Ezra Klein and Derek Thompson have a new book entitled Abundance. This is a part of the description at Amazon:
Abundance explains that our problems today are not the results of yesteryear’s villains. Rather, one generation’s solutions have become the next generation’s problems. Rules and regulations designed to solve the problems of the 1970s often prevent urban-density and green-energy projects that would help solve the problems of the 2020s. Laws meant to ensure that government considers the consequences of its actions have made it too difficult for government to act consequentially. In the last few decades, our capacity to see problems has sharpened while our ability to solve them has diminished.
The authors are supporters of the “Yimby” movement, which aims to boost housing by reducing barriers to construction. Thompson was recently interviewed on CNBC (see this link for the interview):
Thompson is rightly exasperated by people that confuse lower housing prices created by increased supply with lower housing prices created by economic depression. The former situation is good for potential homebuyers, the latter is bad. Both more supply and less demand result in lower housing prices, but only the former results in more quantity of housing.
I frequently complain about people who “reason from a price change”. You might assume that this sort of mistake is only made by students in freshman economics classes. In fact, many of the most powerful people on Wall Street make the same mistake.
Thompson also pushes back on the claim that falling stock prices are not something to worry about. I often hear people claim that falling stock prices reflect the fact that tariffs hurt the economy in the short run but help the economy in the long run. There are several problems with this claim:
1. That’s not how asset markets work. If investors thought the tariffs would help the economy in the long run, you would probably not see a big decline in stock prices, and you would not see a weaker dollar. The “wisdom of crowds” is suggesting that tariffs will likely hurt long run economic growth. We don’t have a futures market for industrial production, but if we did it would very likely have shown a significant drop in recent days.
2. Proponents of mercantilism did not predict these market reactions. So it’s not just a question of “Wall Street is not Main Street”. That excuse might work if we had been told that stock, commodity and foreign exchange markets would react this way to tariffs, but in fact the market reactions were not at all what the mercantilists expected.
