Scott Alexander posted this last month, arguing that building more in an area doesn't necessarily decrease local prices because it can cause more people to move in.
I see 3 levels of argument here, based on 1st, 2nd, and 3rd-order effects:
- More building means more supply, which by supply-demand curves means prices decrease. (YIMBY is here)
- Local demand isn't fixed: prices are determined by an equilibrium between people coming and leaving. Building more changes the character of the area (which probably makes it suit current residents less) but the equilibrium of quality vs cost is unchanged. (Scott is here)
- Building more in expensive areas causes people to move which causes jobs to move, which causes more housing to be unused in low-cost areas, which means housing costs don't decrease significantly on a national level either. (I'm here)
Position (3) has long been my view, and I thought I'd write a post explaining it a bit.
The problem in America isn't a lack of aggregate housing, it's houses not being where people want to live. Building more in those areas might seem like an obvious solution, but it wrongly assumes "where people want to live" is constant. If we instead consider that it could change, we need to consider what makes people move from an area with cheap housing to an area where it's expensive.
You can just ask people that, and they'll tell you: jobs. OK, so why are there better jobs in the expensive areas?
If you ask an economist, they'll probably say something about improved economic efficiency from people being closer together. I don't buy it, because it contradicts what I observe directly:
- Many people can work as well remotely.
- Programmers don't become more productive when they move to Silicon Valley or Seattle or NYC.
- Factories in America aren't built in the middle of cities. Boeing doesn't make aircraft in the middle of NYC, that would be stupid.
Yes, people in NYC and Silicon Valley get paid more on average, but I reject the assertion that wages reflect productivity or competence. If wages were high simply because aggregation improved efficiency, then we'd see a stronger correlation between density and wages, but the correlation of wages with housing prices and with wealth is stronger. In my experience and the experience of people I know, the dominant factor is how close you are to money. Wages in NYC are high because there are wealthy investors and corporate executives there.
Why, then, are those rich people in NYC? Because:
- It has luxury services. (Amazon/etc made this less important.)
- Other rich people are there, which is good for networking.
- The nice parts are expensive enough to keep poor people out. (More applicable in expensive suburban areas than in NYC, where exclusion involves more private schools and secure apartments.)
In this model, building more housing in Silicon Valley or NYC just leads to more competition for about the same total income from "good jobs", with that number determined by the amount of money there. That makes things better for rich people buying luxury services in expensive cities, and worse for other people. If you make housing cheap enough for many poor people to move in, the rich people might even leave because of that, decreasing the number of good jobs.
The solution, then, is not to build more in high-demand areas - it's to force demand to be spread out more.
I actually don't see capitalism as being fueled primarily by good decision-making in the C suite. Instead, I think that there's significant uncertainty around decisions at all levels of the company, and many limitations to their courses of action. Many, many businesses fail because of this.
But an existing company has been selected for having lurched its way to having robust demand, to an extent that all that uncertainty and confusion can be tolerated. There's an incredibly powerful market signal saying MAKE THIS PRODUCT, and the company can survive and even thrive as long as it does a passable job.
But for the same reason, I don't think that most good-paying jobs are attached to the person of wealthy individuals, and I don't think there's a finite number of them either. Jobs pop up in businesses that are set to fail as well as longstanding successful businesses. CEOs can't just pack up a company and move it at the drop of a hat, much as they'd like it if they could. There's lots of money out there looking for founders to invest in, and those founders need teams, and when those teams are successful, new companies grow, creating new jobs. And the winners get bought out, and big companies spin off little companies, and on and on. I think this is a pretty typical, mainstream view of economics.
It's really hard for me to imagine what experiences could have lead you to think there's just this static, finite number of jobs that rich people can take when they decide to move to a different town because too many poor people moved in. Even if most CEOs are very dumb (and I still don't think that's likely to be true), the zero-sum model doesn't follow, and again - I don't really understand the details of your zero-sum model well enough to fully understand what it is you're proposing.
This is why I think it would be really helpful for you to make an effort to plug into a larger conversation. I appreciate and sort of believe that you've had experiences that would be convincing evidence of some of your claims, if only you could share them openly. But given that you can't, you could at least look for what evidence is out in public - beyond just one letter by Bill Gates - and try to make a real case for some of the components of your worldview. If you are correct, then we all could learn from you, but it is very hard to open myself to updating my worldview very much based on the arguments and evidence you have gathered here.