By: Matthew Downhour
Analogies are simple and sometimes helpful ways to understand policy and economics but can obscure as much as they reveal. Both on the left and right, it is popular to think of the economy (or more broadly, the good things in life) as a sort of pie that everyone wants a slice of. Billionaires have too big of a slice, leaving us with only crumbs, or perhaps it is the mooches with their entitlements whose slices are leaving too little for hardworking Americans. The problem of course is that the analogy ignores the reality of who creates the pie, and creates a dangerous mindset – if there is only so much pie to go around, then adding more people will surely be limiting how much each person can have. This is simple, if inaccurate logic, which has long been used to blame poverty on overpopulation (and thus the reproduction of poor people themselves), as well as to argue against the arrival of new immigrants for fear of running out of ‘pie’.
Henry George provides a compelling alternate analogy in Progress and Poverty, writing that we should instead imagine “a well-provisioned ship, this on which we sail through space. If the bread and beef above decks seem to grow scarce, we but open a hatch and there is a new supply, of which before we never dreamed. And very great command over the services of others comes to those who as the hatches are opened are permitted to say, “This is mine!”. “
While bringing for more food, housing, and goods may not be quite as easy as opening a hatch, it is certainly the case that working together, people have been able to produce more of almost all of these goods – the idea of a finite pie is certainly a misleading one, and efforts to dispel it are ever welcome. Matthew Yglesias’s book One Billion Americans: The Case for Thinking Bigger is an important entry, in that it properly understands that the country is indeed a well provisioned ship, and that adding to its ‘crew’ can actually increase the wealth of every person. However, Yglesias neglects an important question – what to do about those who guard the hatches?
In arguing against a Malthusian view of the United States population, Yglesias is to a great extent following in George’s own tradition. In “Justice the Object, Taxation the Means”, Henry George noted that “Why, look at it here today, in this new country, where there are as yet only 65 millions of us scattered over a territory that in the present stage of the arts is sufficient to support in comfort a thousand millions; yet we are actually thinking and talking as if there were too many people in the country.” One would hope that the constant warnings of the Malthusian crowd would create a ‘boy who cried wolf’ scenario, where the endless warnings that the country was full would eventually lose their resonance, as they were repeatedly disproven. No such effect seems to have occurred, however, as plenty of Americans continue to believe that this time there really is no vacancy. Thus, Yglesias’s efforts to dispel this belief welcome.
The precise arguments Yglesias uses also echo George’s. George was a disciple of John Stuart Mill but would eventually break from Mill’s thought on the topic of Malthus. In 1879 he wrote:
“The denser the population, the more minute becomes the subdivision of labor, the greater the economies of production and distribution, and, hence, the very reverse of the Malthusian doctrine is true(. . .)in any given state of civilization a greater number of people can produce a larger proportionate amount of wealth, and more fully supply their wants, than can a smaller number.”
Yglesias follows largely the same thought process in his arguments. He notes that a larger city, all else equal, is going to allow much more minute subdivisions of labor. The discussion of how agglomeration and secondary industries work is particularly enlightening. The advantage a city of ten or twenty thousand has over a city of thousand in an area like restaurants is obvious –supporting more restaurants means both greater variety and great pressure to increase quality – but Yglesias shows how secondary industries (supply companies, reviewers, and the like), which require concentrated populations, work to even further improve the quality of primary industries. The advantages of such agglomeration are seemingly unlimited, and he cites the clustering of numerous industries – such as technology and publishing – as examples; these industries don’t need any natural resources that are geographically limited, but benefit from the agglomeration that is only possible with very large population centers.
One Billion Americans also shows how this agglomerative effect is particularly strong in terms of transportation and government services. A dense and growing population allows for growth in public transportation, infrastructure, and other services, while a declining or sparse one is more difficult to provide for. Cities like St Louis and Detroit show this to tragic effect – attempting to maintain services over the same area with a half or a third of the population they had at their peak requires higher taxes and accelerates flight from urban areas. To fix this problem and reap the benefits of agglomeration, he proposes a great many solutions, mostly well thought out and in line with a liberal worldview. But he forgets the second part of George’s analogy – the people who control the hatches.
Yglesias discusses the two major problems facing our urban centers, which both boil down to land values. In some, land values are ever appreciating, making affordable housing harder to achieve. To this, George would add that the appreciation provides fuel for speculation, allowing landowners to continuing growing the worth of their property wit no real investment. Yglesias mentions the difficulties created by zoning and regulation which adds expense to any development project; what he might add is that in some of these jurisdiction (California especially), low taxes and infrequent assessments on land mean that the real cost of holding undeveloped land is lower, so landowners have little incentive to seek to go through the process of improving their land and little reason to sell to someone who might. In other municipalities, the price of land is crashing. In these places, property owners have little incentive to maintain their homes or buildings; whatever capital value they might preserve by doing so is wiped out by the bottoming out of the value of their land. Moreover, the tax on their capital continues unabated, penalizing them for trying to maintain their property while offering effective tax breaks to those who do not. As a result, blight is in fact incentivized by the tax code, and capital investment disappears.
The idea of taxing land values is not new, and it is something Yglesias has addressed before[1]; however, One Billion Americans instead leans on several other urbanist proposals – congestion taxes, upzoning, and transit investment. All of these are good accompaniments for a land value tax, but none address the root of the problem, which is that landowners ‘guard the hatches’ of increased wealth, especially when it comes to wealth gained by agglomerating populations.
For example, what would be the result of investments in better commuter rail and upzoning US cities? Each acre of land would be able to house more people, and those people would be able to take advantage of location specific services. Both of these factors will tend to increase the value of land, so that the existing landowners will see their net worth increase through no action on their part, and renters will see limited net improvement in their circumstances. The same is true more generally of growing the population in a city – the greater productivity is often taken up by higher rents, which are driven by high land values.
The book discusses the Mariel Boatlift in depth, concluding that almost all serious research has found this surge of Cuban immigration into Florida, though unplanned and poorly organized, was nonetheless a net gain for the Miami economy. The one group that, at least according to George Borjas, a notable immigration skeptic, suffered, were white men without high school degrees. Yglesias brushes this group off as relatively small and argues out that the benefits far outweighed the losses. I am personally inclined to agree with him, and the evidence seems overwhelming that overall an immigration system could be designed so that it would at least not increase economic hardship of any substantial group. However, astute observers of voter behavior in 2016 will recognize that white men with less education were largely responsible for the election of the most rhetorically anti-immigrant president in decades. It will not do to simply ignore demographics that benefit less, or not at all, from immigration-fueled prosperity.
Even if a system is designed to avoid this impact on the level of employment, the core suspicion of immigration is not going away any time soon. I suspect that if we looked deep into the roots of economic arguments against immigration, this is at their core: bringing in more people increases productivity and ‘opens the hatches’ for more goods and services, but the benefits to the economy as a whole are concentrated with those who can claim possession of them – by and large, landowners – rather than being distributed throughout the community.
Imagine instead the opposite – the land value that accrued from the agglomeration of productive individuals was instead captured by the community, and shared broadly, in the form of infrastructure funding, a citizens’ dividend, or some other method of redistributing the rental value of land. Such a policy would make agglomeration truly work for the population as a whole.
Yglesias has gone on the talk show circuit speaking to both liberal and conservative media figures, working to drum up support for his book and the policies it proposes. Those policies have cross cutting support, and perhaps that will be enough to win their adoption. However, they could be more broadly beneficial, and thus have far more staying power, if they addressed the crucial role of land value. Capturing that and making it work for the community would give every person better access to the prosperity made possible by the more populous, flourishing society he imagines.
[1] https://www.vox.com/2016/5/2/11533936/the-weeds-land-value-tax-explained
