=economics =housing =politics =antitrust
what people want
The shape of a capitalist economy is determined by what money
is spent on. When most of the money is held by rich people, the economy
adapts to their desires. This is almost a tautology, but economics doesn't
generally consider what rich people want beyond "even more money".
Rich people want:
- strong property rights
- to
live near luxury services
- to live near other rich people (for
networking)
- to not have to be around poor people (what with the crime
and begging)
The actions of companies are determined by the incentives and
desires of the management, but economics doesn't generally consider the
motives of management besides executive-investor relations.
Executives want:
- if they're rich, the same things
other rich people want
- to live near other executives for networking
- to live near headquarters of other companies for job options
Middle managers want to live near executives, because that improves their chances for promotions. And the majority of workers are dragged along.
So, London, NYC, and Silicon Valley have high pay not because something about them improves productivity, but because they're closer to rich people, and income is related more to how close you are to large amounts of money than it is to competence.
economist response
This is contrary to the standard economic theory of job centralization, so I discussed this with some economists. Here's a discussion with an imaginary composite of them:
me: Why do you think the good jobs
are in places like NYC and Silicon Valley?
economist: Because people there are more
productive.
me: Why?
economist: Network effects.
me:
OK, but in concrete, specific terms, what's happening?
economist: I
don't know and I don't need to care. That's the great thing about the
invisible hand of the market.
me: How much can this effect scale up?
economist: If the world's population moved into Silicon Valley by
creating a 70km x 70km Kowloon Walled City, the GDP would be a million
billion dollars.
me: OK, I see you're a big fan of open borders. Are
you a fan of open borders for companies as well?
economist: What do
you mean?
me: Should companies be forced to hire everyone who wants
to work there?
economist: Of course not, that's absurd. It would
destroy the economy.
me: I see. Let's go back to Silicon Valley in
particular. I know programmers who work there for big tech companies, and I
can tell you for certain that they're not more productive than programmers
working in some other cheaper locations.
economist: Your observations
conflict with my model, so they must be wrong.
me: What would change
your mind?
economist: If top economists started adopting something
like your model.
mitigation
Supposing my model here is correct, what can be done about housing costs being high wherever there are good jobs?
1) antitrust
If a local business sells to a large corporation with its headquarters
in NYC, the geographic concentration of corporate top leadership increases. Blocking
that sale maintains more geographic distribution of corporate executives.
There are other good reasons for antitrust enforcement, but this is a nice
bonus.
Every time an indie game company sells to a conglomerate,
every time a consumer product company sells to a Chinese one, the consumers
buying their products groan, knowing that the consumer surplus they've
enjoyed is about to be appropriated. They outnumber the people pushing for
mergers. Is it not the role of government to block actions that people
collectively dislike?
Here's my proposal: every time some companies
want to merge, everyone can vote on whether to allow it, and if the majority
of votes oppose the merger, it's blocked.
2) Georgism
This isn't a solution to the underlying problem, it's a mitigation of
some symptoms, by redistribution of land rents to counteract the
concentration of wealth from land rents and redistribution of wealth from
land price changes. Still, I think some places should try implementing high
taxes on unimproved land values.
Here's a blog post on this and
here's a subreddit for
this.
3) force geographic
separation of management
In some cases, it's
important for managers to be near their bosses for communication efficiency.
However, if you want geographic distribution of large corporations, that has
to happen at some level, and if the internal incentives are wrong for what
the nation as a whole wants, then maybe the management should just be
directly required to disperse geographically at a high level. This would
make corporate executives worse off and their suboordinates better off,
which is the sort of thing that government can be needed to make happen.
Maybe force managers 3 levels down from the CEO to live and work at least
100 miles away from the CEO? I'm not sure about the details, but even that
kind of crude approach could work well enough.