Homo Economicas In His Natural Habitat

It is one of the more lamentable but also more obvious aspects of human existence that the interests of people trump the political goals and intentions of various rules and regulations.  Over and over again, we see governments attempt to coerce their people into behaving in a certain fashion only to find that those people are not interested in going along.  Attempts at bolstering favored monopolies lead to smuggling, attempts to fix prices lead to scarcity and black markets, and so on and so forth.  It appears in many cases as if political leaders do not respect laws of economics, viewing them as being as transitory as the laws of human institutions and societies, rather than being based on some underlying reality that politicians are compelled to accept as being fundamental in the way that laws will end up being obeyed (or not) or effective (or not) in achieving their desired ends.

Let us briefly look at the question of housing costs.  Where do housing costs spiral most out of control?  Precisely in those areas where laws prevent the development of large tracts of lands for one reason or another.  Some areas prevent agricultural land, for example, from being rezoned as residential land.  Other areas, like Portland, prevent growth out of a rigidly defined growth area in a vain attempt to defeat sprawl.  In other cases, there is a strong limit on the sort of land that people want to develop that offers beach front or waterfront property (even if, as is the case in Florida, that land is the most vulnerable to hurricanes and tropical storms).  In any case, this sort of scarcity allows for the demand curve to demonstrate that with a high demand for that which there is a low supply, the price will rise accordingly.  Efforts to cap prices in order to avoid the first order folly of artificially reducing supply only tend to exacerbate matters by leading to a scarcity of the sort of affordable homes that are desired (because they cannot be affordably built without some sort of subsidization), but with an overabundance of luxury buildings for which there are no price caps, as well as a declining degree of maintenance of existing housing stock that is less profitable with rent control.

While it is common for people to whine about high housing prices, there are equally tragic consequences when property values are too low.  Let us consider the city of Detroit as an example, a situation where one’s wife might be upset if one buys a home for $30,000 that is available for foreclosure, a price one tenth of that of a bargain property in Portland or its surrounding suburbs.  How can one pay $30k for a home in Detroit and have it be a bad buy?  Because there is no demand there, to the extent that abandoned homes built when the city was far larger than it now is have made Detroit seen as some sort of post-industrial post-apocalyptic city with a greatly shrunken urban core and a lot of land where infrastructure simply cannot be supported.  The results are predictable, if lamentable, in neighborhoods abandoned to ruins or being repurposed for squatters and drug labs or other unsavory uses.  In such a scenario it is easy to see that buying real estate in an area where there is little or no demand and where there is a lot of supply of abandoned housing stock might not be a good investment, no thanks to politics but simply to economics.

What is it that makes politicians so blind to economic laws and the reality of questions of supply and demand or of the response of people to laws and regulations that is contrary to plans?  Part of it would appear to be a simple matter of ignorance.  Where economics is studied by political elites, it tends to be viewed with a high degree of political tint.  People are viewed of as being rudderless and subject to direction from above, rather than operating according to principles contrary to that of their leaders and authorities.  Economics operates according to behavior, and gives no bonus points for good intentions on the part of people who make misguided rules and regulations and ineffectually try to enforce them on others.  Part of the problem also appears to be a fundamental disrespect that elites tend to have for the empirical laws, be they economic or moral, that shape human behavior.  Those who have contempt for principles of morality or sound practice, for laws as diverse as Colson’s laws (which posits that restraint must be provided by either internal sources (conscience) or external sources (cops)) or Gresham’s laws, which point out that bad money will drive good money out of circulation, will find themselves thwarted by those laws in operation because human nature and economic reality are what they are, whether or not we acknowledge those aspects of reality.

Where does that leave us?  If we are wise, we will attempt to better understand reality so that we may better learn how to live and how to behave wisely.  We may, if we choose, act contrary to our self-interest because of the morals and standards that we are committed to, but at the very least if we know the sort of pressures that exist and the motives and incentives that exist, we will better be able to understand the behaviors of those around us, and the pressures that exist for ourselves.  And if we understand the principles and laws that undergird our existence, we may be better prepared, if we are in positions of authority ourselves, to act in such a way that we never lose grasp on reality or never think that our fiat will be able to automatically trump the incentives that other people are basing their decisions on.  After all, simply because we dislike something does not mean in the last that others will be deterred from it if it is in their best interests.  Far from it.

About nathanalbright

I'm a person with diverse interests who loves to read. If you want to know something about me, just ask.
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2 Responses to Homo Economicas In His Natural Habitat

  1. Catharine Martin says:

    You summed it up very succinctly by stating that people are going to do what they want–based on their motivating factors–regardless of what the powers that be think they should. Managers have often told me that the most difficult aspect of their job was supervising their employees. They were the x factor. Governments create their own habitat and those in authority wield it within those perimeters, but the behavior of its citizens is, as you state, based on a variety of factors. Government, in its many levels, may become out of touch with the masses and they, as a result, will act with greater contempt toward the principles and laws that had traditionally supported it. We are then left with the mess we are in now. America, the land of opportunity and capitalism; contemplating socialism as an option! Who would have thought it possible less than a decade ago?

    • Yes, I think this is something that is quite surprising to many people, but also predictable if you think of the sort of false promises that politicians have been making and the general decline in responsibility and respect for merit and achievement within schools and the population at large.

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