When the free market doesn't cater to the masses, it is usually because the "market" really isn't "free". That usually means that government has got its fingers into something that it shouldn't have. Government involvement in the economy nearly always creates perverse incentives. The state of Utah could definitely learn something from India when it comes to making it possible for everyone to afford the market.The Utah Un-Affordable Housing Market
Although the demand for affordable housing in Utah is at an all-time high, Utah home builders can't meet that demand. I'm sure there are other reasons, but the main reason? The Olene Walker Housing [Grant and] Loan Fund.
With the approval last week of $7.4 million for 13 projects — the fund's single-largest payout that will bring 700 units in the low-income market — the Olene Walker Housing Loan Fund has $200,000 to spend between now and mid-2008. The joint state and federal fund will be replenished by then, but having that much left over with six months left in the fiscal year shows a record level of demand...Why is it that the vacancy rate is running at 0 percent? (A) because home builders can make a lot more money building larger homes, and (B) because home builders have become conditioned to wait for grant assistance from the state of Utah before they build low income homes, so that their profit margin per home is closer to that of a larger home.
Housing advocates say people are finding little success, particularly in Salt Lake City, where both private and state economic analysts say the rental vacancy rate is running at 0 percent.
Interestingly, the Deseret News article doesn't identify the source of the demand for the Olene Walker housing funds, but clearly the direct demand is from home builders. Only indirectly is the demand of home buyers or renters being considered--and that's why it's not being met.
In another part of the world, where government has learned after long, sad experience that it functions best when it gets of of the free market's way, companies have now found a way to produce an automobile that the masses can afford...
The India Car Market
Indian car company Tata introduced its new model, the Nano, yesterday. At $2,500, it is more than 4 times cheaper than the cheapest-selling car in the United States.
Ironically, it probably wouldn't make it in the U.S. Why? Government. Which is why we'd better be much surer than we are right now that global warming is man-caused. Because if it isn't the government will have even less reason to oppress the masses when it comes to improving their lot in life.Beyond the fact Tata doesn't have dealer network in the US (although it is about to take Land Rover and Jaguar off Ford's hands), the Nano almost certainly wouldn't meet US emissions and safety regulations, Wired magazine advised the enthusiasts.Only 1 in 7 Indians has heretofore been able to afford a car. That's about to change. And you wonder how crying wolf over global warming has economic effects.
People cry foul over lax safety regulations in India. Well, let me ask you--are you safer riding in a car or on a bike? Such is the advantage that the Tata Nano will bring to tens of thousands of Indians.
. . .
Demand usually creates its own supply--except when government creates perverse incentives to not meet the demand as it occurs.
When government gets in the way of a market--say the housing market--the cost of an "affordable home" goes up. Although the home buyer pays only a portion of that cost, while the taxpayer picks up the rest of the tab, the effect of this total cost ensures that truly affordable housing will not be built in that market.
But when government gets out of the way of the market--say in the automobile market--suddenly cars are much more affordable, and thousands of people who have never had cars before have a much more economical means of transportation. This allows workers to get to their jobs more affordably, and it helps to improve the overall economy.
And you wonder how crying wolf over global warming has economic effects.
Utah's bureaucracy can improve the Utah affordable housing market by getting out of the way. I hope Utah can learn its lesson and select a better alternative to encouraging affordable housing than the Olene Walker housing fund. If we pay attention to India, we might learn something.
Frank, I know you agree with me that Thomas Sowell is a great economist. If I remember correctly, (I don't have the book with me right now) in the first chapter of Basic Economics he uses this same scenario only in a different country, Ukraine I think, but I could be wrong. It was like you were quoting him except inserting 'Utah' and 'Salt Lake City' in your version. I just wanted to add this from Mr. Sowell's book Basic Economics: "Lofty talk about "non-economic values” too often amounts to very selfish attempts to impose one’s own values, without having to weigh them against other people’s values. Taxing away what other people have earned, in order to finance one’s own fantasy ventures, is often depicted as a humanitarian endeavor, while allowing others the same freedom and dignity as oneself, so they can make their own choices with their own earnings, is considered to be pandering to “greed.” Greed for power is more dangerous than greed for money and has shed far more blood in the process. Political authorities have often had “revolutionary values” that were devastating to the general population."
ReplyDeleteI think this might open up a whole new discussion but, this is why Hillary would be devastating to our nation.
Danny,
ReplyDeleteBasic Economics is one of my favorite books. I read it while we were at "OP Bridge" in Iraq. Thank you for the quote in your comment, as it very much enlightens the crux of my argument.
Some of Thomas Sowell's insight must have sunk into my mushy brain!
;-)
Thank you Frank. I appreciate what you have to say. It's too bad that we can't stop more of Uncle Sugar's(I had to borrow from Lonsberry. His description of Uncle Sam rings so true) meddling.
ReplyDeleteYou're welcome. I just worry that I will be perceived as someone who doesn't care about those less fortunate, and that I won't be able to influence a better--private sector--solution.
ReplyDelete