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.
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)
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.
I'm not super familiar with Strong Towns, but I really appreciate the work that's gone into it and I'm definitely going to read more.
As for the hidden costs, it reminds me of assessments in HOAs and condo associations. Once infrastructure starts to age, it can become unbelievably expensive to perform even basic maintenance, as you mention. In instances where the people who live in a place are responsible for way more of the costs themselves, the picture starts to look a lot less rosy!
I guess my issue with the free market vs not free market framing is that, while I agree completely with you that the system in not a functioning free market at all, the title of the series implies that we need to move away from a free market? But then, as you say, the system is already not that. I don't have much of an opinion one way or another, besides believing that this sort of financial analysis is very important.
Then the title of the series is badly worded. The journey is not from free market ideology to another viewpoint, as the title suggests. It is more an awakening to the fact that we do not have a free market or at least to a set of facts about how strongly the markets are inhibited by governments.
The article explicitly warns of that sort of confirmation bias.
In particular, it points out that the free market had already failed the people in the community. The remedy, essentially government financial incentives to business, was the only thing that made enterprise possible. But since the whole system innately runs at a loss for the comunity, a harsh future reckoning arises.
So it points to a possible deep flaw in our economic system and underling assumptions that simple theories obviously do not explain.
After all, one should believe the simplest working explanation, but certainly no simpler. The complete confidence in completely unfettered markets is apparently overly simplistic. Likewise, some forms of business incentives are counter productive.
> This isn’t super easy to see because it’s hidden in a bunch of cultural stuff we just take for granted.
This is why sociologist mostly clump all the ism (capitalism, socialism, etc) into religion. They work within the same framework.
If someone said "give all the poor people money to improve the life of a rich person who owns thousands of hotels" you would trhow that person out of the window. Now dress it in the complex Myths, which the article tries to unwrap, and everyone buys!
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.
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?
>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.
It is about how he used to believe his world was the product of a free market, and how he slowly realised that this was not the case - that market forces are irrelevant in the world of civil engineering, as public investment does not typically even involve doing the simplest possible analyses of long-term costs and revenue. From "idealogue", pinning his entire perspective on a limited set of theoretical principles, to someone who recognises the messy and broken reality that doesn't actually fit into the theoretical mold.
>At this point in my life, I was a self-described free-market Republican with an outspoken passion for markets and my chosen profession of civil engineering, which to me was a technical way to say “city building.” If I had been pushed to reconcile my rejection of congestion pricing with my support for the free market, I would have had no problem. I would have said something like:
> Markets are about the expression of personal preference. It was clear that, since most people drove automobiles, auto-based infrastructure was the clear market preference. Since most people lived in single-family homes, they were also the clear market preference. Given those clear and obvious preferences—combined with the fact that people paid taxes and expected the government to respond to their desires—charging people more for something they already paid for was a ploy to benefit the rich. Instead of congestion pricing, the state should have been building more capacity.
>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."
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.
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.
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.
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?
> 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.
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.
> 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. 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.
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."
You said that "frequently" right wing media would mistakingly claim that any result they didn't like was "crony capitalism" when the issue in question would not fit the definition of crony capitalism. It is unfortunate that you don't have some links to examples if it does happen frequently.
I've heard Peter Schiff blame "crony communism" on a radio show. I'll see if I can find a link after work. But it is true that the term is used as a scapegoat.
It's not like you haven't heard the term before, so I'm not sure why you're asking for links.
>...I've heard Peter Schiff blame "crony communism" on a radio show.
That sounds like something different than the OP said.
>...It's not like you haven't heard the term before, so I'm not sure why you're asking for links.
It's like I said, cronyism will be found in any political system. What was odd, was the original poster was saying that frequently when people didn't like some result, it was blamed on "crony capitalism" and as the OP pointed out:
>"Which is frustrating, because "crony capitalism" is a real thing that actually means something specific"
I don't think I've seen examples of people in the media using the term "crony capitalism" wrong, but then again I don't watch Fox News, so I asked for an example. Does that make sense?
Yes, that makes sense. But it also suggests to me that any example someone provides will be handwaved, so I'm not going to bother. At any rate, I agree with OP that it's used as a scapegoat.
Sure, bring up the 2008 crash to any pro-capitalist and they'll quickly explain to you how "oh that wasn't real capitalism" even though it happened in the confines of a system that self-describes as capitalist.
With the 2008 crash there is plenty of examples of incompetent/unethical/(possibly)illegal actions taken by government, industry and consumers that helped cause it. Also economists came up with many possible suggestions (often contradictory) to make the system better so it doesn't happen again.
While the causes and recommended solutions to the great recession are still being debated, most people would say the mixed economy we have is capitalist. So I find it odd that someone would claim we didn't have a capitalist system in 2008. Can you give a link to an example?
To summarize the issue: we have a mixed economy. We do not have what advocates of capitalism want: a purely capitalist economy (or at least something much closer to that). That's why they would say we do not have a capitalist economy.
>...To summarize the issue: we have a mixed economy. We do not have what advocates of capitalism want: a purely capitalist econom ...
I agree. I asked for an example in my message, since, as you point out I've never heard a "pro-capitalist" singling out the 2008 crisis as "oh that wasn't real capitalism". People might want to narrowly define the meaning of a capitalist economic system but that is a bit different than what it looked like the OP was writing.
For every socialist who says the USSR was not actually socialist, there is a capitalist who will deny any bad thing happening under capitalism being related to capitalism itself. It's always the government's fault.
As if the government made bankers bet on bets on bets on bets on instruments founded in shaky debt. This type of runaway effect is only possible in a system that supports the commodification of anything.
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.”
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.
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.