Against Michelle Wu’s Anti-Market Real Estate Proposal

“If Chairman Wu were in power when Henry Ford was ruining the blacksmith, horse training and saddle making industries, she would have taxed the latter and subsidized the former. How about when computers took out the typewriter, carbon paper, and correction fluid (Wite-Out) industries?”

Madame Chairman Michelle Wu, Mayor of Boston, Massachusetts, has been supportive of offering a tax subsidy to landlords who convert their commercial real estate to residential units.

Why, pray tell, is she interfering with the free enterprise system (okay, okay, what little of it exists in Beantown) in this manner? Thanks to the Coronavirus (COVID-19), the demand for office space has declined precipitously. Business firms have found they can get the job done with at least some of their employees working from home, at least on a part-time basis. Thus, the lesser need for office space. This, of course, is a world-wide phenomenon, hardly limited to the United States, to Massachusetts, to Boston. But Madame Wu is taking the lead in this type of political response.

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If Chairman Wu were in power when Henry Ford was ruining the blacksmith, horse training and saddle making industries, she would have taxed the latter and subsidized the former. How about when computers took out the typewriter, carbon paper and, correction fluid (Wite-Out) industries? This economic interventionist would undoubtedly have put her thumb on the scales once again, supporting the nerds and taxing their competitors. Then, there is the case of mobile phones supplanting, what, well, lots of stuff: cameras, telephones, flashlights, paper maps, etc. Again, this central planner would have rolled up her sleeves and helped this process along, in the precise direction it was moving anyway, without any of her help, thank you very much.

What is wrong with that? In each of these past cases, including the present one, she would have just been rendering the market more efficient. Helping it out, helping it along, as it were.

There are several problems here.

First, suppose that one of these days she guesses wrong about the movement of the market in the direction of consumer satisfaction. Then, she will have caused vast amounts of wealth to have been dissipated. But, you say, that so far she has predicted correctly. At least, as it now looks to most analysts, she is entirely correct on the need for conversion of commercial and industrial real estate to residential purposes.

Of course, it cannot be denied, entrepreneurs sometimes—alright, often—predict the economic future badly. The difference is, and this is crucially important, Madame Wu has no skin in the game. Businessmen do. They risk their own funds, or monies entrusted to them. When they fail to promote consumer sovereignty, they lose money and have fewer dollar votes in the next go round with which to contribute to the direction of the economy.

Chairman Wu faces no such automatic feedback mechanism. She certainly loses no money of her own for her inevitable mistakes. (Hey, we all make them; no one is impervious to economic error). Perhaps she will again run for office (or a different office), in two, three or four years hence. But she will succeed or fail in that endeavor on the basis of a whole host of other issues. Her fate will be in the hands, to a great degree, of low information voters who, for the most part, will be ignorant of the niceties of economics. Better Stretching: 9 M... Yoon, Joe Best Price: $27.78 Buy New $32.99 (as of 07:22 UTC - Details)

Second, even if her overall assessments are correct (she gets no great credit for seeing the market is moving in the direction of more residential construction), how, further, does she know that a 75% subsidy (averaged over 29 years) is the correct impetus to give to real estate experts who are far more knowledgeable than she about the need for conversion. Perhaps the degree of “push” she is giving the market will constitute an overreach, since firms are very likely to convert office space which is now in surplus.

If this would-be chairman of the board really wanted to be of help in alleviating the plight of homelessness in her fair city, she could do so. Not by attempting to supplant the “magic of the market” but by freeing it up so that it could better work on its own. To wit, Chairman Wu could end a whole host of policies that caused the residential housing crisis in the first place, and for which as Mayor she holds the blame. On this list would be building regulations which make the creation of new structures more expensive, as they do for the new conversions she thus hypocritically supports. Then there is zoning, which shifts the supply curve of housing to the left and rent control that creates shortages for tenants.

Here, then, is some free advice for Madame Mayor Wu: Put your own house in order with deregulation and stop undermining the free enterprise system with further regulations, subsidies, interferences.

This originally appeared on Merion West and was reprinted with the author’s permission.