There is an endless list of ways we want to improve cities and help the poor. The list of problems plaguing poor communities is long. Every major US city has areas where the schools are terrible, crime is rampant, the sidewalks and streets are little more than rubble, fresh food is in short supply, and there are no parks or playgrounds to speak of. Helping people in this lowly state should be simple. Make the schools better. Hire more cops. Spread some concrete and asphalt. Start a farmer’s market. Build a playground. Simple, right?
Not really. Amenities are expensive even when you don’t have to pay for them directly. Why? They make places nicer and, therefore, more attractive places to live. People like living in safe, walkable neighborhoods with great schools and parks, so holding everything constant, adding all these amenities to what are now low-income neighborhoods would make them more attractive to higher-income people who are willing to bid more to live in these newly improved parts of town. Holding everything else constant, nicer local amenities mean rents will rise and some people living in the neighborhood will be priced out.
Consider a family living in an apartment in a crime-ridden neighborhood with terrible schools and lousy public infrastructure. Our hearts bleed for them, and we want to do something to make their lives easier. So we do all the stuff listed above. Now, many more people want to live in the family’s apartment, and unless they can come up with the money to pay the higher rent, they will be priced out of the neighborhood. Counterintuitively, the winners from all these improvements are not the families occupying these apartments but their landlords, who now earn higher rent. People may not pay for parks and schools directly, but they will pay for them indirectly because higher rent and real estate prices will reflect their value.
People might raise a lot of objections. Why not pass a law saying landlords can’t charge higher rent or evict tenants? There’s the obvious problem of creating a housing shortage, and if people can’t compete for artificially scarce apartments by paying higher prices, they will compete by accepting lower quality. The Swedish economist Assar Lindbeck said that rent control is the most effective way to destroy a city short of bombing it. The history and effects of rent control in the US and elsewhere confirm his observation.
From my time writing commentaries like these and arguing online, I’m sure many people would object to this argument with righteous indignation. “Are you saying the poor don’t deserve good schools in safe neighborhoods? Their children don’t deserve the nice public parks you see in richer suburbs? I can’t believe you would be so callous! So cruel!”
I would reply, “I can’t believe that someone so well-trained in critical thinking would so clearly miss the point.” Economic arguments like these have nothing to do with what people deserve or even the kind of world we want to see. I’m sure there are a few sadists out there who enjoy watching the poor suffer–”the cruelty is the point,” as I’ve seen people criticize efforts to roll back well-intentioned progressive policies–but they’re fewer and farther between than you think. I’ve never heard anyone say, “It’s right that they should suffer!” at the annual meeting of the free market-loving Association of Private Enterprise Education. No one is arguing that there is anything morally embiggening about lives of poverty and squalor. I don’t know anyone who wouldn’t push a button that would magically eliminate poverty.
However, as the great Thomas Sowell has explained, we’re usually arguing at cross purposes, with the economists asking not about what is or is not desirable but about the likely consequences of social processes we are setting in motion. When we try to help people by doing just about anything other than just giving them money, it’s anything but clear that we will succeed–and instead of helping the people we want to help, we end up enriching their landlords.
The economist John Cochrane has a line that has stuck with me since I first read it: don’t try to redistribute income by fiddling with prices, and providing gratis parks and schools is one way to fiddle with prices. The outcome needn’t be a disaster, but it’s not clear it makes people better off.
