Elevator blues

I often hear people on the right suggest that the New York Times is a lousy newspaper. This is not true, as they are confusing quality and bias. The NYT is an excellent newspaper that is marred by an unfortunate bias toward left wing views.

Someone once joked that they were not a libertarian because of “roads”. I suppose I might reply that I am a libertarian because of “elevators”. Or more specifically, elevators times a thousand.

A recent NYT piece does an outstanding job exposing the gross inefficiency of the US elevator industry. Because of a highly complex web of counterproductive government regulations, elevators in America cost several times more than in Europe. Not surprisingly, America has far fewer elevators, even for buildings of a given type. (Thus it’s not merely due to our preference for single-family homes—even our apartment buildings have far fewer elevators.)

The lesson here is not that the US is worse than Europe; it would be easy to find hundreds of examples where US efficiency was higher than in Europe. Instead, the lesson here is that elevators are merely one of thousands of examples of where government overregulation leads to inefficiency.

When most people go through their daily lives, they don’t think about the ways in which government regulations are making their lives more difficult. In almost every case I come across with systematic inefficiency, the root cause is counterproductive regulations. Free market firms do screw up on occasion, but systematic problems are almost always due to bad incentives created by regulation.

The inability of most Americans to understand the role of regulations leads to a widespread misunderstanding of issues such as stagnant living standards.  Ask most Americans why growth in real wages has slowed since 1973, and they’ll cite factors like “inflation”, “the decline of unions”, “neoliberalism”, “monopoly profits”, “the China shock” and numerous other factors.

In fact, the impact of all of these factors is trivial compared to inefficiency caused by government regulation and subsidies.

1. Health care regulation and subsidy has pushed medical spending in the US to 18% of GDP, vs. 5% in Singapore (or perhaps 9% given US demographics).

2. Government subsidies and regulations have led to vastly bloated expenditures on education, which do not lead to any improvement in learning.

3. Regulations have dramatically boosted the cost of new homes, especially in big cities and coastal states.

And yet, I doubt that one American in a hundred would cite health care regulation has a major factor reducing real wages.

I could cite many other such examples, but let’s focus on housing, because it’s so important.  In manufacturing industries that are less heavily regulated, such as apparel, consumer electronics and home appliances, prices have tended to rise much more slowly than incomes.  Housing is an exception, and given its share of consumer budgets, it’s an important exception.  

To its credit, the NYT piece suggests that the problems in construction go far beyond elevators:

Beyond the elevator itself, you’ll find a byzantine mess of absurdities and contradictions behind the U.S. construction industry’s slowness, inefficiency and expense. For example, Americans cannot use the latest heat pumps — a critical tool for fighting climate change by electrifying heating systems — due to the same sorts of barriers imposed by U.S. regulators. Instead, Americans instead rely on obsolete heat pumps that don’t have a market abroad. And plumbing codes in America require an entire network of ventilation piping that has been deemed largely unnecessary in much of the world.

They also discuss the problem of residential zoning, and then note that zoning reform is not enough.  Regulatory barriers are especially significant for the construction of larger multifamily buildings:

Construction costs for detached single-family houses average about $153 per square foot. In America’s most in-demand coastal cities, multifamily construction costs have exploded. Even subsidized multifamily housing in California can cost $500 per square foot (or more).

A generation of young, would-be homeowners locked out by skyrocketing housing costs has taken notice. Their first target was a century of tightening land-use regulation, in which existing homeowners enriched themselves by blocking development through restrictive zoning measures. In recent years, the rise of so-called YIMBY — or “yes in my backyard” — movement has succeeded in all but abolishing single-family zoning on the West Coast.

But as zoning codes were liberalized, architects and developers soon began ringing alarm bells about the hurdles buried in the finer points of building codes and standards, and other more technical rules.

Here’s what most progressives don’t understand.  Stagnant real incomes are not about incomes; they are about “real”.  Ultimately, our living standards depend on our ability to produce real output.  In the short run, you can help workers a little bit by redistributing money from capital to labor.  But in the long run this will reduce capital formation and make workers worse off.  The overwhelmingly dominant factor driving real wages is productivity.  Swiss workers don’t earn far more than Bangladeshi workers because of strong unions, they earn more due to dramatically higher productivity.

What sort of things would boost the living standards of workers?  Cutting health care from 18% to 9% of GDP.  Dramatically reducing expenditures on education.  Deregulating housing to sharply reduce house prices.  And there are thousands of other small bore reforms that could boost productivity all across the economy.

Elevators may seem like a small deal, but problems in the elevator industry are emblematic of why real wage growth slowed after the early 1970s.

I often get frustrated by the NYT, which has a strong left wing bias.  But in fairness they have done many excellent stories over the years. I’d love to see someone dig up 30 or 40 NYT stories similar to the elevator story I linked to in this post.  Then collect the stories in book form.  Entitle the book:

The New York Times Case for Libertarianism