The politics of abundance

Scarcity itself is bad, not just distributional problems

I’ve got “Dune” on the brain after watching the movie three times, but I don’t really have a lot of Slow Boring takes on it.

The book, however, differs from the film in spending quite a bit of time dwelling on the political economy of Arrakis. Part of this is that water is not only extremely scarce (as illustrated in the film) but also a privatized commodity, with water dealers holding wealth and power. For the bulk of the population, the price of water is the fundamental economic preoccupation — and one thing it illustrates is how inherently regressive any type of important scarcity is:

“There were water riots when it was learned how many people the Duke was adding to the population,” she said. “They stopped only when the people learned we were installing new windtraps and condensers to take care of the load.”

“There is only so much water to support human life here,” he said. “The people know if more come to drink a limited amount of water, the price goes up and the very poor die. But the Duke has solved this. It doesn’t follow that the riots mean permanent hostility toward him.”

This is presented as common sense, but note that in crucial respects, the Duke’s solution — install new infrastructure that makes water less scarce — is at odds with a lot of current practice.

Steven Teles, Samuel Hammond, and Daniel Takash published a paper recently called “Cost Disease Socialism” noting the tendency of progressives to see affordability problems in dysfunctional markets and respond with the idea that we need to subsidize them. If conditions are perfect, then pure subsidy can address scarcity. Perhaps if Duke Leto created a program of refundable tax credits for water purchases, the increased water demand would induce the water merchants to invest in additional windtraps and condensers in order to meet it. But generally speaking, scarcity is driven by dysfunction or problem. In the case of Arrakis, we can probably tell a story where the corrupt and evil Harkonnens have allowed anti-competitive behavior among the water merchants that restricts supply.

The point, here on planet Earth at least, is that it’s important for policymakers to actually target the sources of scarcity. In some cases this probably means spending more money; in other cases it probably doesn’t. But either way, it means not treating distributional questions as the whole ball game and not treating subsidies as the only possible policy tool.

Housing should be abundant, not “affordable”

The biggest and most important version of this problem in the United States (and I think in Europe as well) relates to housing.

Housing matters so much because it dwarfs most other industries in terms of its sheer scale. Housing represents 15-18% of GDP. Rent1 is over 30% of the Consumer Price Index. People regularly spend a third or more of their income on housing. And even those numbers underestimate the centrality of housing scarcity issues to our society because many public services are in practice auctioned in the housing market. In the car market, some people have expensive cars and some people have cheap cars, but almost all cars perform the basic function of getting you from Point A to Point B reasonably well. In the home market, rich people don’t just have larger and nicer dwellings — they have exclusive access to in-demand public schools and superior public safety compared to poor people.

Housing is also scarce in many areas because the ability to add new dwellings to an in-demand parcel of land is heavily regulated. You have lots of towns suffering from housing scarcity, whole metro areas suffering from housing scarcity, and even in places where housing is generally abundant, you have specific neighborhoods suffering from housing scarcity.

I’ve written about this topic a lot over the years, but one of the first things I learned is that among housing people, “affordable housing” is a niche term of art. A place with “lots of affordable housing” is not a place where the market price of housing is generally on the low side. It is, rather, a place with a lot of rent-regulated or deed-restricted units that guarantee a low price point to people who meet certain eligibility requirements.

Creating these kinds of subsidized units is obviously very nice for the people who happen to get one. But it’s creating abundance — lots of houses for everyone, with the price of new dwellings largely a function of hard construction costs and “used” homes available for discount prices — that makes for a much more functional society. You can create abundance through private or public financing of construction and ownership of the dwellings, but in the U.S., either would require a change to the regulatory framework. The benefits of abundant housing are large but diffuse, whereas the hassle cost of more traffic on your street is small but concentrated. So a planning paradigm that emphasizes hyper-local interests and community consultation leads to dysfunctionally small amounts of housing.

High health prices are bad, high health spending is not

A different sort of problem relates to the scarcity of doctors in the United States, which, as this chart from Robert Orr shows, is very unusual among developed countries.

The historical origin of this, as another Orr report explains, is that back in 1980, Congress took the penny-wise, pound-foolish decision to curtail the number of medical residency slots in the United States. These residencies are generally funded through Medicare, which generates direct costs to the federal government, and Congress didn’t want to spend the money.

But beyond that narrow stinginess, policymakers were influenced by the observation that increasing the supply of doctors tends to increase aggregate healthcare expenditures — including spending on Medicare. Medicare basically guarantees that your doctor’s bills will be paid, but it doesn’t guarantee that it will be easy or convenient to get an appointment. So generating provider scarcity saves money.

This is a prime example of why the discourse around “healthcare costs” is annoying and misguided. What’s true is that high healthcare prices are undesirable, and if we can make treatments cheaper, we should. But if someone invented a really effective treatment for breast cancer that happened to cost twice as much as today’s so-so treatments, that would be great, even though “healthcare costs” would rise.

Scarcity of doctors disproportionately burdens the poor. They are more likely to be uninsured and less likely to be able to afford to go out of network or off insurance in a pinch. But over and above that, people of modest means are less likely to be able to take time off in the middle of the workday to go see a medical professional. And doctors, knowing that their services are in high demand, tend to be contemptuous of patients’ time and very bad at sticking to their schedules. Doctor abundance would mean more availability off hours, more competition for patients’ patronage, and of course, lower prices.

There are lots of routes to provider abundance — changing scope of practice regulations, making emergency pandemic telehealth permanent, allowing foreign-trained doctors to practice in the United States — but raising the residency cap is the most straightforward of them. In this case, you have to be willing to spend more money.

The higher education vortex

Momentum for free college has ground to a halt in Democratic Party politics, rightly taking a back seat to other priorities. But especially as Democrats increasingly become the party of college graduates, they will surely return to concerns about higher education expenses.

But the idea animating free college legislation in Congress — keep the colleges the same and just offer them subsidies to cut tuition — is a pretty pure type of cost disease socialism, simply pumping extra money into systems that are inequitable and often surprisingly exploitative.

This isn’t to say that there’s no case for increased funding. But what state governments should be trying to do is identify which institutions are doing an above-average job of teaching (not just selecting the best students) and give them additional resources in order to expand. And while the government can’t force the rich private institutions that sit atop the higher ed hierarchy pyramid to expand, they can certainly try to encourage it, and so should all of us with some voice in civil society. These are institutions that fundamentally crave prestige and legitimacy, and we as a society should deny it to them unless they are willing to expand their size.

I’d also like to see money go into whole new institutions.

Don’t do “free college;” establish some new colleges that are free. The military service academies are an interesting model here. I think that as part of the police reform conversation it could be interesting to charter a new National Law Enforcement University. It would have an undergraduate program geared toward training future law enforcement professionals (both local police and also federal agencies), but with some liberal arts in there too. And it could be a hub for research on both the hard science (like the mostly fake stuff you see on CSI) and the social science sides of criminal justice.

George Washington (and I believe Ulysses Grant as well) wanted to establish a national civil service academy, another idea that seems to me to have some merit.

Beyond that, someone — perhaps the government, perhaps a philanthropist — ought to at least try to make an online-only college program that’s really good. Given the potential benefits in cost and scale, such a program wouldn’t need to be nearly as good as the best colleges in the country. It would just need to be better than terrible. Alex Tabarrok wanted Apple to buy a financially distressed college and try to do this. That would be fun, though I can think of a million reasons why they’d never do it. But I could see this being a great MacKenzie Scott project. I could also see it being a great project (in a different way) for Charles Koch or some other right-wing billionaire. Stop complaining about woke universities and left-wing academics and do something better.

Not everything needs to be partisan warfare

Housing, medical care, and higher education aren’t the only examples here. But I recently wrote “The Case for More Energy,” so I won’t redo that whole argument.

In general, though, I both agreed with Ezra Klein’s case for “supply-side progressivism” and didn’t really love the framing. Progressives should care about these supply-side issues, but so should conservatives. So should the people who like to put hammer and sickle icons in their Twitter usernames. It’s just factually true that these are important questions. Unfortunately, what tends to happen in practice is that just as progressives in California and elsewhere are getting ready to dismantle harmful housing regulations, we have Tucker Carlson doing pro-regulation segments. And while the issues with doctor supply are on some level a regulatory thicket, on another they reflect a misguided, fiscal conservative impulse. On higher education, we’re stuck between the left saying “spend more” and the right saying “spend less” with very little interest in trying to do something different.

But I think this mostly goes to show that not everything in life is well suited to resolution through high-profile partisan warfare. These are really questions of special interest politics, and when you inject them into culture war frames it becomes hard to make progress. Nevertheless, Congress continues to routinely pass bipartisan legislation on various topics, and these are all issues where you can imagine bipartisan approaches bearing fruit. Everyone liked Operation Warp Speed, for example, but that didn’t just come out of nowhere. It was an offshoot of HHS’s BARDA program, and we should be plowing more cash into that to seek more useful cures and treatments.

Conversely, it’s just wrong to think that the big reconciliation bill still under negotiation is the last chance to fix or improve anything. For better or worse, we are actually blessed with a great abundance of policy problems that are not incredibly ideological in nature and with many opportunities to make positive changes in these areas.

1

Normal people don’t realize this, but the single largest element in the CPI is what’s called “owners’ equivalent rent.” This is basically the rent that you, in your capacity as a resident of your house, pay to yourself in your capacity as the owner of the house. The cost of purchasing a home, by contrast, isn’t in the CPI at all because that’s considered an investment good. Over the longer term, the price of buying houses and the price of renting houses should be related, but in terms of your short-term subjective experience of the world, these things are obviously very different.