Elevator Blues – Econlib

I often hear people on the right suggest that the New York Times is a bad newspaper. This is not true, because they confuse quality with bias. The NYT is an excellent newspaper that is tainted by an unfortunate bias against leftist views.

Someone once joked that he wasn’t a libertarian because of “roads.” I suppose I could say that I’m a libertarian because of “elevators.” Or, to be more precise, elevators times a thousand.

AND latest article in NYT does an excellent job of exposing the glaring inefficiencies of the American elevator industry. Because of an incredibly complex web of counterproductive government regulations, elevators in America cost several times more than they do in Europe. It’s no wonder that America has so many fewer elevators, even in a given building type. (So it’s not just because we prefer single-family homes—even our apartment buildings have so many fewer elevators.)

The lesson here is not that the US is worse than Europe; it would be easy to find hundreds of examples where US productivity was higher than Europe’s. Instead, the lesson here is that elevators are just one of thousands of examples where excessive government regulation leads to inefficiency.

As most people go about their daily lives, they don’t think about how government regulations make their lives harder. In almost every case of systematic inefficiency that I come across, the cause is counterproductive regulations. Free-market firms sometimes make mistakes, but systematic problems are almost always the result of the wrong incentives created by regulations.

The inability of most Americans to understand the role of regulation leads to a widespread misunderstanding of issues such as stagnant living standards. Ask most Americans why real wage growth has slowed since 1973, and they will cite factors such as “inflation,” “the decline of unions,” “neoliberalism,” “monopoly profits,” “the China shock,” and many other factors.

In reality, the impact of all these factors is insignificant compared to the inefficiencies caused by regulations and government subsidies.

1. Healthcare regulations and subsidies have driven up US healthcare spending to 18% of GDP, compared to 5% in Singapore (or perhaps 9% given US demographics).

2. Government subsidies and regulations have led to a drastic increase in education spending, which has not translated into any improvement in the quality of teaching.

3. The regulations have dramatically increased the costs of building new homes, especially in large cities and coastal states.

Yet I doubt that even one in a hundred Americans would say that health care regulation is a significant factor in lowering real wages.

I could cite many more such examples, but let’s focus on housing because it is so important. In manufacturing industries that are less tightly regulated, such as clothing, consumer electronics, and household appliances, prices tend to rise much more slowly than incomes. Housing is an exception, and given its share of consumer budgets, it is an important exception.

In its defense, the NYT article points out that the problems in construction extend far beyond elevators:

Beyond the elevator itself, you’ll find a Byzantine mess of absurdities and contradictions behind the slowness, inefficiency, and cost of the U.S. construction industry. For example, Americans can’t use the latest heat pumps—a key tool in combating climate change through the electrification of heating systems—because of the same barriers imposed by U.S. regulators. Instead, Americans rely on outdated heat pumps that have no market abroad. And U.S. plumbing codes require a whole network of ventilation pipes that have largely been deemed unnecessary in most of the world.

They also discuss the problem of residential zoning, and then note that zoning reform is not enough. Regulatory barriers are particularly significant for the construction of larger multifamily buildings:

Construction costs for single-family detached homes average around $153 per square foot. In America’s most desirable coastal cities, the cost of building multifamily homes has skyrocketed. Even subsidized multifamily homes in California can cost $500 per square foot (or more).

A generation of young, would-be homeowners, priced out by skyrocketing housing costs, took notice. Their first target was a century of land-use tightening, in which existing homeowners enriched themselves by blocking development through restrictive zoning measures. In recent years, the rise of the so-called YIMBY movement—or “yes in my backyard”—has led to the near-complete de-zoning of single-family housing on the West Coast.

However, with the liberalization of zoning regulations, architects and developers began to sound the alarm, drawing attention to obstacles hidden in the details of building codes and standards, as well as other more technical regulations.

This is what most progressives don’t understand. Stagnation true income is not about income; they are about “reality.” Ultimately, our standard of living depends on our ability to produce actual result. In the short term you can help workers a little by redistributing money from capital to labor. But in the long term this will reduce capital formation and make workers worse off. The overwhelmingly dominant driver of real wages is productivity. Swiss workers don’t earn much more than Bangladeshi workers because of strong unions; they earn more because of much higher productivity.

What kinds of actions could improve workers’ living standards? Cutting healthcare from 18% to 9% of GDP. Drastically reducing education spending. Deregulating housing to plummet house prices. And a thousand other small reforms that could boost productivity across the economy.

Elevators may seem like a minor issue, but the problems in the elevator industry are an example of why real wage growth slowed after the early 1970s.

I am often frustrated by the NYT, which has a strong leftist bias. But honestly, they have done a lot of great stories over the years. I wish someone would dig up 30 or 40 NYT stories like the elevator story I linked to in this post. Then compile them into a book. Title the book:

The New York Times Argument for Libertarianism