to be a hard limit on the rationality and foresight of any decisions that rely on it.
- orthecreedence 7y ago
  So my question is this, then: are there ways of meeting demands and distributing goods that a) price in externalities b) are not centally-planned? Anarcho-capitalists will tell you that by privatizing everything, you eliminate externalities. But taking their logic further, the only way to prevent pollution or climate change is essentially millions of people suing each other. I don't think I've heard many ideas that are quite as stupid. The thing is, I'm not a fan of markets and I'm not a fan central planning. I like the Marxian ideas of building/distributing things for-use (aka, at-cost as opposed to at market value), but then that still doesn't account for externalities. Even in a system where banking is socialized and allocations are made democratically, you still can't easily price in externalities. So what would a system look like that priced pollution, carbon output, and cost of disposal/recycling of each product into the product itself? The only thing I can think of is government regulation, but even that seems to work via disincentives vs incentives, so you're constantly having to police people to do the right thing. Is this the only way?
- g_langenderfer 7y ago
  Markets are incapable of optimizing against externalities. For example, no one owns the air, so no one pays for the exhaust produced by their cars as they drive to work. If there were air rights-say every property owner gets rights to the air one mile up from their property-, the holders could sue polluters for the damage they cause.

smacktoward 7y ago

> Outcomes I Like = Result of a Free Market > Outcomes I Don’t Like = Result of a Distorting Government Intervention A modified version of this can frequently be observed in right-wing media, where the generally accepted term is "crony capitalism." When capitalism produces outcomes they approve of, it's because capitalism is good. When capitalism produces outcomes they don't approve of, it's because what was going on wasn't really capitalism, it was its debased, photo-negative, bearded-Spock version, "crony capitalism." In other words, it's a form of the "No true Scotsman" fallacy: true capitalism wouldn't have done those bad things. Which is frustrating, because "crony capitalism" is a real thing that actually means something specific: see https://en.wikipedia.org/wiki/Crony_capitalism https://en.wikipedia.org/wiki/Crony_capitalism. But in this usage it's just a convenient way to handwave away market failures by dumping them at the feet of a straw man.

bkohlmann 7y ago
Its not just right wing media - this is the very definition of confirmation bias. Socialists do the same thing. Outcomes they like can be attributed to collectivism and those they don’t like they attribute to capitalism / free markets. All ideologies have costs, benefits, and results that deviate from the ideal. Doesn’t mean they are “wrong.”
- g_langenderfer 7y ago
  Wouldn't it be nice if we could have a true A/B test? Peter thiel starts his Sea steading libertarian paradise and Bernie gets his very own socialist heaven. We use US as the control.
opo 7y ago
Cronyism is found in all political systems and in some systems like fascism might even be considered a defining characteristic. People trying to manipulate the political system for economic gain is unfortunately always going to happen whether there is little or a lot of economic freedom in the system. >...When capitalism produces outcomes they approve of, it's because capitalism is good. When capitalism produces outcomes they don't approve of, it's because what was going on wasn't really capitalism, it was its debased, photo-negative, bearded-Spock version, "crony capitalism." Can you give an example?

UK-Al05 7y ago

Surely these are problems with a lack of market. If your building something without the revenue support it then you would normally go out of business

cabaalis 7y ago

> These city governments needed revenue in order to operate. In fact, they needed to run a profit; that is, they needed their revenues to be at or above their expenses, and that needed to continue indefinitely. What exactly is being argued here? That the local cities should be market players, and join in the income from growth they help stimulate? Local governments have a method for doing that, taxation. > Rome’s local government is funded largely by property taxes. ...... But for the Rome city government, tearing down multiple blocks of taxpaying properties—even if they were in terrible shape at the time—and replacing them with a tax-exempt property, under the guise of creating economic activity, is a really terrible transaction. Absolutely devastating. You're right, it would be a terrible transaction. They cannot be a market player in growth under their current structure. So as I see it, what you're arguing for is that Rome and Brainerd implement more transaction-based taxation. Which would be absolutely fine, as they then have a proper incentive to increase growth.

mywittyname 7y ago
It seems like less of an argument and more of a demonstration on how local governments are getting swindled by property developers. These developers make promises that all this money will be generated in the local economy if local governments agree to subsidize development. The agreements these developers make with the governments effectively ensure that most of that economic activity goes into their pockets, while ensuring that locals end up bearing the costs of maintaining the new facilities through increased property taxes. In essence, these deals get sold on the fact that they will bring $X million dollars into the local economy, but nobody realizes that 0.95*$X million dollars is going right back out again until it's too late. After a few years, the city coffers would be empty and maintenance costs of the infrastructure built for these developments would leave them insolvent. The tie back to the "free market" is a little less clear. But it seems to be to be a collection of anecdotes that "economic activity" doesn't magically flow into government coffers. The whole concept of cutting taxes to raise revenue is a joke and doesn't work. Small towns need to operate like a for profit business and take a hard look at the ROI for infrastructure investments, and this means collecting taxes.

deleted 7y ago

[deleted]