Capital New York reports that Mayor Bill de Blasio, seeking to increase his national profile, will go where such politicians always go to raise their name-ID: Iowa. The theme of de Blasio’s trip will be to “highlight inequality.” This is more appropriate than even de Blasio knows, just not for the reasons he might think. Bill de Blasio not only governs a city with high inequality; he’s also a purveyor of the kind of liberal ideology that ensures such inequality will continue, and increase. If you want to highlight inequality, you couldn’t do much better than its mascot Bill de Blasio. Which is what makes him a terrible messenger for the anti-inequality brigades.
According to recent data, New York City is the sixth-most unequal city in the country, though Manhattan individually tops the charts. Last year’s landmark Brookings Institution study shed a great deal of light on the subject, and they updated the data two weeks ago. As I wrote at the time the study was released, from 2007-2012 inequality increased despite the fact that rich households were less rich, not because the rich were going in one direction and the poor another. Dramatic increases in inequality happened in places where lower-income Americans were hit harder by the economic downturn.
That seems to have continued, as Brookings notes: “Despite positive trends in some cities from 2012 to 2013, lower-income households in the majority (31) of the 50 largest cities had lower incomes in 2013 than they did in 2007.” What the poor needed, and continue to need, are jobs. As the study had noted last year, dynamic economies were also unequal economies. The focus on inequality can at times be more than a distraction; it can harm those at the lower end of the spectrum by focusing on regulation and redistribution at the expense of economic growth.
Additionally, New York is a good example of how liberal policy exacerbates inequality (and why liberal demagogues focus so much on income inequality instead of real inequality). Among the many effective critiques of Thomas Piketty’s treatise on inequality was that of a graduate student at MIT named Matthew Rognlie, who has now expanded his criticism into a paper. The Economist notes:
Second, Mr Rognlie finds that higher returns to wealth have not been distributed equally across all investments. The return on assets other than housing has been remarkably stable since 1970. In fact, surging house prices are almost entirely responsible for growing returns on capital.
Third, the idea that workers’ share of wealth can continue to decline rests on the assumption that it is easy to substitute capital (ie, robots) for workers. But if lots of the capital in question is tied up in houses, then this switch would be far harder than Mr Piketty suggests.
Why it matters:
For one thing, homeowners are a much bigger and more lovable group than hedge-fund managers. Moreover, if housing is the biggest source of rising inequality, then the wealth tax Mr Piketty advocates is the wrong response. Policymakers should instead try to reduce the planning restrictions which, by inhibiting new construction, allow homeowners to earn such big returns on their assets.
Good idea! In fact, let’s expand on this. The larger problem with such restrictions is not that homeowners earn such big returns per se, but that they do so because such regulation drives up prices in the first place. In 2010, viewers of the New York gubernatorial debate were captivated by Jimmy McMillan, leader of the Rent Is Too Damn High Party. His main concern was, well it’s all there in the name.
And he’s right: rent is high in New York. Why is it high? In July 2013, Josh Barro wrote a piece for Business Insider listing eight reasons rent in New York is so high. Each had an explanation, but here are the eight reasons as listed:
- There’s only so much space.
- Zoning rules inhibit supply.
- Rent control raises your rent if you’re not rent controlled.
- Property taxes are very high.
- High construction costs.
- Affordable-housing set asides.
- Minimum parking requirements.
- Tenant-friendly laws.
Most of these are self-explanatory. The effects of heavyhanded regulation are clear. But it’s worth expanding briefly on two of them. Barro adds, for example, with regard to zoning rules:
Incidentally, contra Hamilton Nolan, this is a reason non-rich New Yorkers should cheer the construction of “superluxury condos.” Wealthy people are going to buy in New York one way or another. When we limit their ability to build shiny new towers in Manhattan, they come over to Brooklyn and bid up the prices of brownstones that used to be almost affordable.
It’s counterintuitive, but another example of why the eat-the-rich attitude toward regulation and policymaking can have all sorts of unintended, and negative, effects on the less well-off. And it’s not just strict regulation, either. As Barro explains under the “construction costs” heading, in addition to the regulatory burden, “there are no non-union crane operators in New York City, meaning any construction project tall enough to require a crane must be built with union labor. That adds costs; union work rules require overstaffing, according to the Real Estate Board of New York, and some crane operators in the city make over $500,000 a year including overtime and benefits.”
Liberal policy and inequality go hand in hand. It’s what makes de Blasio such an ironic ambassador for economic policy. It’s true that he has real-world experience with inequality, but that’s because he’s the arsonist here, not the firefighter.
And then there’s the other question of what kind of national Democratic figure de Blasio thinks he might be. It’s true that he was swept into office in a wave of leftist populism. And that populism hasn’t gone away–witness the fans of Elizabeth Warren. But the intervening midterm elections have made it clear that the economic justice warriors like de Blasio tend to be an occasional passing fad. Support for the leftist from Brooklyn is, perhaps appropriately, political hipsterism.
And it’s unclear where de Blasio could go from here anyway. His rocky relationship with the NYPD ended his political honeymoon. And he’d be more likely to try for another office before going national–by, say, running for governor before running for Congress. Either way, his appeal will be limited and will grow more so over time. In that sense, maybe his Iowa trip makes sense now. He might as well accept the invitations now and not assume they’ll still be arriving in his inbox in the future.