Economic Principles for Planners, Part 2

Here’s a continuation of yesterday’s post with five more economic principles for planners. Today’s principles are a little more complicated than yesterday’s. To clarify, I am using the word “planners” as shorthand for “advocates of government infrastructure subsidies and regulation.”

6. There’s no such thing as a free lunch.

Planners would like you to believe that there is free money available to do the projects they propose. Sometimes they mean federal money (“it’s going to be wasted somewhere, so we might as well waste it here”), while other times they mean tax-increment financing (“if we didn’t subsidize the development, the taxes wouldn’t come in to pay for it”).

Both of these views are wrong. It is possible to make money, but the projects that planners wanted to fund could make money, they wouldn’t need government subsidies. Research indicates that regions that use tax-increment financing grow more slowly than ones that don’t, so rather than increase future tax revenues, TIF actually reduces them.

7. If you subsidize something enough, people will come, but that doesn’t make it a success.

Transit requires three dollars in subsidies for every dollar paid in fares, and subsidies for most recent rail transit lines are far greater. Yet officials endlessly proclaim these lines a great success because some people are riding them. A truly successful project would earn revenues greater than its costs.

8. If you create of shortage of something, the price will go up, but that doesn’t mean you have increased demand.

Planners are great at creating shortages of things that people want and surpluses of things they don’t want. Then they say the higher prices created by the shortages are proof that the plans are working.
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Paul Danish, the author of the growth restrictions that have made Boulder one of the least-affordable cities in the nation claims that higher housing prices are solely because his policies have made Boulder “a really desirable place to live” while any place that is more affordable must be “a really awful place to live.” In fact, Boulder is no more desirable than many other cities, it is simply less affordable.

Even the Washington Post has discovered that liberal cities tend to be the most expensive. It won’t be long before people realize that the land-use restrictions imposed by liberal governments are responsible for making housing in these areas less affordable.

9. Demand is a line, not a point.

Planners are fond of saying that the demand for a specific good is a specific number. But demand can’t be expressed as a single number without referring to price, any more than speed can be expressed in terms of miles without referring to the elapsed time.

As a corollary, if something costs more, that doesn’t mean the demand for it is higher. For example, downtown condominiums may cost more than suburban single-family homes, but that doesn’t prove that the demand for condos is greater. The fact that demand is a line means there will often be someone willing to pay a higher price, even if most people would not. Downtown land costs more than suburban land and mid- and high-rise construction costs more than low-rise construction, so higher prices reflect higher costs, not higher demand.

10. If most people who like something fit a certain demographic, that doesn’t mean most people in that demographic like that thing.

Planners observe that most people who live in dense, mixed-use developments are young people with no children, so they assume that most young people with no children want to live in such developments. In fact, as demographer Wendell Cox has shown, population growth of young people is much faster in the suburbs than in inner cities.

Some planners go even further and claim that, since most people who live in dense, mixed-use developments have no children, then most people with no children, including empty-nester baby boomers, want to live in such developments. Instead, if anything, baby boomers are moving further away from cities, not closer in.