Depolarize Politics

No more debates about abstinence versus having twelve year old children put condoms on cucumbers. No more debates about school prayer. No more debates about back to basics education versus new-fangled experimentation. Everyone is happy. A whole realm of toxic, polarizing political debate will immediately and permanently drop off the political radar.

No more forcing Christians to buy a secular education for their children with their taxes. No more backlashes as well-meaning Christians then try to include a semblance of moral guidance with school prayer.

Cheap Housing

One reason to buy a house in a good neighborhood is to send your children to good quality public schools. Good schools are a powerful draw that can bring in many families - more than the local school system can handle. At this point the town faces a dilemma. They can raise taxes and build new schools, but no one likes higher taxes. Newcomers also bring the risk of watering down the quality of the education - particularly if they are lower on the socio-economic ladder than the current residents.

The other option is to shut out the newcomers. Town councils and land use boards become reluctant to zone for more housing. This keeps the taxes low and the school quality high. It also means that schools are a powerful constraint on the supply of housing (traffic is another important constraint - towns will not zone for more housing if the roads are too busy). First you get an anti-growth zoning board, then you get increasing prices as couples are forced to bid against each other for a limited supply of housing.

School choice and vouchers are the solution. They break the connection between school quality and neighborhood, thereby de-escalating the bidding war for houses. Parents could live in the “nice” parts of “bad” school districts and use their voucher to send their children to different public schools or to a private school.

School choice is typically a conservative issue, but The Two Income Trap makes the liberal case for school choice. Here is an interview with the authors by the liberal magazine ‘Mother Jones.’

Better Education For Minorities

I have yet to discuss whether school choice actually results in a better education. Studies have typically not found benefits, but there are a few reasons for this. The first is that the public schools in the district are used as control groups. But often competition forces them to clean up their act. Secondly, competition is an ongoing process that can take literally decades to unfold. It is only over the past 10 years or that SouthWest and JetBlue have become major players in the airline industry, but it was deregulated in 1978.

One bright spot in the studies is that school choice has benefited blacks. Drawing upon my wife’s experience as an inner city middle school teacher, I suspect I know the reason. Any teacher will tell you that there are a couple bad apples in every class that take up a disproportionate amount of their time. The problem students are even worse in the inner city schools. They are usually born out of wedlock - the number one cause of poverty and low achievement in education. Because of their unstable home life, their mothers are of little help for changing their behavior.

But most of the students in the inner cities want to learn. The single most important thing that would benefit them is to get them away from the problem students and the discipline cases. School choice lets them get into a positive educational environment where their friends and fellow students all want to learn.

Here is a fairly common liberal argument:

The North is wealthy and votes Democratic
The South is poor and votes Republican

The problem with that argument is that historically the North voted for Republicans, and the South voted for Democrats. But over recent decades they have flip-flopped (read about this realignment here and look at the election maps here - note that the Republicans states are colored blue in the older maps).

The Republican counter goes like this:

Until recently, the North has voted Republican and was wealthy
Until recently, the South voted Democratic and was poor

There is good evidence in support of the Republican argument: Red states are growing faster than blue states. The Pacific Research Institute ranks the “economic freedom” of states based upon factors such as taxes and regulations. In this article they find:

In November, 23 of the 25 freest states voted for Bush. In stark contrast, 17 of the 25 least-free states voted for Kerry. In the long term, the differences in economic freedom will magnify this partisan divide as people continue the move to freer states and take their Electoral College votes with them.

Red states have smaller governments - are more economically free - than blue states. And people are voting with their feet and moving to red states:

New Census Bureau numbers show that the 10 fastest-growing states — from No. 1 Nevada to No. 10 New Mexico — are in the West and the South. Bush won nine of them in November. This population growth helped the red states gain seven Electoral College votes after the 2000 census, and will drive more gains after the 2010 reapportionment since demographers agree these places are gaining popularity

…

The U.S. Economic Freedom Index shows that people are fleeing less economically free states to live in freer states. The net domestic migration rate was up 19 people per 1,000 for the 20 freest states but down a dismal 16 people per 1,000 for the 20 least-free states. New York and California experienced the largest net loss of domestic residents during 2003-04. They also have the least economic freedom.

The cost of living is also lower in red states. Here is an article in the Wall Street Journal (it is worth reading the whole thing):

Monstermoving.com lets you discover relative buying power if you lived somewhere else. Let’s type in L.A. and Tucson, just next door: “A salary of $30,000 in Los Angeles has the same buying power that a salary of $13,448 has in Tucson.” For Las Vegas the figure is $13,241. If on top of this they elect a Gray Davis governor, why stay?

Here is a good article from the Wall Street Journal’s Op-Ed page making the point that regaining Congress is hardly a victory for the left, or a repudiation of conservatism.

Only about one in four Americans currently say they believe that the Democratic Party is friendly toward religion, according to the Pew Research Center for the People and the Press. The practical impact of this belief is nicely described by author Stephen Carter in his book, “The Dissent of the Governed.” He describes two black evangelical women who change their affiliations from liberal political groups to conservative Christian organizations, explaining that “they preferred a place that honored their faith and disdained their politics over a place that honored their politics and disdained their faith.” These women are part of a real trend among religious Americans: According to the National Election Surveys, religious Democrats are more likely than any other group to change their party affiliation. Between 2000 and 2002, they were nearly four times more likely to do so than secular Republicans.

What about young people? Maybe the left can, like it always has, look to the culture of youth to jumpstart the progressive movement. But even here, things are going conservatives’ way. The left’s traditional edge among young adults shrank from 1974 to 2004, as the percentage of adults 18-25 who labeled themselves political liberals fell by 12%, and the percentage saying they were conservative rose by 143%.

Read the rest of the article here.

One part that I did not find convincing was the discussion about the Hispanic vote (which I do not quote). I suspect that immigration could be a rallying point, at least for some sections of the Hispanic community. But this also has consequences, such as driving blacks into the Republican party - blacks and Hispanics tend to compete for the same jobs and there is mounting tension between the two groups. I doubt that one party will be able to get both groups over the long run.

UPDATE: here is a somewhat dissenting point of view that observes, correctly I think, that overall the winning Democrats are not conservatives, but within the mainstream or liberal wing of the party.

Not all economic principles act as an invisible hand. Some principles of economics lead to disorder. In these cases government involvement may be justified.

External Costs and the Environment

Most economic transactions are limited to the buyer and seller, but sometimes there are non-monetary “costs” that are passed onto third parties who did not agree to the transaction. These are called external costs. For example, if a factory pollutes a river making widgets, then the people who live downstream pay the cost of the pollution (whether in money to clean it up, or in a lower quality of life), not the person who buys widgets.

A legal system that respects property rights can eliminate many external costs. The people who live downstream can sue the factory and force it to clean the water. This cleanup cost is passed along to customers who buy widgets in the form of higher prices. The cost of the pollution has been shifted from the third parties who live downstream to the buyer. The external cost has been internalized. But this is not always possible. Sometimes there are too many polluters, even for a class action lawsuit. And other times you can’t fix the pollution.

A common solution to these stubborn cases is Pigovian taxes. These are special taxes indexed to the degree of pollution. The more pollution the higher the tax. The rate should be indexed to the damage the pollution does, thereby internalizing the cost of pollution. Pigovian taxes are still not an ideal solution – they presume that the government can set a fair and honest rate, as well that the money will be sent to the people who had to bear the costs of pollution as a method to make restitution, which seldom happens in practice. But they are still better than nothing. A gas tax is a pigovian tax, and if gas taxes mean less smog in cities, then they are still worthwhile.
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The Law of Unintended Consequences says that every human action has multiple consequences, some of which are unknown. In economics the unintended consequences of interfering with the economy are almost uniformly negative.

Rent Control

What happens when a city attracts newcomers? The demand for apartments increases, causing the price of rent to increase. The result is windfall profits for landlords while renters get the squeeze. But this is only a temporary problem. High profits are a signal - they lure entrepreneurs like flies to honey. The problem is that building new apartments is a slow process, particularly when you get the local zoning boards and neighborhood associations involved. It will take a while for supply to catch up with demand.

Impatient politicians do not want to wait; they pass a law against raising the rent. This makes renters happy - why should landlords profit at their expense? But root cause of the problem is that people are coming to the city faster than new apartments are being built. Rent control laws actually make this problem worse.

The first consequence of rent control is that it actually increases demand for apartments. Higher rent would drive people could take a studio instead of a one-bedroom, or a one-bedroom instead of a two-bedroom. But with the price being held down there is no reason to do this. So the demand for apartments with rent control laws is higher than the demand without it.
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A frequent criticism of classical economics is that it is not valid because it is based on a series of assumptions, called perfect competition, that are untrue in the real world. These assumptions include low barriers for newcomers to enter the market, many sellers, and homogeneous product that is easy to imitate. In the real world you almost never find this.

The real world has what economists call imperfect competition. There are high barriers to entry; you can’t easily start up an oil company, or a company that makes computer operating systems. Industries in the real world are often dominated by a small number of sellers, such as Coke and Pepsi or Microsoft and Apple. And real world products are often unique. Other companies keep trying to make an iPod killer, but they haven’t succeeded in creating a product as good. Microsoft Windows is another unique product that benefits from the majority of the “mindshare” of developers. Luxury goods have a special cachet that other brands cannot duplicate.

Classical economics requires perfect competition to guarantee that businesses will only make a small profit. In the world of imperfect competition they can make a profit that is far greater than the marginal cost of producing the product they sell. But you would be drawing the wrong lesson if you concluded that government intervention is justified. Imagine the case of the most imperfect competition imaginable: when a company first invents a new product.
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In 1776 Adam Smith created the modern study of economics when he published The Wealth of Nations. On the first page of chapter one he noted that pin makers could only make about 20 pins a day, but with the help of machinery and assembly line techniques, they could make about 4800 pins a day. This had two consequences. The first was that pins got a lot cheaper, the second was that a lot of pin makers lost their jobs.

Before cars were built on assembly lines they were built by highly skilled craftsmen. It was a slow and difficult process which meant that only the rich could afford cars. Henry Ford realized that if the job were broken down into small parts, cars could be built much more quickly with unskilled labor. Skilled craftsmen lost their jobs, but it made cars affordable for everyone.

Did the good outweigh the bad? Do cheap goods justify lost jobs? Are we better off now than we were 200 years ago?
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