“This book should not be necessary,” were the opening words to my first book for the Cato Institute, Best-Laid Plans. It covered the same ground as many previous books, most notably Frederick Hayek’s The Road to Serfdom. It appears, however, that every generation has to learn for itself the reality that socialism doesn’t work.
Part of the problem is that socialism can mean several different things. One answer is worker ownership of the means of production, but the United States already has that: numerous firms are owned by their workers, and the biggest investors in major corporations are pension funds that exist for the benefit of workers. I suspect that most socialists don’t see this as any different from capitalism because it doesn’t include a role for government to step in to reduce inequality or protect the environment.
Another kind of socialism is a social democracy, which is capitalism with a safety net. The problem is just how big should the safety net be. At its most basic, it seems to include unemployment income for those who lose their jobs along with housing, food, and health care for the chronically unemployed. But where do you draw the line? It seems that all it takes is someone chanting “X is a human right” and sudden X becomes part of the safety net. In addition to free medical care for all, Bernie Sanders thinks the government should provide free higher education, free childcare, and build at least 10 million affordable homes. Lately free public transit has been added to the list of “human rights.”
Eventually, the government takes over a large enough share of the economy that you have, at best, democratic socialism, which is what the United Kingdom had in the 1950s through the 1970s. Because it is democratic, this supposedly avoids the abuses of the soviet system. But, whether soviet or democratic, socialism requires central planners to allocate resources, and without market signals, those planners will inevitably create surpluses of things people don’t want and shortages of things people do want.
Even Britain under the height of democratic socialism still had private property, but the government controlled what could be done with that property (and still does as this was something Margaret Thatcher never fixed). The Town & Country Planning Act of 1947 effectively nationalized development rights: you could own your property, but you could only do with it what the government allowed and, in some cases, mandated. Technically, private ownership under strict government control is an aspect of fascism, but that has become such a loaded term that I call it the New Feudalism instead.
In any case, any form of socialism requires large-scale government planning. While urban planners may deny that they are socialists, they are at best enabling socialism and at worst making all of the mistakes of socialism.
As I say, every generation seems to require new proof that socialism and government planning doesn’t work. I remember debating socialism vs. capitalism in high school and concluding that neither side of the debate had enough evidence to prove they were right. But after two decades of fighting the Forest Service, which is clearly a socialistic agency, I concluded that socialism could not work.
Then the Soviet Union fell, and all over the world people professed a belief in free markets and opposition to government planning. Yet just a few years later, people seem to have forgotten the lesson and embraced all sorts of government planning in the United States.
This is what led me to write Best-Laid Plans. Instead of focusing on theory, as Hayek did in The Road to Serfdom, the book recounts my journey through various layers of government planning: forest planning, transportation planning, and urban planning.
I wasn’t the first to compare forest planning with urban planning: in Seeing Like a State, Yale political scientist James Scott showed that the two were very similar in that they were based on oversimplified models of the processes they were planning and then attempted to impose those oversimplifications on those very processes. “It is a short step from parsimonious assumptions to the practice of shaping the environment so that is satisfies the simplifications required by the formula,” he wrote, which is why forest planners like clearcutting and urban planners like rail transit, which goes only to those places that meet planners’ approval.
With Best-Laid Plans, I finally understood how to write a book. In between my personal stories of forest, urban, and transportation planning, I included several chapters on why planning fails, why planners fail, and why government fails. Finally, a closing section looked at how resources can be allocated without government planning. Each of these seven sections had about seven chapters for a total of 48 chapters.
The section on urban planning went deep into the ways in which growth-management planning was making housing expensive and home prices volatile. The growth-management-induced housing bubbles had already peaked by the time I was writing, but many people still denied that there were any bubbles. In the book I noted that the bubbles would “not only threaten individual families and local economies, they threaten the world economy.” The result, I quoted The Economist as saying, “is not going to be pretty.” It wasn’t.
Though the transportation part has been superseded by Gridlock and the urban part has been superseded by American Nightmare, I still think that Best-Laid Plans was, in many ways, my best book. Its broad approach shows that planning is the cause of, not the remedy to, many if not most of the problems we deal with today—high housing prices, traffic congestion, and various forms of environmental damage.
After I published The Vanishing Automobile, I supplemented it with a series of updates looking at new data, news, and research. Though there wasn’t a schedule, I averaged slightly better than one a month for five years.
In anticipation of Best-Laid Plans, I replaced the Vanishing Automobile updates with a blog called The Antiplanner. The first post was dated January 1, 2007, which was a couple of months before I actually started work for the Cato Institute, so I must have written the book before being hired. Many of the early posts were excerpts from the book, which was published in October of that year. I brought copies with me to every speaking engagement and the book sold pretty well—though sales of Vanishing Automobile dropped to near zero.
When Ed Crane hired me, I asked what he expected me to do. I thought he said something like, “six papers a year and a book every other year.” In addition to Best-Laid Plans, I wrote five papers in my first year for Cato, and at the end of the year apologized that I hadn’t met his expectation. He was surprised and said there really weren’t any such expectations.
Nonetheless, I wrote numerous papers on housing, transportation, urban planning, and even a few on natural resources for Cato. When California was considering its high-speed debacle, I wrote a paper on high-speed rail that was published a few days before the November election.
When Obama asked Congress for $8 billion to build high-speed rail lines, I followed up with a series of reports on the high-speed rail plans in various states, including Colorado, Georgia, Florida, Illinois, Indiana, Iowa, Louisiana, Michigan, Minnesota, New Mexico, North Carolina, Ohio, Oregon, Pennsylvania, Texas, Washington, and Wisconsin. Instead of having Cato publish them, I asked the appropriate state think tanks to put them out. I also wrote op-eds and press releases for each state, so all the think tanks had to do was put them on their letterhead and distribute them to local media.
I then took all the new information gleaned from writing these reports and put it into a policy brief for Cato. When the governors of Florida, Ohio, and Wisconsin decided to kill the high-speed rail plans for those states, they all specifically mentioned my work as helping to convince them to do so.
Florida was the important one because it and California were the only true high-speed (150 mph or more) rail projects funded with the $8 billion—the others were 110 mph at most—and the Florida project was the only one that could have been completed during Obama’s term of office. If it had been finished, it would have led to political demands from other states to get federal funding for their own projects. Because Governor Scott killed it, the example for other states is California: an incomplete embarrassment characterized by huge cost overruns, broken promises, and angry property owners who lost their land to eminent domain. By helping to stop Florida’s project, I helped save American taxpayers at least half a trillion dollars and possibly much more.
When I wrote Gridlock in 2009, in addition to bashing light rail and high-speed trains, I wanted to offer a positive vision of the future that didn’t require trillion-dollar public investments in untried technologies. When I found out about the DARPA urban challenge, I realized that driverless cars could solve many of the problems with driving: congestion, accidents, even energy as cars that were less likely to collide could be lighter in weight.
As I previously noted, some people at Cato weren’t enthused about this idea, thinking it a pure fantasy. But it caught the attention of the Wall Street Journal, which asked me to write a lengthy article about the driverless future. While other people had been writing about driverless cars for years, I think this was the first recognition in a major publication that new technologies being developed by Stanford, Carnegie-Mellon, and other universities were actually going to make it happen. Soon after that, the Stanford work was taken over by Google, which made the idea even more respectable.
While Gridlock required some original research, I had collected most of the information I needed for it and my previous three books while in Eugene, Portland, or other cities where I had access to government offices and major libraries. In 2008, I moved to Camp Sherman, an unincorporated community of about 250 people. It has no library and the only libraries within 100 miles were small and oriented to popular audiences, not academics.
The internet allowed me to break down this barrier when I wrote my next book, American Nightmare. This book required more original research than any of the previous ones as I explored the history of property rights going back before William the Conqueror. Numerous historical books and documents were available on Google books, while newer books that I might have read at a University library could often be purchased for under $5 through bookfinder.com. I think I bought about 150 books in the course of writing my housing book.
One of my sources was Hernando de Soto, whose book, The Mystery of Capital, looked at the history of property rights in the United States. One of his theses was that economic growth in the U.S. only really began after the Civil War, when the federal government began large-scale sales or grants of public lands to settlers, railroads, and other companies. Prior to this, he said, the West had been settled mainly by squatters who didn’t have property rights to the land they used.
As an example, he observed that in 1790 more than 300,000 families squatted on federal land in western North Carolina. That seemed surprising because the nation’s population was only about 6 million at the time, and if there were an average of four people per family that meant that 20 percent of the entire country lived in this one small part of the nation.
De Soto cited a 1910 book that I was able to find on Google books. He had quoted the book correctly: it said that a 1790 report to Congress had found 300,000 families living on federal land in western North Carolina. Fortunately, that 1790 report to Congress was also on Google books, and it said that 300 families were living on 300,000 acres of federal land in western North Carolina. The author of the 1910 book had mixed up families with acres and Google books didn’t exist when de Soto wrote his book. (Despite this minor error, The Mystery of Capital is one of the most important books of the last few decades.)
While squatting in North Carolina was a minor issue, I also expanded my library in order to better understand the 2008 financial crisis. Some people were blaming the crisis on the Federal Reserve, others on exuberant homebuilders, others on subprime loans, and others on the mortgage industry. Particularly targeted were the banks that bought mortgages and packaged them as bonds to sell to investors. But all of these were nationwide phenomena, and the housing crash took place in only a few regions.
I knew, of course, that the regions that saw housing bubbles and crashes were the ones where urban planners had implemented growth-management policies such as ground boundaries. But how did that cause the financial crisis? I had to read quite a few books to figure this out, and the answer had to do with the bond ratings companies.
At one time, bond rating companies sold their services to bond buyers who wanted to know how risky their purchases might be. But a federal regulation forbidding public funds such as pension funds from buying unrated bonds gave bond sellers an incentive to pay to have their bonds rated. This created a conflict of interest since if a rating company gave a bond too low of a rating, the seller might just walk away and have a competing company rate the bonds. At first glance, it appeared that this misincentive contributed to the crisis.
However, it was also clear that the bond ratings companies had looked at the American housing market to see that there had never been a major, nationwide decline in housing prices. Based on that, the companies decided that it didn’t matter if some homebuyers defaulted on their mortgages: the banks could just foreclose on the homes and resell them at little loss and perhaps even a profit.
What the bond ratings companies hadn’t counted on was the extra volatility in housing prices caused by growth management. Growth management limited the ability of homebuilders to meet the demand for new homes. In economic terms, it made the supply of housing inelastic. That meant that a small increase in demand would lead to a large increase in prices, but at the same time a small decrease in demand would lead to a large decrease in prices.
As soon as the ratings companies realized this, they downgraded the ratings on the bonds that had already been issued. If a bank owns a bond, it is required to keep a cash reserve whose amount depends on the rating of the bond. A bond rated AAA might require a 1.6 percent reserve; a bond rated BB would require an 8 percent reserve. Although the banks packaged the bonds to sell to investors, at any given time the bigger banks could have tens of billions of dollars worth of bonds on hand waiting to be sold.
When the bond rating companies downgraded the bonds, the banks holding the bonds had to increase their cash reserves overnight. When Bear Sterns was unable to do so in March 2008, it collapsed and was taken over by JPMorgan Chase. Then, in October 2008, the bond ratings were reduced again, leading to the collapse of Lehman Brothers.
The packaging of residential mortgages and selling them as bonds (known as collateralized debt obligations) had actually been invented in the 1920s when they were used to support a major multifamily housing boom. The practice ended with the Depression in part because multifamily housing just wasn’t the kind of housing Americans preferred.
JP Morgan revived the use of such bonds for single-family mortgages in 1994, but when Jamie Dimon became CEO of the company in 2005, he decided the bonds were too risky and it stopped doing it. Other banks continued to do so and Citibank and Bank of America in particular had many billions of dollars of unsold bond when the ratings were dropped.
Another problem was AIG, which for a time sold insurance on the bonds (known as credit default swaps). That company eventually decided the business was too risky and stopped insuring the bonds, but not before it had insured something close to $200 billion worth. Citi and Bank of America were in trouble because they hadn’t purchased insurance for their bonds.
After Lehman Brothers went bankrupt, Congress created the Troubled Asset Relief Program (TARP) and authorized $800 billion to buy mortgage bonds from the banks. But regulators quickly figured out that they didn’t need to buy the bonds; they just needed to provide enough funds to allow the banks to meet their liquidity requirements, so they made about $427 billion in loans to the banks.
Some banks, including JP Morgan and Wells Fargo, didn’t the money, but the government ordered them all to take loans to keep investors in the dark about which banks were truly at risk of collapse. It’s easy to figure it out today: the ones that didn’t need the loans paid them back as quickly as they were legally allowed to do so, while Citi and AIG still owe money on their loans.
The effect of downgraded bonds on bank liquidity is never reported in the popular media about the 2008 crisis or discussed in such movies as Margin Call or The Big Short. Yet that was the actual cause of bank failures and near-failures, not people failing to pay their subprime loans. In fact, if it weren’t for the crisis putting a lot of people out of work, there probably wouldn’t have been an unusual number of loan defaults. The downgrades were only necessary because growth-management had made many American housing markets far more volatile than they had been in the past. In short, urban planners caused the housing crisis.
I had predicted the crisis (though not these details) in Best-Laid Plans and wrote about the downgraded bonds being the cause of the crisis in early 2011. This was described in greater detail in chapter 13 of American Nightmare when it was published in 2012.
While I am especially proud of this book because of all the original research I put into it, it is the poorest seller of my books. This is partly because I didn’t go on a major book tour after the book came out; when Gridlock was published, I visited more than two dozen cities to sell it and the ideas behind it. But I wasn’t sure the tours made any difference so I decided not to do one for American Nightmare. Now I regret not doing so, but everything in the book remains valid today.
“Part of the problem is that socialism can mean several different things.”
Only to equivocators and democide apologists.
The definition of socialism is well established:
“any of various economic and political theories advocating collective or governmental ownership and administration of the means of production and distribution of goods”
People can put any adjective before “socialism” (such as the laughable “democratic”–like elections matter; socialist Germany and the Soviet Union both had elections), but it’s still socialism.
Likewise, capitalism has a well established definition:
“an economic system characterized by private or corporate ownership of capital goods, by investments that are determined by private decision, and by prices, production, and the distribution of goods that are determined mainly by competition in a free market”
Note that capitalism involves the free market determining prices, production, and distribution.
There is no question that capitalism in the US does not exist. The existence of a minimum wage means that there is no free market. Then there are the tens of thousands of pages of federal regulations layered on top of state, county, and city regulations.
Nope. We dont’ have capitalism. What we have is statism:
“concentration of economic controls and planning in the hands of a highly centralized government often extending to government ownership of industry”
“Much of the social history of the Western world, over the past three decades, has been a history of replacing what worked with what sounded good.”
–Dr. Thomas Sowell
The Left doesn’t endorse socialism to “Improve the economy” NO, they want to reign it in.
The best way to win a debate is to ask questions. They make arguments, ridicule and question why these arguments are even suitable. But be polite. This was best summed up with the infamous Ted Cruz / Bernie Sanders healthcare debate.
They want the US government to take over healthcare. Takeover? They already run about two-thirds of it already in the forms of Medicare, Medicaid and VA for our defense personnel and they run all of them abysmally poor. Not to mention all the federal laws in the books for medical practitioners to follow. The belief that the government will somehow miraculously fix the crippling bureaucratic and administration difficulties or operating methodology of American medicine when they helped sculpt them is mind bogglingly funny.
Scandanavia enjoys the fruits of extensive social welfare for 2 reasons….
1: They have a tax system that heavily taxes personal income as opposed to businesses.
2: They’ve been piggybacking off of US defense, like the rest of Europe for the last 50 years.
They say capitalism is exploitative, last I checked it required willing participants…If you choose to be exploited you’re either an idiot or naive. Being exploited against your will is manifested in one of three forms… Slavery, Cronyism or Indoctrination. It’s not socialism Sander’s wants, he doesn’t know enough about economics or monetary theory to come up with a replacement economy. What he wants by virtue of some compassion and mostly a snapping aged cynicism, and political power savvy is a federally funded all out societal system one that distributes wealth extensively because he hates wealthy people (despite being one).
You can debunk socialism or it’s benevolent benefactor dreams with four basic questions
1: What makes Government the best suited to perform [said role/service] given it’s lengthy historic/present examples of both cost overruns, budget shortfalls or systemic failures
Answer- we’ll try harder this time
2: How you intend to pay for the [insert program]
Answer- Tax money
3: Said payment; by obtaining from Whom
Answer- Da Rich in dis country
4: Upon seizure of said finances/resources from the top wealth demographic; after upon expenditure, upon conclusion of the fiscal year… Who are you going to take it from next year? (You expect Bill Gates to have another 90 billion lying around)
Answer – shrugs shoulders….
Any economist can analyze situations; There are three questions that would destroy most of the arguments on the left.
The first is: Compared to what?: How is your program gonna fix things compared to the last program
The second is: ‘At what cost?’
And the third is: ‘What hard evidence do you have?’ The Left claims they’re gonna stamp out the last vestiges of racism and………all the other -isms in society. At what price? Nothing short of a total fascistic state with threat of incarceration, fines or prison or death….. can compel a society to be so parallel leaning.
I like your profile picture sir. Do you have a link for a higher resolution picture of that E unit?
Socialism vs. Free market is far too simplistic.
We are all ruled by many levels of influence — self, immediate family, extended family/friends, religion, neighborhood/town, city/county, state, nation, world, etc.
The big question is what level should a decision be made at. If everyone in a town is the same religion, it might not matter which makes a rule, but if not then it might. Some countries (Scandanavia) are the size of small states in the USA, so they are different than a national decision in a large country.
Of course the EC is a great example of trying to impose a large government on people who had lived independently for so long. It brought some good things (border crossings, currency) and of course lots of problems too.
“Socialism vs. Free market is far too simplistic.”
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What is too simplistic is this straw man you’ve made.
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“We are all ruled by many levels of influence — self, immediate family, extended family/friends, religion, neighborhood/town, city”
This is a meaningless word solid that conflates a locus of external control with a locus of internal control.
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“The big question is what level should a decision be made at.”
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This is hardly a “big question,” and the answer is easy for any individualist (a harder struggle for a collectivist): at the individual level.
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Socialism and Capitalism are not even comparable concepts – we don’t have a choice between them, any more than we have a choice between, say, physics and monarchy.
Capitalism is a natural law, the inevitable consequence of the existence of secure methods of investment. Socialism is a political idea – the imposition of a specific social ideal upon a population that does not naturally conform to that ideal. No one invented Capitalism, it arises naturally whenever property rights and currency are both sufficiently secure as to allow people to invest in economic endeavors. It is a natural fact – it cannot be repudiated, only undermined by destroying either of the two things it requires: property rights and stable currency. (Note that I make a distinction between Capitalism and Free Markets – the latter alone does not guarantee the accumulation of wealth.) Socialism, in contrast, is an artificial construction, and as it is an attempt to force society into a configuration that is not natural, it is inherently unstable and requires coercion to maintain.
pokep: Capitalism isn’t “natural law” and more than socialism or democracy. Historically the idea that average people would have property rights was considered absurd because what was “natural” in such societies was having a monarch with absolute power.
Personally, I think the capitalism/socialism debate is a little simplistic. From a policy/analytic perspective you have to be a little more neutral to explain what works and what does not. I think if you were to create a frame work to evaluate the potential effectiveness of policy (regardless of what label you put on it) you have to consider certain features of the policy that make it viable or not. In my mind at least I would consider the following:
1. Is the policy rigid or flexible? By this it means that there is a enough discretion in the implementation of the policy to allow for necessary adaption. The can apply to almost any policy such as land use or even a social program like social security. Generally the more rigid a policy is the more likely it will fail due to lack of adaptability but also administrative take over.
2. Is there a demonstrable need for the program or regulation and has the cost/benefit been considered relative to other alternatives and the greater context? Example: Light rail is a costly almost useless waste of public money. Roads, public health, and education generally have benefits for both individuals and society at large.
3. Is the issue something that requires or is more efficiently administered collectively or can the individual market address the issue more effectively? Put differently are we dealing with public, semi public, or private goods? For instance no one is going to support a government run market for cars or consumer goods(private goods). At the same time some collective action might make sense for something like education or healthcare (since economies of scale do exist and the market is not perfect its allocation of these things) (semi private goods). Whereas other things would be fundamentally corrupted if private individuals had any direct influence in them (police, military, courts) (public goods).
4. Finally, we have to take a relativist utilitarian view of what we want or should consider a right. As I said before, it used to be widely accepted that most people had no rights (as we consider them today to be self evident and fundamental). Property, political power, and civil rights and liberties were at one time fantasies. Thus, I can’t be completely critical of people who claim healthcare or child care should be considered a “right.” However, I don’t think that any right is ultimately absolute. All are transient and must be viewed in a utilitarian light. We decided that we did not like suffering and dis-empowered individuals so we created universal suffrage, same thing for needing skilled and educated individuals to contribute to a democratic and industrialized economy, hence public education. In the instance of the Antiplanner’s work, I would assume his position is to acknowledge that property rights extended to everyone with limited or rational regulation enhance individual welfare and contribute to the overall stability of society. Ultimately all these things don’t necessarily need to exist for the universe to continue. They exist because we have decided they are of use to us.
Now, taken in the context of everything else I just said there are many ways to approach these issues. There are many alternatives and trade offs. The question really comes down to our willingness to experiment and be pragmatic.