Sunday, June 25, 2017

Medicaid Scare Tactics Are Irresponsible

By Charles Blahous of Mercatus.
"If we want to make headway on improving public policy discourse, a good place to start might be with how we’re debating Medicaid policy, in particular how it might be affected by pending legislation to repeal and replace the Affordable Care Act (ACA), including legislation presented on Thursday by Senate Republicans.

Medicaid has long been on an unsustainable cost growth trajectory.  This was true long before the ACA was passed in 2010, though the ACA exacerbated the problem.  Annual federal Medicaid spending is currently projected (see Figure 1) to grow from $389 billion in 2017 to $650 billion in 2027.  The biggest problem with that growth rate is that it’s faster than what’s projected for our economy as a whole.  As with Social Security and Medicare, Medicaid costs are growing faster than our ability to finance them.
Figure 1
           
Medicaid serves a sympathetic low-income population.  This purpose, however, does not lessen the necessity of placing the program on a financially sustainable course.  Nor does it eliminate lawmakers’ obligation to prioritize how Medicaid dollars are best spent; to the contrary, it magnifies it.  Lawmakers face the conflicting pressures of targeting Medicaid resources to where they are most needed, while also limiting aggregate spending growth to a sustainable level.

This situation creates irresistible political opportunities for those inclined to exploit them.  Whenever lawmakers take on the unenviable job of moderating cost growth to sustainable rates, these can be and are described as heartless “cuts” relative to existing law – even though existing Medicaid law cannot be maintained indefinitely. This creates a Catch-22; the existence of an untenable Medicaid cost growth baseline both mandates responsible action to repair it, while also establishing a warped basis for comparison that amplifies the political hazards of doing so.

We have seen this dynamic operate with full force in the recent public debate over efforts to repeal and replace the ACA, including its Medicaid provisions.  Countless editorials and news articles have portrayed an intent by Congress to “gut” Medicaid to pay for “tax cuts for the rich.”  This intensifying drumbeat has led to disturbing vitriol and threats against legislators, based on gross mischaracterizations of the implications of pending legislation.  Consider for example an op-ed recently published in the New York Times:

“Imagine your mother needs to move into a nursing home. It’s going to cost her almost $100,000 a year. Very few people have private insurance to cover this. Your mother will most likely run out her savings until she qualifies for Medicaid. . . Many American voters think Medicaid is only for low-income adults and their children — for people who aren’t “like them.” But Medicaid is not “somebody else’s” insurance. It is insurance for all of our mothers and fathers and, eventually, for ourselves. The American Health Care Act that passed the House and is now being debated by the Senate would reduce spending on Medicaid by over $800 billion, the largest single reduction in a social insurance program in our nation’s history. . . . Many nursing homes would stop admitting Medicaid recipients and those who don’t have enough assets to ensure that they won’t eventually end up on Medicaid. Older and disabled Medicaid beneficiaries can’t pay out of pocket for services and they do not typically have family members able to care for them. The nursing home is a last resort. Where will they go instead? . . . Draconian cuts to Medicaid affect all of our families. They are a direct attack on our elderly, our disabled and our dignity.”

Most anyone reading such an editorial would come away with the fear that pending legislation would threaten the access of the elderly and disabled to Medicaid services.  It wouldn’t.  The elderly and the disabled who were eligible for Medicaid prior to the ACA would remain eligible after its proposed repeal.  The ACA’s Medicaid expansion population involved childless adults under the age of 65, a different category of beneficiaries altogether.

The large projected expenditure reduction under the AHCA (the House’s repeal-and-replace bill) actually has nothing to do with disabled or elderly Medicaid beneficiaries but rather with changes in projected enrollment for the ACA’s expansion population.  Doug Badger estimated in a recent paper that 82% of the Medicaid savings projected for the AHCA by CBO arose from changes to projected enrollment patterns – not from anything that would undermine care for the person profiled in the Times op-ed.  The story is likely to be quite similar under the recently-unveiled Senate bill.

The Chief CMS Actuary recently weighed in with its own estimate of 10-year cost savings of $383 billion over ten years from the House bill’s Medicaid provisions – less than half the savings projected by CBO.  A primary difference between the two estimates has to do with what CMS and CBO respectively believe would happen if the ACA remained on the books.  CMS projects that under a continuation of the ACA, the proportion of the potentially newly-Medicaid-eligible population living in Medicaid-expansion states would remain at its current 55 percent.  CBO by contrast assumes that additional states would expand Medicaid if the ACA remained law.  CBO further assumes that many fewer people will participate in Medicaid if the ACA is repealed, even if they remain fully eligible to do so.  The bottom line is that the essential difference between these two assumptions has nothing to do with people now on Medicaid losing their access to coverage.

It is fair to be concerned that fewer people would receive Medicaid coverage in the future under pending legislation than under the ACA. However, current projections bear no resemblance to a picture in which people historically dependent on Medicaid would lose their benefits.  To the contrary, CMS estimates (see Figure 2) that Medicaid enrollment would stay roughly constant at current levels under the AHCA, while still being substantially higher than projected before the ACA was passed.  Indeed, CMS finds that many states would still cover some of the ACA expansion population even if lawmakers do away with the ACA’s inflated federal matching payment rates.  This would mean expanded coverage relative to pre-ACA levels, while also being more equitable than the ACA.
Figure 2
It is also fair to wonder about the long-term effects of per-capita growth caps proposed under both the AHCA and the Senate bill – though not relative to unsustainable promises under current law, but rather to an alternative method of attaining financial sustainability.  But no one should associate figures such as $800 billion in cuts with these proposed caps. As previously described, most of CBO’s projected cost reduction is unrelated to the concept, while CMS’s estimate of the caps’ budgetary effects is well less than 10% of that amount.

It is perfectly appropriate for there to be a vigorous, even impassioned debate about whose proposals would provide the best way forward for the Medicaid program.  But we ill serve the public with misleading, incendiary rhetoric about vulnerable elderly being ejected from nursing homes so that cruel politicians can provide tax cuts to the rich, when nothing under consideration can be fairly described as doing any such thing.  If advocates want their health policy arguments to be taken seriously, and to usefully inform the American public, groundless hyperbole should be shelved in favor of a focus on what existing proposals would actually do."

This product is also yet another example of how the environment is cleaned by capitalism (cheap water filter)

See Cleaned by Capitalism XXXIX by Don Boudreaux.
"Available from Amazon.com for $14.99 (and from other retailers at a similar price) is this handy device that filters and decontaminates water whenever someone uses it as a straw.  Lifestraw removes 99.9999% of waterborne bacteria and 99.9% of waterborne protozoa.  Each Lifestraw filters the amount of water that the typical person drinks in the course of a year.  Made (I think in Poland) by the Swiss company Vestergaard, Lifestraw – from its conception to the system that allows it to be produced and distributed and sold at a price that’s about 2/3rds of the amount of money that an ordinary American worker earns in a single hour – is a marvelous example of human ingenuity and of the largely unseen and under-appreciated productive power of a globe-spanning market.  This product is also yet another example of how the environment is cleaned by capitalism.  And since Lifestraw became available, the process of reducing water pollution is a bit less of a public good than it was before the availability of Lifestraw.

I thank Warren Smith for sending me this article about Lifestraw."

Saturday, June 24, 2017

How Financial Regulations Can Create Barriers to Entry: The Case of Cumplo in Chile

A new Stigler Center case study chronicling the story of Chile’s first crowdfunding platform and its early regulatory challenges illustrates how financial regulations can be effectively used by incumbents to stifle competition

By Asher Schechter of the Pro Market blog. Excerpts:
"In June 2012, the founders of Cumplo, Chile’s first crowdfunding platform, were called to a meeting in the office of the country’s banking regulator. They were given an ultimatum: “If you don’t stop doing what you’re doing in 48 hours,” the regulator told them, “I will be forced to report your activity and you may end up spending 541 days in jail.”

Cumplo, said the regulator—a former manager at one of Chile’s biggest banks—was in violation of the country’s banking law, which prohibits any unlicensed individual or organization from keeping deposits or acting as a financial intermediary. The law was originally passed in the early 1980s, during Chile’s banking crisis, to promote financial stability.

Five days later, the regulatory agency in charge of supervising banks in Chile (SBIF) officially charged Cumplo. The company, founded in 2011 by Nicolas Shea and his wife Josefa Monge, countered that it was a mere peer-to-peer (P2P) lending platform, a marketplace that allows borrowers and lenders to connect, borrow and lend among each other directly. 

The regulator insisted that Cumplo was operating illegally as a “money broker.” Shortly thereafter, six armed police agents raided the company’s offices, looking for secret hard drives and files. According to Shea, he improvised a role-playing session to show that Cumplo was not a financial firm. One week later, he says, one of the officers came back to Cumplo’s office to try to renegotiate his retail store loans. Days later, Shea and co-founder Jean Boudeguer were interrogated by the district attorney in the presence of police officers."

"The Chilean banking industry is highly concentrated, with the three largest banks—Santander Chile, Banco de Chile, and BCI—accounting for 50 percent of loans and nearly two-thirds of the profits (as of 2015).

Following Chile’s banking crisis of the early 1980s, the government took control of many of the nation’s banks. These banks ended up with major “subordinated debts” to the central bank, which banks paid annually as a percentage of their profits. These debts, according to the Chilean economist Manuel Cruzat Valdés, created a strong incentive for the government to keep the banking system a “closed club.”

“Authorities disregarded competition for the sake of a Central Bank debt collection, but in the process they concentrated the allocation of capital into a small but powerful group, with negative consequences on competition levels in the credit sector and, by consequence, all over the economy. Credit from banks was—and is—dominant in total credit allocation, as opposed to the U.S., where capital markets effectively allowed credit alternatives to those coming from banks. The end result was extremely high levels of concentration in almost all economic sectors, cross shareholding practices, and interlocking, to say the least. Collusive practices were just a natural but more extreme consequence of this process. However, much more important and damaging because of its massiveness, was a dormant competitive environment born out of these conditions,” says Valdés."

"Other P2P lending platforms around the world, like Prosper and the Brazilian Fairplace, have faced strong regulatory and legal issues, and Cumplo was no exception. But the response Cumplo faced in Chile was tougher than what other P2P platforms have had to face. 

Expecting a harsh response from the banking industry, Shea consulted a couple of prominent banking lawyers before starting Cumplo. “You are insane. This can’t be legal and if it were, banks will smash you in a heartbeat,” one lawyer friend told him in 2011. The lawyers, he says, understood that Cumplo did not take deposits and that technically there could not be financial intermediation, but they realized it was a fine line. “We would need to go in further, but from what you tell me, you are the marketplace, not the intermediary, so it is not illegal,” another lawyer told him at the time.

Before launching, Shea met with Chile’s then minister of the economy, Pablo Longueira, who as a senator had spent years on the financial committee. His estimated that Cumplo should not consult financial regulators, since its operation doesn’t take deposits or invests money. Later on, Cumplo consulted Victor Vial, former general counsel of Chile’s Central Bank and a top banking lawyer, for a formal legal opinion. According to Shea and Monge, Vial praised Cumplo’s business model, concluding that “If there is any intermediation in Cumplo, it’s of people, not of money.”

Cumplo was started in August 2011 and its first loan was financed in March 2012. Initially, Cumplo found some success. In its first nine months, lenders on the platform provided roughly $87,000 in loans. The growth of the site attracted the attention of the press, and the article in La Segunda that appeared in May 2012 made the small start-up seem like a potential threat to the banking industry. Subsequently, the regulator charged Cumplo with violating the banking law.

“The banking regulator called [Monge and Boudeguer] up to his office in June 2012. He told them ‘Kids (cabros), I’m glad you came. I wanted to make sure that you understood what is going on here, because what you are doing is illegal and if you keep doing it I will press criminal charges against you,” says Shea. “After explaining what we did and asking him what was wrong about it he said that he didn’t really care to understand. All he said after he couldn’t explain our wrongdoing was ‘I’m not a lawyer, so I can’t go into technicalities. All I know is that I got notice from the general counsel of [an incumbent bank] that what you are doing is illegal and if you don’t stop doing it within the next 48 hours, I will start a criminal investigation against you personally and you will risk 541 days in jail.”’

Hoping the troubles would go away, Cumplo tried to appease the regulators. In meetings with regulators, Cumplo executives were told that the main concern was the platform’s use of virtual accounts. Cumplo did not hold deposits, but it did have virtual accounts in which lenders’ funds were kept as collateral. As a gesture to regulators, the company modified its platform and removed virtual accounts, hoping the situation would then be rectified, but to no avail: a criminal investigation ensued. In July 2012, policemen raided their offices. Days later, Shea and others were interrogated. “‘Let me give you some advice, kid,’” Shea was told by a senior industry representative around that time. “‘Your business is too dangerous and complicated. You should forget about it.’”"

"Cumplo’s case also received considerable media attention, both from domestic and international outlets like The Economist, which criticized Chile’s government for putting the company “through regulatory hell.” The media attention eventually allowed Cumplo to fend off the initial attacks."

"In its current iteration, Cumplo has begun to find some success. The company has recently reached the threshold of $10 million loans financed per month and should reach $200 million this year, according to Shea. After five years of operation, last month the company has finally reached break-even. The average loan, he says, is around $37,000 and is financed by 11 investors.

Shea, who briefly attempted to run for Chile’s presidency earlier this year, says he is optimistic about the future of Cumplo, but while the company has found some success in the SME market, its regulatory problems are not over. Nevertheless, its early struggles point not only to the troubles that many other P2P lending platforms face regarding the feasibility of their models, but also to the way regulation can be effectively used by incumbents to stifle competition."

More School Choice, Less Crime

By Corey A. DeAngelis of Cato.
"One of the original arguments for educating children in traditional public schools is that they are necessary for a stable democratic society. Indeed, an English parliamentary spokesman, W.A. Roebuck, argued that mass government education would improve national stability through a reduction in crime.

Public education advocates, such as Stand for Children’s Jonah Edelman and the American Federation for Teachers’ Randi Weingarten, still insist that children must be forced to attend government schools in order to preserve democratic values.

Theory

In principle, if families make schooling selections based purely on self-interest, they may harm others in society. For instance, parents may send their children to schools that only shape academic skills. As a result, children could miss out on imperative moral education and harm others in society through a higher proclivity for committing crimes in the future.

However, since families value the character of their children, they are likely to make schooling decisions based on institutions’ abilities to shape socially desirable skills such as morality and citizenship. Further, since school choice programs increase competitive pressures, we should expect the quality of character education to increase in the market for schooling. An increase in the quality of character education decreases the likelihood of criminal activity and therefore improves social order.

Evidence

There are only three studies causally linking school choice programs to criminal activity. Two studies examine the impacts of charter schools and one looks at the private school voucher program in Milwaukee. Each study finds that access to a school choice program substantially reduces the likelihood that a student will commit criminal activity later on in life.

Notably, Dobbie & Fryer (2015) find that winning a random lottery to attend a charter school in Harlem completely eliminates the likelihood of incarceration for males. In addition, they find that female charter school lottery winners are less than half as likely to report having a teen pregnancy.



Note: A box highlighted in green indicates that the study found statistically significant crime reduction.

According to the only causal studies that we have on the subject, school choice programs improve social order through substantial crime reduction. If public education advocates want to continue to cling to the idea that traditional public schools are necessary for democracy, they ought to explain why the scientific evidence suggests the opposite.

Of course, these impacts play a significant role in shaping the lives of individual children. Perhaps more importantly, these findings indicate that voluntary schooling selections can create noteworthy benefits for third parties as well. If we truly wish to live in a safe and stable democratic society, we ought to allow parents to select the schooling institutions that best shape the citizenship skills of their own children."

Friday, June 23, 2017

The Problems With A New Study On Seattle's $15 Minimum Wage

By Michael Saltsman in Forbes.
"The headlines were ebullient: "Minimum Wage Increase Hasn't Killed Jobs in Seattle." So said a report from a team of researchers affiliated with the University of California-Berkeley, timed for the three-year anniversary of the law.

Seattle Mayor Ed Murray conveniently had an infographic designed and ready to go for the study's release. His office excitedly tweeted that the policy had "raised food workers' pay, without negative impact on employment," linking to an uploaded study version on the Mayor's personal .gov website rather than a University domain.

The Mayor's enthusiasm was understandable: The report "was prepared at the request of the Mayor of Seattle," according to the authors--apparently as a public relations prop. Less clear is why the study was done in the first place.

The City of Seattle was already funding a highly-qualified, unbiased research team at the University of Washington to do such a report. The team includes a roster of impressive researchers from a wide variety of backgrounds--ranging from Jacob Vigdor, who is a professor at the University and an adjunct fellow at the Manhattan Institute, to Hillary Wething, who was formerly at the union-backed Economic Policy Institute.

The UW reports on Seattle's $15 experiment had something for everyone. Unfortunately for the Mayor's office, their conclusions on the early stages of Seattle's $15 wage experiment were not uniformly positive. The Washington Post reports:

    The average hourly wage for workers affected by the increase jumped from $9.96 to $11.14, but wages likely would have increased some anyway due to Seattle's overall economy. Meanwhile, although workers were earning more, fewer of them had a job than would have without an increase. Those who did work had fewer hours than they would have without the wage hike.

Nuanced conclusions like this one don't lend themselves to celebratory press releases like the one the Mayor's office put out yesterday. Enter the Berkeley team, which always arrives at the same positive conclusion on minimum wage no matter the number:

In their view, a higher minimum wage is always a good thing.

In an expose published last year, the Albany Times-Union used emails obtained via public records request to explore the motivations of the Berkeley team:

    The Times Union was recently provided hundreds of pages of emails among minimum wage advocates, Jacobs and other Berkeley academics, demonstrating a deep level of coordination between academics and advocates....

    The Berkeley Labor Center has done at least six other studies on the minimum wage in California municipalities, all showing that a wage increase would be beneficial. In fact, Jacobs could not name a study conducted by Berkeley that said raising wages would have an overall negative impact. ...

Given this history of identical results, it's not surprising that the Murray administration in Seattle was anxious to have a copy of the predictably-positive Berkeley report to tout on the third anniversary of its minimum wage law.

Yet the anecdotal evidence in Seattle backs up the empirical data provided by the UW team. Local restaurant owners of establishments such as Louisa's Cafe and z Pizza have shut down, citing the cost of the minimum wage law as a factor. Karam Mann, a franchisee who owns a Subway location with his wife Heidi, has cut his staffing levels from seven employees down to three.

The wage floor is still rising in Seattle, and there are more chapters to write on the city's minimum wage experiment. But if accuracy if the goal, the Berkeley team is not the right choice to author them." 

The New York restaurant industry is slowing down, adding fewer jobs and shedding eateries amidst recent hikes in the minimum wage

Restaurant workers feeling the pinch in New York by Lisa Fickenscher of the NY Post. 
"The New York restaurant industry is slowing down, adding fewer jobs and shedding eateries amidst recent hikes in the minimum wage.

The Empire State lost 1,000 restaurants last year and the number of jobs as cooks, servers and dishwashers grew by an anemic 1.4 percent. That’s a far cry from the 4.4 percent annual growth the state’s eateries enjoyed from 2010 to 2015, according to the Employment Policies Institute, a nonprofit research group.

The Big Apple accounts for the lion’s share of the state’s growth — and the slowdowns in the city are more dramatic.

Employment growth at fast-food restaurants in the city — which are required to pay $12 an hour, or $1 more than other employers — shriveled to 3.4 percent last year compared with 7 percent growth from 2010 to 2015. The spiral has continued into 2017, which has generated just 2 percent growth through May.

Full-service restaurants in the city are adding even fewer jobs, with growth at just 1.3 percent last year compared to 6.5 percent over the previous five years. This year it’s down to 1.2 percent through May.
“This is a drop-off in restaurant growth that didn’t even show up during the great recession,” said Michael Saltsman, managing director of the Employment Policies Institute. “It’s compelling evidence that something big is going on.”

Some economists point to a rise in pay that began in 2016 when the state began implementing a series of minimum wage increases that will bring the hourly rate to $15 by 2019 for some employers in the city and more gradually in other parts of the state.

On Dec. 31, 2015, the minimum wage for tipped restaurant employees rose by 50 percent, from $5 an hour to $7.50 an hour. For fast food workers, it rose by as much as 20 percent, from $8.75 to $10.50 depending on business size and location.

And on Dec. 31, the minimum wage for fast food employees rose as high as $12 in New York City, Saltsman notes. Meanwhile, the statewide minimum wage rose to between $9.70 and $11 an hour for non-fast food, non-tipped employees.

“It’s a miserable business at the moment,” said Andrew Schnipper, who owns five burger joints in Manhattan called Schnipper’s Quality Kitchen. “Most restaurateurs are far less profitable than they were a year ago.”

Other experts point to high rents and oversaturation in the foodie capital of the world where nearly every growing restaurant chain wants to plant a flag and become the next Shake Shack.

Restaurant employment across the country has been slowing down this year, but not by the same steep declines as in New York, say experts.

“It’s not unusual for growth like that to be sustained forever,” said James Parrott, an expert on city and state economics, who recently left the Fiscal Policy Institute. “Restaurant employment [in New York] overall is still increasing and average wages grew about 6 percent in 2016.”
But at what cost, ask some restaurateurs.

Schnipper’s, for example, has 10 percent fewer employees than it did a year ago and many of its current workers have reduced hours. The chain raised its menu prices by up to 4 percent last year and is planning another hike this summer and another one in January when the minimum wage in the city rises to $13. Meanwhile, sales have slipped this year.

Still, “It’s hard to know whether customers are scared off by higher prices,” Schnipper said."

Thursday, June 22, 2017

Ed Glaeser makes the case for housing deregulation

See Build, Baby, Build by Bryan Caplan of EconLog.
"Ed Glaeser makes the case for housing deregulation for Brookings:
Housing advocates often discuss affordability, which is defined by linking the cost of living to incomes. But the regulatory approach on housing should compare housing prices to the Minimum Profitable Construction Cost, or MPPC. An unfettered construction market won't magically reduce the price of purchasing lumber or plumbing. The best price outcome possible, without subsidies, is that prices hew more closely to the physical cost of building.
In a recent paper with Joseph Gyourko, we characterize the distribution of  prices relative to Minimum Profitable Construction Costs across the U.S... We base our estimates on an "economy" quality home, and assume that builders in an unregulated market should expect to earn 17 percent over this purely physical cost of construction, which would have to cover other soft costs of construction including land assembly.
We then compare these construction costs with the distribution of self-assessed housing values in the American Housing Survey. The distribution of price to MPPC ratios shows a nation of extremes.  Fully, 40 percent of the American Housing Survey homes are valued at 75 percent or less of their Minimum Profitable Production Cost... Another 33 percent of homes are valued at between 75 percent and 125 percent of construction costs.
[...]
But most productive parts of America are unaffordable. The National Association of Realtors data shows median sales prices over $1,000,000 in the San Jose metropolitan area and over $500,000 in Los Angeles. One tenth of American homes in 2013 were valued at more than double Minimum Profitable Production Costs, and assuredly the share is much higher today. In 2005, at the height of the boom, almost 30 percent of American homes were valued at more than twice production costs. 
We should blame the government, especially local government:
How do we know that high housing costs have anything to do with artificial restrictions on supply? Perhaps the most compelling argument uses the tools of Economics 101. If demand alone drove prices, then we should expect to see places that have high costs also have high levels of construction.
The reverse is true.  Places that are expensive don't build a lot and places that build a lot aren't expensive. San Francisco and urban Honolulu have the highest ratios of prices to construction costs in our data, and these areas permitted little housing between 2000 and 2013. In our sample, Las Vegas was the biggest builder and it emerged from the crisis with home values far below construction costs.
The top alternate theory is wrong:
The primary alternative to the view that regulation is responsible for limiting supply and boosting prices is that some areas have a natural shortage of land.
Albert Saiz's (2011) work on geography and housing supply shows that where geography, like water and hills, constrains building, prices are higher.   He also finds that measures of housing regulation predict less building and higher prices.
But lack of land can't be the whole story. Many expensive parts of America, like Middlesex County Massachusetts, have modest density levels and low levels of construction. Other areas, like Harris County, Texas, have higher density levels, higher construction rates and lower prices...
If land scarcity was the whole story, then we should expect houses on large lots to be extremely expensive in America's high priced metropolitan areas. Yet typically, the willingness to pay for an extra acre of land is low, even in high cost areas. We should also expect apartments to cost roughly the cost of adding an extra story to a high-rise building, since growing up doesn't require more land. Typically, Manhattan apartments are sold for far more than the engineering cost of growing up, which implies the power of regulatory constraints (Glaeser, Gyourko and Saks, 2005).
Which regulations are doing the damage?  It's complicated:
Naturally, there are also a host of papers, including Glaeser and Ward (2009), showing the correlation between different types of rules and either reductions in new construction or increases in prices or both. The problem with empirical work any particular land use control is that there are so many ways to say no to new construction. Since the rules usually go together, it is almost impossible to identify the impact of any particular land use control. Moreover, eliminating one rule is unlikely to make much difference, since anti-growth communities would easily find ways to block construction in other ways.
Functionalists are wrong, as usual:
Empirically, there is also little evidence that these land use controls correct for real externalities. For example, if people really value the lower density levels that land use controls create, then we should expect to see much higher prices in communities with lower density levels, holding distance to the city center fixed. We do not (Glaeser and War, 2010). Our attempt to assess the total externalities generated by building in Manhattan found that they were tiny relative to the implicit tax on building created by land use controls (Glaeser, Gyourko and Saks, 2005).
What's to be done?  State governments are our least-desperate hope:
The right strategy is to start in the middle. States do have the ability to rewrite local land use powers, and state leaders are more likely to perceive the downsides of over regulating new construction. Some state policies, like Masschusetts Chapter 40B, 40R and 40S, explicitly attempt to check local land use controls. In New Jersey, the state Supreme Court fought against restrictive local zoning rules in the Mount Laurel decision.  If states do want to reform local land use controls, they might start with a serious cost benefit analysis and then require localities to refrain from any new regulations without first performing cost-benefit analyses of their own.
It will be a great day when constructing new housing regulations is as big a bureaucratic nightmare as constructing new housing is now!"