One City Might Have Just Cracked the Housing Crisis

By Binyamin Appelbaum of The New York Times. Excerpts:

"The Canadian government has returned 10 acres in the middle of Vancouver to the Squamish, the First Nation whose ancestors lived there. On that land, the Squamish are building the densest residential neighborhood in the country."

"Cities have largely lost the power to say yes to construction. To prevent officials from acting against the public interest, we have drained them of the power to act in the public interest. Every decision can be appealed, every complaint must be heard, every objection weighed. We are so committed to fairness that we have lost sight of the unfairness of doing nothing."

"Freed from Vancouver’s rules, the Squamish are providing the city’s residents with a chunk of the housing they so desperately need."

"Vancouver, like most cities, prioritized the interests of homeowners at the expense of everyone else"

"It works hard to prevent the replacement of houses with apartment buildings. Sometimes it even replaces apartment buildings with houses. There is an eight-unit apartment building a few blocks from Senakw on the verge of falling down. Under the city’s land-use laws, however, it cannot be replaced by a new eight-unit apartment building. A developer has proposed building three mansions instead." 

"The current generation of Squamish, raised on stories of the old Senakw village, now had the chance to build anew. They could have built single-family homes. They could have built office towers or a shopping mall. They ultimately decided to build a better version of Vancouver."

"The result was a project with more than 6,000 housing units in towers as high as 58 stories"

"Senakw “is literally what the market wants,” said Thomas Davidoff, a professor of real estate finance at the University of British Columbia who supports the project."

"The nation’s leaders frankly acknowledge that money was their most important motivation. The project was a chance for the nation to participate in Vancouver’s pre-eminent industry: real estate development. That is exactly how the economy is supposed to work. To paraphrase Adam Smith, it is not from the benevolence of real estate developers that we expect our housing, but from their regard for their own self-interest. The Squamish are going to make a lot of money, and Vancouver is going to get a lot of new housing."

"Vancouver has moved to reduce its parking requirements and to allow larger buildings in some areas."

"“Restrictive zoning has been pushing people farther and farther away from the communities that they love,” said Christine Boyle, a former Vancouver city councilor who is now housing minister for British Columbia." 

Opinion: No matter how good AI gets, it won’t beat markets

The economy isn't a vast set of equations. It's a complex discovery process done in real time. Even the best computers aren't up to that

By Peter Boettke. 

"Whenever we see big leaps in computation, would-be central planners come out of the woodwork, claiming this finally makes it possible to organize the economy better than markets do — optimizing tax rates, producing enough to meet our needs, and allocating resources in a way that maximizes well-being for all.

Such arguments gained theoretical prominence in the early 20th century, saw a resurgence with the mid-century advent of modern computing and operations research, and have emerged again with the impressive advance of artificial intelligence (AI).

But this line of thinking rests on a false premise: that an economy is nothing more than a computational problem to be solved with accurate equations and enough data and processing power.

As I argue in a recent paper for the Montreal Economic Institute, this error was understood as far back as the 18th century by Adam Smith (1723-90). In his Wealth of Nations, which just had its 250th birthday, Smith observed that producing even simple goods requires the co-operation of so many different hands that the full network of exchanges would “exceed all computation.” Even the making of a woollen coat, for instance, required farmers, spinners, dyers, merchants, shippers, and so on just to get from raw materials to market.

Such complexity doesn’t stop the coat from being produced. But Smith’s point is that there is no single mind directing every step of production, from raising the sheep to selling you a brand-new peacoat. Instead, it is through the spontaneous co-operation of the many hands and minds that make up the “invisible hand” of the market that such production is possible.

In the late 19th century, Italian economist Vilfredo Pareto (1848-1923) expanded on this point, observing that co-ordinating even a modest economy and matching resources to uses and preferences would soon cause an explosion in the number of equations to be solved. But today’s computers can handle quintillions of computations per second, more than Pareto could possibly have imagined. Doesn’t that make a difference?

This is where Nobel laureate economist Friedrich Hayek (1899-1992) comes in. Hayek explained that the problem is not merely that the relevant knowledge is decentralized — spread out across millions of individuals — but that it is often tacit. Local shopkeepers’ understanding of their customers’ buying habits cannot be translated into one data point to feed into an AI or any other kind of model. Nor can we predict the emergence of an entrepreneur dreaming up a product that did not exist before.

Most important of all is the phenomenon of prices — indispensable signals that guide our decision making. Prices are neither set in stone nor arbitrarily fixed. Instead, they emerge from real exchanges. When the price of wheat rises, it is because buyers and sellers are competing for a limited supply. This price increase signals something about relative scarcity. It also provides an incentive to adjust consumption and conserve the resource, to look for a substitute, to increase production and to innovate.

In short, prices are not lying around in the wild, waiting to be harvested and fed into an algorithm. Rather, they are the result of constantly evolving discovery. Without this process of discovery, the knowledge embedded in a price simply doesn’t come into existence.

Hayek called the price system, with its ability to generate knowledge in the market, a “marvel.” He described competition as a “discovery procedure” that does much more than allocate resources. When entrepreneurs bring new products to market, for instance, they are making informed bets. If they’re wrong, they bear the cost. If they’re right, they reap the rewards. Through this process, we all learn a little more about what is possible, what is valued and what works.

As for AI, it can process truly vast quantities of historical data to detect patterns, forecast trends and optimize within given parameters. But it can only look backward to find data, whereas economic life is forward-looking and creative. The growth of the social-media influencer market, to choose but one example, could hardly have been predicted by an algorithm 20 years ago. In the same way, today’s algorithms can’t accurately predict what or how much we’ll consume tomorrow, since much of what will matter tomorrow hasn’t been imagined yet.

As powerful and helpful a tool as AI can be to improve logistics, better manage inventories and analyze markets, it remains just that, a tool. It can help us gain a better understanding of markets but only markets themselves can predict and co-ordinate the results of the billions and billions of voluntary exchanges that take place every day."

The Warmth of Cooperation

By Christopher Freiman. 

"New York City Mayor Zohran Mamdani recently caused something of an uproar when he contrasted the “the frigidity of rugged individualism” with the “warmth of collectivism.” This framing echoes the familiar criticism that capitalism forces people to go it alone as “atomistic individuals.” The thought goes like this: markets do real damage to the social fabric and our relationships because they organize our economic lives around competition and self-interest. Organizing our lives around competition encourages people to see each other as rivals rather than partners. In brief, capitalism pits us against each other, while socialism brings us together. Setting aside the fact that collectivist regimes haven’t exactly been warm to those living under them, this view gets capitalism backward.

Start with a simple observation about your own economic life under capitalism. Think about this week: how many cooperative interactions have you had, and how many competitive ones?

You probably didn’t compete with anyone when you bought coffee at Starbucks this morning. You didn’t enter a zero-sum struggle when you paid your phone bill, purchased groceries and gas, or caught a movie. Instead, you took part in a series of mutually beneficial, voluntary transactions. You gave someone money and they gave you something you wanted more than the money. Everyone walked away better off. In the words of Adam Smith, “It is not from the benevolence of the butcher, the brewer, or the baker, that we expect our dinner, but from their regard to their own interest.”

Competition, by contrast, rarely pops up in your day-to-day economic life. A business competes with other businesses for customers and you’ve probably competed with others for a job at some point. But you cooperate far more often than you compete. And notice what market competitions really are—they’re competitions to see who’s best at serving others. You might say that they’re competitions to discover the best ways to cooperate and who the best cooperators are (more on this below).

Unsurprisingly, Smith understood the cooperative nature of markets well. He writes that a wool coat 

“is the produce of the joint labour of a great multitude of workmen. The shepherd, the sorter of the wool, the wool-comber or carder, the dyer, the scribbler, the spinner, the weaver, the fuller, the dresser, with many others, must all join their different arts in order to complete even this homely production. How many merchants and carriers, besides, must have been employed in transporting the materials from some of those workmen to others who often live in a very distant part of the country!  How much commerce and navigation in particular, how many ship-builders, sailors, sail-makers, rope-makers, must have been employed in order to bring together the different drugs made use of by the dyer, which often come from the remotest corners of the world!”

Smith goes on, but I’ve got a word limit here—the point is that markets don’t atomize us. On the contrary, they lead strangers all over the world to cooperate.

Think back to the last time you bought a coffee. Starbucks has to coordinate with bean farmers, shipping companies, truck drivers, warehouse workers, roasters, equipment manufacturers, electricians, plumbers, accountants, and baristas. None of these people know you, and yet they manage, every day, to cooperate in ways that reliably get caffeine in your hand at 7:43 a.m. And this isn’t accidental—the prices provided by markets give people the information they need to figure out what others want, and they provide the incentive to give it to them.

There’s no denying that markets involve competition. You can go to the business section of a bookstore and find titles like Business Warfare and The Warfare of Business. But businesses are competing with each other to see who can best serve consumers. Netflix beat Blockbuster by figuring out a better way to give viewers what they wanted: convenience, selection, no late fees, and eventually streaming. In brief, Netflix won because consumers preferred cooperating with Netflix over Blockbuster. 

A similar point applies to competition in the job market. Maybe you don’t merely want to buy coffee from Starbucks, you want to work there, too. But this means you’ll have to compete with other applicants who also want the job. Here again, let’s look at what it takes for an applicant to win this competition. They need to demonstrate that they’ll do the best job of making customers better off—say, by being more punctual, more efficient at making mochas, or more likely to serve drinks with a smile. Market competition is competition to see who can cooperate most effectively with others.

In any case, democratic socialists can’t be opposed to all competition. After all, democracy requires competition, and democratic socialists want democracy in the workplace as well as in politics. If competing for dollars is frigid, it’s hard to see why competing for votes would be any warmer. Market competition enables millions of people with different values, plans, and priorities to work together without agreeing on much of anything by helping them to coordinate many different choices. You and your barista don’t need to agree on the principles of justice to cooperate and make each other better off. Far from being atomizing or frigid, the free market is a system of interdependence that brings strangers together to cooperate for their mutual benefit."

Are Businesses Hard-Hearted?

The incentive to make a profit harmonizes with normal human decency.

By David R. Henderson.

"How often have you heard a line something like the following: “Because businesses care only about making money, they and their executives are hard-hearted towards their customers and employees.” Even some people who think that, on net, businesses are good for our economy, often characterize them as being hard-hearted because of their profit motive.

I don’t defend all businesses. That would be silly. But I want to point out a recent case and a case about twenty-three years ago, about businesses going above and beyond. While these two cases are probably outliers, anyone who has been around businesses much can probably vouch for my claim that businesses are more caring than the above quote claims. Moreover, because people who make the hard-hearted claims often want government to regulate, we should realize that governments are typically much worse.

Citigroup in Ukraine

Here’s a segment from an April 23 Wall Street Journal report about Citigroup’s continuing presence in war-torn Ukraine:

When Russia invaded in February 2022, McWhorter [Citigroup’s top executive in Ukraine] and [Amy-Anne] Fairhurst [head of Citi’s Global Crisis Management Program] were both woken in the middle of the night. 

Their first priority was the staff. They realized they had to ensure the safety of more people than they were planning for.  

While they knew how many employees they had, about 240, Citi suddenly felt responsible for wider families, support staff who weren’t direct employees and others. The count ballooned to 850. 

The report is titled, “Turning a Vault Into a Bomb Shelter: How Citigroup Has Kept Its Bank Running Inside Ukraine.”

The report goes on to tell of measures that Citigroup took to keep its employees relatively safe and to compensate them for the added risk. Also, in a section titled, “Don’t worry about paying us,” the Journal reporter quotes Alexander McWhorter telling the bank’s clients, “Look, don’t worry about paying us; worry about your own employees and your own operations.” 

Why would Citigroup go to such lengths? David Benoit makes the answer clear: the executives at Citigroup are betting that when the war is resolved, however it’s resolved, people in Ukraine will want to deal with banks and Citi will be there. Moreover, although reporter Benoit doesn’t say it explicitly, Citi is also betting that with the goodwill it is now creating in Ukraine, it will be one of the banks that Ukrainians are pretty sure they can trust.

Back to Citi in a few paragraphs, but first another story from the horrible week following 9/11.

A commitment after 9/11

After terrorists brought down the two main World Trade Center buildings on September 11, 2001, the head of the firm that maintained those buildings wanted to get back to be with his employees. The problem was that he and his firm were based in San Francisco and the federal government had banned travel by commercial airline. What could he do? He got creative. He drove up to Vancouver, British Columbia, flew from Vancouver to Montreal, and then drove from Montreal to New York. Although I can’t find the story online, I remember it well because it made such an impression.

This CEO’s commitment to his employees almost certainly went above and beyond what most CEOs would do. But it shows the extent to which some heads of companies care for their employees.

The profit motive

Does either of the above stories show that heads of companies do well for their employees solely out of the goodness of their hearts? No. As the Citi story makes clear, Citi wants to position itself to make beaucoup bucks once the Russia/Ukraine war ends. And the executives at Citi have figured out that a way to raise the probability that the firm will be around is to stay around during the war. That means treating their employees well and cutting some slack for their current debtors. 

The case of the CEO who spent over twenty-four hours getting from San Francisco to New York to see his employees is less clear. The odds are high, though, that his main motive was to show his employees that he cared. That could be because he knew that showing he cared was a way to make them care. Or it could be that he simply cared, full stop, as the British say.

From profit motive to human motive

That brings me to a basic fact about employers. If employers want to succeed, they have to care about employees and about customers. Those who ignore employees and customers will fail. The profit motive does wonders for causing them to care. But then something happens that is very natural. Many employers who, because of the profit motive, start by caring about their employees in order to succeed, end up actually caring about their employees almost independent of the profit motive. Employers are humans who regard their employees as humans.

An extreme example is the case of the Oskar Schindler, whom many of us got to know about from the movie Schindler’s List. Schindler began not caring about his employees except as producers of pots and pans that he could sell to the German government. He did not care about his employees as people. But he was around them every workday. So Schindler started caring deeply about his employees.

Here’s what I wrote about his transformation in my book The Joy of Freedom: An Economist’s Odyssey:

This transformation made some movie critics call Schindler “complicated” (San Francisco Chronicle) and “puzzling” and “contradictory” (Atlanta Journal and Constitution). But Schindler’s growing humanity is about as hard to understand as cold weather in January and should surprise only those people who think about Marxist cardboard characters—“workers” and “capitalists”—rather than real human beings. Schindler had started to like the people he worked with. Commerce does that. Schindler’s actions were heroic because he took a big risk. But what led to his heroic actions was his caring for his employees, something that is quite normal. Almost all of us care for the people we work with, whether they are our employees, our employers, or our fellow workers. Virtually all of us would be willing to take some risks to help those around us, and the bigger the threat to their well-being, death obviously being the biggest threat, the bigger the risk we’re willing to take. We think of fellow workers who don’t care about anyone else as being odd, troubled, unusual. And anyone who knows employers knows that the part of the job many of them hate most is firing somebody. So the transformation in Schindler, though heroic, was entirely normal. Markets created an environment in which Schindler learned to value people; in a sense, markets taught Schindler morality. 

Bonus: markets tend to make people better

An old saying goes, “Fake it ’til you make it.” I think of that when I think of how in a free market, the profit motive, and incentives generally, cause people to act as if they care and, then, to actually care.

This applies to more than employers. It also applies to employees. From the early 1990s to the early 2000s, I coached girls’ basketball for the Pacific Grove Recreation Department. One year, when I was coaching girls in seventh and eighth grade, I had one girl who was hard to work with. She wouldn’t listen, she had attitude, and she didn’t get along well with a number of her teammates.

About five or six years later, I was in a local Safeway and the young woman behind the counter was very pleasant to me. She seemed to be doing quite a professional job. It suddenly dawned on me that she was the same person I described above, but her attitude was completely different.

What changed? Her incentives. I would bet that when she started that job, assuming it was her first job, she had a tougher time. But then she learned that she would do better if she had a more positive attitude. She probably faked it until she made it. Did she become virtuous? I don’t know. But she acted as if she did. And just by treating customers well, whatever her motives, she’s more virtuous than if she treated them badly.

How about the government?

And let’s remember what people who think businesses are hard-hearted often propose: more government regulation of business. Getting into the details would require looking at specific proposals for government regulation, and I can’t, in this short space, do that, although I’ve done so extensively in my previous writing.

What we can do is consider the incentives of government officials. When they make mistakes, even big ones, are they fired? Not often. Do they take a pay cut of even 10 percent? Virtually never. So don’t be surprised if, when you avoid ideological blinders and consider government officials’ actions, you conclude that many of them act as if they’re hard-hearted."

The Invisible Hand, described 65 years before Adam Smith in the pages of The Spectator (19 May 1711)

Tweet by Fraser Nelson. He is editor of The Spectator and a columnist for the Daily Telegraph.

"The Invisible Hand, described 65 years before Adam Smith in the pages of The Spectator (19 May 1711). How city brokers “knit mankind together” 

“There are no more useful members in a commonwealth than Merchants. They knit Mankind together in a mutual Intercourse of good Offices, distribute the Gifts of Nature, find Work for the Poor, add Wealth to the Rich, and Magnificence to the Great. Our English Merchant converts the tin of his own Country into Gold, and exchanges his Wool for Rubies. The Mahometans are clothed in our British Manufacture and the Inhabitants of the frozen Zone warmed with the Fleeces of our sheep.”"