offsetting costs

A government budgets' numbers may say a lot but they certainly don't say everything. It would be disingenuous to flout a lower budget number when the costs were simply offset onto other parties.

For example, there is a guy in my nabe who was in the process of developing a six-story condo building as of right, in an area thats a mix of homes and apartment buildings. Some of the neighbors complained loudly to the local council member and had the area downzoned within a matter of months. In the interim the developer of course tried as best as he could to get his project vested to protect his interests, and so he engaged in illegal construction practices by racing the clock (working over hours) to beat the new zoning changes. In the end he was able to pour his foundation before the zoning change was made, but at the cost of quality and having to pay through the nose for the labor.

During those frantic months, the neighbors were constantly complaining to the DOB, having inspectors constantly visit and hassle the construction teams all in an effort to stop the project from getting vested. At the end when the developer thought he was vested, the neighborhood alliance complained to the DOB and he ended up having to go before the BSA which is the last authority on zoning and variance grants, and they ruled against the developer saying that his foundation wasn't to the original approved architectural/engineering specifications it was thus incomplete and any project would be subject to the new downzoning, basically making his project financially impossible to complete.

Now get this; he presumingly paid for the land based upon the allowable development rights, the city changes that while he is already underway with approved plans (which can take months to get from the city!), and he went through the trouble of obtaining financing, paying labor, architects, inspectors, permits, etc.

Now here is the best part-- it's been almost two years since the city stalled him by making it impossible for him to develop his project-- now the neighbors are bitching about the vacant construction site! So the city is now ordering this victimized developer to clean up his site, repair the construction fence that vandals have been breaking, and who do you think is being coerced to pick up the tag? The victim of course.

Government budgets never tell you the whole story. It's the same with recycling; make your victims pick up the cost of sorting trash so your budget can be that much lower.

red books from red beards on red men

Murray Rothbard (whose last name means "red beard") wrote about the role of the court intellectual ('red' or 'raed' is Old English for wise counsel).

"The ruling class — be it warlords, nobles, bureaucrats, feudal landlords, monopoly merchants, or a coalition of several of these groups — must employ intellectuals to convince the majority of the public that its rule is beneficent, inevitable, necessary, and even divine. The leading role of the intellectual throughout history is that of the court intellectual who, in return for a share of, a junior partnership in, the power and pelf offered by the rest of the ruling class, spins the apologias for state rule with which to convince a misguided public." --Conceived in Liberty, Vol. III, p.352

R' Samson Raphael Hirsch wrote about the people who played the role in ancient Egypt-

"In Tanach [the bible] we find, everywhere, Machshefim [illusionists/magicians] in the service of the rulers of old, just as today we find scientists in the service of the state. If today's scientists were to attempt to solve problems such as how one can indulge in every excess and debauchery without having to fear consequences detrimental to one's health - that would be attempting a misuse of man's mastery of nature, and would be in line with the basic outlook of Kishuf. [magic]" --Commentary to the book of Exodus, Chapter 7, Verse 11

This is how you can explain Keynesians who magically believe that you can consume your seed cord into prosperity or otherwise turn stones into bread! Pharoah's scientists had nothing on these goys!

separated at birth?

With profuse apologies in advance, I would like to make the case that our very own J. Tucker has an hyperinflationary alter-ego... You be the judge.

Exhibit A:


Exhibit B:


Video source:

bookmarking bastiat #2

It has been a while since I finished reading the Bastiat Collection put out by the Mises Institute, so before I completely forget some of the best material I've found in there I'll whip it up into this blogpost, which I realize should get quite lengthy as I quote stuff.

In ridicule of the "balance of trade" protectionist theories, Bastiat writes;

"There is still another inference to be deduced from this, which is that according to the theory of the balance of trade, France has a very simple means of doubling her capital at any moment. It is enough to pass them through the Customhouse, and then pitch them into the sea. In this case the exports will represent the amount of her capital, the imports will be nil, and impossible as well, and we shall gain all that the sea swallows up." --Economic Sophisms— Social Fallacies Chapter Six, Pages 224-225

On the folly of central planning and practicality of spontaneous order;

"On entering Paris, which I had come to visit, I said to myself— here are a million human beings who would all die in a short time if provisions of every kind ceased to flow toward this great metropolis. Imagination is baffled when it tries to appreciate the vast multiplicity of commodities that must enter tomorrow through the barriers in order to preserve the inhabitants from falling a prey to the convulsions of famine, rebellion and pillage. And yet all sleep at this moment, and their peaceful slumbers are not disturbed for a single instant by the prospect of such a frightful catastrophe. On the other hand, eighty departments have been laboring today, without concert, without any mutual understanding, for the provisioning of Paris. How does each succeeding day bring what is wanted, nothing more, nothing less, to so gigantic a market? What, then, is the ingenious and secret power that governs the astonishing regularity of movements so complicated, a regularity in which everybody has implicit faith, although happiness and life itself are at stake? That power is an absolute principle, the principle of freedom in transactions. We have faith in that inward light that Providence has placed in the heart of all men, and to which He has confided the preservation and indefinite amelioration of our species, namely, a regard to personal interest— since we must give it its right name— a principle so active, so vigilant, so foreseeing, when it is free in its action. In what situation, I would ask, would the inhabitants of Paris be if a minister should take it into his head to substitute for this power the combinations of his own genius, however superior we might suppose them to be—if he thought to subject to his supreme direction this prodigious mechanism, to hold the springs of it in his hands, to decide by whom, or in what manner, or on what conditions, everything needed should be produced, transported, exchanged and consumed?" --Economic Sophisms, Social Fallacies Chapter Eighteen, Pages 272-273

Bastiat was in favor of practicing wertfrei economics, to not let personal preferences cloud judgment of economic fact;

"In political economy there are no absolute principles.
In plain language, this means:
“I know not whether it be true or false; I am ignorant of what constitutes general good or evil. I give myself no trouble about that. The immediate effect of each measure upon my own personal interest is the only law which I can consent to recognize.” --Economic Sophisms, Social Fallacies Chapter Twenty, Page 281

On the dangers of mixing your metaphors;

"The word invasion itself is a good illustration of this. A French ironmaster exclaims: Preserve us from the invasion of English iron. An English landowner exclaims in return: Preserve us from the invasion of French wheat. And then they proceed to interpose barriers between the two countries. These barriers create isolation, isolation gives rise to hatred, hatred to war, war to invasion. What does it signify? cry the two sophists; is it not better to expose ourselves to a possible invasion than accept an invasion that is certain? And the people believe them, and the barriers are kept up.

And yet what analogy is there between an exchange and an invasion? What possible similarity can be imagined between a ship of war that comes to vomit fire and devastation on our towns, and a merchant ship that comes to offer a free voluntary exchange of commodities for commodities?" --Economic Sophisms, Social Fallacies Chapter Twenty-two, Page 296

On being sold counterfeit goods;

But among civilized nations surely the producers of riches are now become sufficiently numerous and strong to defend themselves.
Does this mean that they are no longer robbed? They are as much so as ever, and moreover they rob one another.
The only difference is that Spoliation has changed her agent She acts no longer by Force, but by Cunning.
To rob the public, it is necessary to deceive them. To deceive them, it is necessary to persuade them that they are robbed for their own advantage, and to induce them to accept in exchange for their property, imaginary services, and often worse." --Economic Sophisms, Social Fallacies Chapter Twenty-three, Page 304

Looking now at my reference list I realize I have 29 bookmarks more to go, all from the second volume. Should I spare you the agony/joy for until the next time? I warn you though, I may be absent for a while.

paramnesiastic

That is how a verbaholic such as myself would describe the sensation commonly referred to déjà vu.

For a while I was secretly embarrassed to think that although I've read most of Neal Stephenson's books, notably the Diamond Age, Cryptonomicon, and the enormous Baroque Cycle trilogy, I never got around to reading his first major, coming-of-age novel Snow Crash. Or so, that is what I thought to be the case.

You see, I remember reading the Diamond Age when it came out back in 90's when I was still in grade school; to be technical, while I summered at a sleepaway camp. To this day I cherish the memories of reading it, vaguely recalling the basic storyline and some of the more remarkable elements which still reside deep in my neurostructure.

But I had no recollection whatsoever of ever reading Snow Crash until I bought a fresh copy a few weeks ago and finally read the damn thing.

And boom!, just like that, memories came flooding back-- the metaverse, the dentata, the rat thing. Even the parts about glossolalia.

I think I was 11 or 12 when I first read it. Hands down I think I've enjoyed it much more this time around.

To recap a paragraph sure to bring a smile to fellow anarchonomists;

"It's always been a mystery to Hiro, too, but then, that's how the government is. It was invented to do stuff that private enterprise doesn't bother with, which means there's probably no reason for it;"

Well said, Mr. Stephenson.

bookmarking bastiat

I've been sending myself emails whenever I come across passages of particular interest when reading the new collection of Claude Frederic Bastiat's essays on economics prepared by the Mises Institute. I'm not quite done yet, but I've already live-tagged so many nuggets I figured I would start sharing them with my imaginary readership.

So here without further ado is Bastiat on the topic of justice—

"When law and force keep a man within the bounds of justice, they impose nothing upon him but a mere negation. They only oblige him to abstain from doing harm... In fact, it is not justice that has an existence of its own, it is injustice. The one results from the absence of the other." — book 1, page 64

On the contradictory absurdness of dialectical materialism—

"They divide mankind into two parts. Men in general, except one, form the first; the politician himself forms the second, which is by far the most important.

In fact, they begin by supposing that men are devoid of any principle of action, and of any means of discernment in themselves; that they have no initiative; that they are inert matter, passive particles, atoms without impulse; at best a vegetation indifferent to its own mode of existence, susceptible of assuming, from an exterior will and hand an infinite number of forms, more or less symmetrical, artistic, and perfected." — book 1, page 67

Everybody except for themselves of course, a parody of fine quining.

Where he asserts binary exchange is a trade of equal satisfactions to each party—

"After much investigation it has been found, that in order to make the two services exchanged of equivalent value, and in order to render the exchange equitable, the best means was to allow it to be free... When we look into these subjects, we are always compelled to reason upon this maxim, that equal value results from liberty. We have, in fact, no other means of knowing whether, at a given moment, two services are of the same value but that of examining whether they can be readily and freely exchanged." — book 1, page 144

And explicitly rejects Condillac's theory of the inequality of exchange—

"The explanation Condillac has given appears to me to be quite unsatisfactory and empirical—in fact it explains nothing. “From the very fact,” he says, “that an exchange is made, it follows that there must be profit for the two contracting parties, for otherwise it would not take place. Then each exchange includes two gains for humanity"...Holding this proposition as true, we see in it only the statement of a result...Exchange includes two gains, you say. How? Why? It results from the fact that it takes place. But why does it take place? What motive has induced the contracting parties to effect the exchange? Has Exchange in itself a mysterious virtue, necessarily beneficial, and incapable of explanation?” - book 2, page 90

In the former quote Bastiat endorsed the idea that value is a subjective notion, an indeterminate quantum event valid to but a specific moment, observable only through the action of exchange. That's all nice and shiny, however I think Bastiat's criticism of Condillac's theory applies equally as well to his own notion of equal value; how do we know the observed exchange was of equal values? Through the fact that it took place? But why does it take place?

It also seems odd to me that here Bastiat disapproves of Condillac utilizing an empirical method to prove his inequality of exchange theory when Bastiat himself asks the reader to do the same to arrive at the notion- stating that only upon examination of exchange do we know that the values are equal. It's odd to me because Condillac is in fact utilizing a deductive method, to reflect upon a given event to deduce that if it occurred, it was because each party gave up less than what they expected to receive. And furthermore, it seems to me that what Bastiat calls "examination" is also not empirical fact gleaned through a posteriori observation, but rather a priori deduction!

Note: Philosophy mavens and bowtied economists of the cloth are hereby invited to comment and set me straight as to what Bastiat is saying. For now, I'm taking this to be the sometimes unavoidable result of a translation where concepts get mangled when bridging that gulf.

the root of all evil

In concern to my last post, I meant to include a specific example indicating Murray Rothbard's even-handed approach to TPo1819, in that he would simply restate the arguments made by the differing parties without explicitly endorsing either.

For example, money-brokers were at one point considered the scourge of the early colonial American bank system. These gentle folk were guilty of the crime of purchasing discounted bank notes belonging to out of town banks, and then taking these same notes and redeeming them at their respective banks for their par value in specie. However the banks wouldn't stand these slimy two-timers who dared to impoverish their banks by withdrawing specie and so they sought to outlaw them.

It was here that I thought that Rothbard could interject that the banks had the duty to thank these money-brokers whose selfish, nefarious actions actually served to bolster the exchange value of the very same bank notes. To see why, simply imagine the lack of such money-brokers; after all if a vendor is presented with a bank note for a distant bank of which he knows almost nothing about, it would be more like that the note would have to be discounted even further before he would begin to consider it worth his trouble to accept it in lieu of specie, or in the notes of a closer banking institution.

The money-brokers in their actions thus filled a role in minimizing the discounting of bank notes of distant banks, and countervailed the tendency to further discount then what would have been otherwise.

don't panic!

Murray Rothbard's The Panic of 1819 is quite unlike any other scholarly work of his that I'm familiar with in that he let the facts speak for themselves. Though he does color the arguments presented, he does it in a fair-handed, 'just the facts, mam' manner which might mislead the unknowing reader to think that that he doesn't have a horse in the race. Honestly, I can recall seeing the term "Austrian School of Economics" mentioned just once in the entire book, a shocker considering that in it he analyzes the conditions surrounding what could have been the great depression of the early 1800's in support of the Austrian Business Cycle Theory.

The Rothbard that I'm familiar with, from the handful of his books that I've read is never dry, uncompromising, and his arguments intellectually-honed which can help the typical unmotivated reader to slog through the 1,400+ pages scholars edition of Man, Economy and State; perhaps not by the edge of his seat, but enough so.

In contrast, TPo1819 is a work of drudgery, detailing the minutia of inductive economic research, one which Rothbard clearly set aside his prejudice for utilizing the thymological method of Verstehen as pioneered by Mises in favor of appealing to those who favor a rather historical, empirical approach to the matter. After reading the first chapter I already was under the impression that Rothbard was writing not to the choir, but to mainstream historians and economic professors alike in an attempt to subtly win over academia to the ABCT.

Though this book required more patience than what I usually have to offer, I was rewarded every now and then when I found insider comments passed off as innocuous statements. One such comments appears towards the end:

"Stress on the moral virtues often took the form of attack on luxurious consumption and other extravagances of the day. Embryonic Veblenians called upon the rich to set an example in thrifty living to the lower classes, who tended to imitate the former."

think different

A Gizmodo commenter with the handle OMG-PONIES has a lot to say on the subject of 'consumerism' when it comes to Apple's iPhone. Not having the questionable benefit of a formal education in economics, I'm quite curious to learn if the opinions expressed are what exemplifies the contents of a mainstream education in the dismal science.

"That's not "highway robbery"; it's a sound price point. If the price was egregiously high, people would not buy it because it would be too much of a sacrifice. If the price was too low, it would lose its cachet as an aspirational good and people would not buy it. [Veblen's status goods?]

Compare it to the Freakonomics example of Magnolia Bakery in the West Village. Magnolia sells cupcakes for a couple bucks a pop. They're decent cupcakes, but each one only costs a quarter to make. They were featured in an episode of "Sex & The City", were written up in the New York times, and mentioned in a popular SNL short. As a result, at any given time, there is a line out the door for Magnolia cupcakes.

Logic says that Magnolia can raise the price even higher because there are people willing to wait 1/2 an hour for a cupcake at that price. Theoretically, there is excess demand. However, by raising the price, fewer people will be willing to wait in line. The line adds to the cachet of the product. If they lowered the price, the cupcake would become a bargain and lose its cachet. It would not be a distinctive product.

It's about finding a balance. The buyer should feel a bit of sting in the wallet to convince him/her that s/he is getting value for the money. Too much and it becomes too painful. People shouldn't worry about their rent payment to buy the iPhone; let them charge the cost and pay it off over 10 years time. By the same token, you don't want every schmo to be able to get one because then the iPhone loses its distinction.

Consumerism isn't driven by a desire to conform; it's driven by a desire to be different."

It kind of reminds me of the pointless argument of whether human action is spurred because of the actors' desire to improve his situation, or his desire to remove uneasiness as much as possible. Either way, we know action is purposely driven, and the science of economics, cannot render a valid scientific opinion as to what constitutes the psychological factors behind any action.

As such, the unscientific topic of 'Consumerism' can only be said to represent the fulmination of the collectivist creed of hubris, ostensibly lending an opponent of freedom a scientific soapbox from which he launches a diatribe against other people doing what they believe serves their best interests.

FWIW, he also thinks that "The lead proponent of free-market theory is the Chicago School of Business, which believes in absolutely no controls on the market and advocates, to a large extent, an abolition of consumer protections."

'Nuf said.

that which is not seen

“It’s a little ironic that five years ago the administration was saying we should end recycling because there was no market for it,” said City Councilman Michael E. McMahon, a Staten Island Democrat and chairman of the Council’s Sanitation Committee.'" - NY Times article

Mr. McMahon makes these remarks in regards to a new bill which the city council passed which raises fines for companies caught "stealing" recyclable materials from items put out for collection.

So let me get this straight; it's considered theft for a private individual to take materials left out for recycling collection. But when city employees comb through your trash to collect evidence for whatever nefarious purpose, we're supposed to look the other way?

Anyway, that wasn't my main point.

Man, I just love how pundits and politicians can overlook the costs side of the equation and declare any program a success because there is the appearance of profits. This happens when you ignore the elephant in the room so-to-speak; coercion, and by that logic, robbery too can be considered a profitable business.

Yes it may be appear profitable for third-parties to raid recyclable materials left curbside, but that is only possible once the individuals have already complied with the bureaucratic edicts which threaten their home and hearth for non-compliance. There is no shred of evidence however that individuals would find it profitable to separate recyclables if they weren't already threatened to do so. This being the case, one cannot legitamately speculate whether recycle programs are 'profitable' when the costs have been shifted over on to the individual by mean of coercion.

ordo templi austrianis

About halfway through Jesus Huerta De Soto's Money, Bank Credit and Economic Cycles, in footnote 81 on page 372, the author questions whether Friedrich August von Hayek deliberately fails to credit Ludwig von Mises for his theoretical work on the business cycle in order to garner the respect of the scientific community for himself when he published his Monetary Theory and the Trade Cycle in 1929, of which some of the topics were already covered sixteen years earlier in Mises's The Theory of Money and Credit, and more thoroughly again in 1928's On the Manipulation of Money and Credit.

Oddly enough, Austria is the latinized name for Ö–sterreich, deriving from the Old German term meaning "eastern realm". Similarly, the term "Orient" refers to lands located eastwards towards the direction of the rising sun, while "Occident" refers to the western world, the direction in which the sun sets.

In this light one can view Aleister Crowley and the Ordo Templi Orientis as allies against the Bavarian conspiracy, to help counter the influence of the German Historical School, the legacy of which today lives on in the mainstream endorsement of empiricist foundations for economic studies, the emblem of which brazenly displayed on every federal [fractional] reserve note of one monetary unit, originally named for a Bohemian valley, once the standard for money of good reputation.

argument from efficiency

"I do not accept individual freedom because the market is efficient. Even if the free market were less “efficient” than central planning, I would still prefer my personal freedom to coercion. Fortunately, I don’t need to make a choice. Austrian economics upholds the market’s efficiency, and that reinforces my overwhelming desire and right to be free."

- Ron Paul's Mises and Austrian Economics pamphlet (link to PDF)

The quotes around "efficient" are as found in the original text, and I'm not at all suprised to see that coming from an Austrian scholar, being that any and all measures of efficiency are ultimately and objectively meaningless.

ministry of sacrament

In NYC, and I think throughout the tri-state area, the mere possession of fireworks is a punishable offense. As far back as I remember, come July the cops and officials make heady pronouncements as to the danger of non-professionally administered fireworks. Accompanying these PSAs are graphic depictions of those horribly mutilated and disfigured by firework displays gone awry and trumpeted as viceral propaganda to sway those who casually think to disobey the law.

I reckon I know why illegal pyrotechnics are so important to them-- the brazen audacity that the plebes must have to think they can administer the sacrament to the Holy Church of Statehood. The secular priests will have none of this.

I suppose that in some aspects its better this way; perhaps more folks will be disillusioned about the false gods they serve if they are turned away from taking part in their own fashion.

I still find a silver lining in this cloud-- its opportune to stir up well-deserved cognitive dissonance in the unsuspecting statist by questioning their "progressive" ideology, as to how in world does a city or township put up a quarter-million dollars worth of "ooohs" and "aahhhs" when there are still homeless and hungry people in the area-- have they eliminated those problems yet that there is ample taxpayer funds to go to waste?

I think that by taking this first step, you are getting the statist to agree with you, that there are priorities to be attended to before they dare incinerate your property taxes in splendid glory. This back door approach helps to uncondition the first rule of politics, which is to ignore the first rule of economics; the law of scarcity, that in general wants surpass means.

government for children, by children

We all heard the terms before--

• "have your cake and eat it too"
• TANSTAAFL ("there ain't no such thing as a free lunch")
• "putting the cart before the horse" (the ability to consume without having to first produce)
  

In Human Action, Mises aptly describes this child-like behaviour of blindly holding an irrational belief that the wholism of government is godlike in the aspect that it can produce goods ex nihilo.

At the bottom of the interventionist argument there is always the idea that the government or the state is an entity outside and above the social process of production, that it owns something which is not derived from taxing its subjects, and that it can spend this mythical something for definite purposes. This is the Santa Claus fable raised by Lord Keynes to the dignity of an economic doctrine and enthusiastically endorsed by all those who expect personal advantage from government spending. As against these popular fallacies there is need to emphasize the truism that a government can spend or invest only what it takes away from its citizens and that its additional spending and investment curtails the citizens' spending and investment to the full extent of its quantity.

fiction[-writer] versus [economic] reality

On a topic I hold dear, Mises blog authors discuss the economic and aesthetic repercussions when the real estate market is disrupted via the political process in an attempt to craft a city more to the liking of the planning czars.


Mises.org
Can We Trust the State with Preservation?

By Gene Callahan and Julius Blumfeld

"Harvard economist Edward Glaeser, commenting on the controversy surrounding 980 Madison, sensibly noted that blocking the construction of new Manhattan residential space will result in housing costs being higher than they would be if the apartments were built. Wolfe's response demonstrates his ignorance of the fact that his pet cause entails very real costs: "[The proposed 980 Madison Avenue project] certainly isn't going to help the housing situation. Just more people who have the money will be able to move in" (Gillette, 2007, p. 21).

Wolfe apparently has never considered the fact that, when very rich people move into those new apartments, that will ease the demand for the residences they would have occupied otherwise, allowing the slightly less wealthy to acquire those spots. That, in turn, will free up the housing those people would otherwise have chosen, making them available to yet others, and so on. An increase in the housing stock at any price level will tend to lower housing costs in general, although, of course, that effect might always be offset or even swamped by some other factor working in the opposite direction.

Wolfe, not content with this first display of economic naïveté, continues, "To take [Glaeser's] theory to its logical conclusion would be to develop Central Park." Here, he confuses the recognition that action X would act towards lowering the cost of good Y to imply that, therefore, X must be done! Without a doubt, filling Central Park with apartment buildings would lower New York City rents. Similarly, butchering all of the dogs and cats in the United States for food would lower meat prices. But that in no way implies that either course of action is indisputably recommended. People quite sensibly prefer not to eat their pets, even though doing so would reduce their meal expenditures, just as New York City residents might prefer a bucolic respite in the midst of their urban environment, even given the higher housing costs that entails.
Glaeser is doing nothing more than noting that the elementary principles of supply and demand apply even to virtuous causes, while Wolfe, by refusing to concede such a basic truth, raises the suspicion that his campaign may have more to do with his public image than with concern for the greater good."

I've argued this very same point in the past, as evidenced, here, here, and here that some people would like to have their cake and eat it too.

I guess it's just that some fiction writers have no grasp of reality.

Economics 2.0

[Crossposted to the Ludwig von Mises Blog.]

Can the Future Do Without Economic Logic?

Flying cars and little green men aside, many science fiction writers have shown an uncanny ability to predict and "foresee" the future.[1]

Yet, for all their prophetic accomplishments surrounding the development of future technologies, many fail to grasp the economic laws — the catallactics — that have remained unchanged for thousands of years.

Here is a quotation to get our discussion off the ground:

"Capitalism doesn't have a lot to say about workers whose skills are obsolete, other than that they should invest wisely while they're earning and maybe retrain: but just knowing how to invest in Economics 2.0 is beyond an unaugmented human. You can't retrain as a seagull, can you, and it's quite as hard to retool for Economics 2.0." — Charles Stross, Accelerando

Hard science fiction author, Charles Stross published a novel last year entitled Accelerando that tackled the issue of "the Singularity" and its rippling effects throughout society.[2][3]

Initially taking place around 2010, the reader follows the lead character — Manfred Macx — a computer nerd turned globe trotter whose modus operandi is said to be altruism.[4] He bills himself as a venture altruist, building and seeding productive ideas in exchange for mere reputation points.[5]

Ever the second-hander intellectual mountebank, Stross manages to mangle a bevy of technical and economic gobbledygook and shoehorn it into an exponentially spiraling plotline.[6]

However, Stross for all his valiant efforts falls short of delivering a futurist economics that is not subject to the economic principles we know today.

Russia has been back under the thumb of the apparatchiks for fifteen years now, its brief flirtation with anarchocapitalism replaced by Brezhnevite dirigisme and Putinesque puritanism, and it's no surprise that the wall's crumbling — but it looks like they haven't learned anything from the current woes afflicting the United States. The neocommies still think in terms of dollars and paranoia. Manfred is so angry that he wants to make someone rich, just to thumb his nose at the would-be defector: See! You get ahead by giving! Get with the program! Only the generous survive! But the KGB won't get the message. He's dealt with old-time commie weak-AIs before, minds raised on Marxist dialectic and Austrian School economics: They're so thoroughly hypnotized by the short-term victory of global capitalism that they can't surf the new paradigm, look to the longer term.

While some self-professed Marxists have allegedly embraced Austrianism — and vice versa — one wonders exactly how to synthesize the Marxist Labor Theory of Value with its polar opposite subjective theory as enshrined by the Austrian School.[7][8] This fact is punctuated best by Das Capital, in which Marx embraces historical materialism as the de facto epistemology to explain how and why historical events occur, in part, through the now-classical bourgeois-versus-proletariat class struggle.

In direct contrast is the Austrian School's a priori science approach, called praxeology.[9] Its foundation was laid out by Ludwig von Mises's axiom of human action or purposeful behavior. Society is a product of the human urge to remove uneasiness and dissatisfaction as far as possible; it is not a product of social classes, political hierarchies, and various other synthetic structures.

The Calculation Debate 2.0

While introducing the decade of 2070 A.D., Accelerando's narrator notes:

The last great transglobal trade empire, run from the arcologies of Hong Kong, has collapsed along with capitalism, rendered obsolete by a bunch of superior deterministic resource allocation algorithms collectively known as Economics 2.0.

It is these algorithms that Manfred earlier sold to an Italian politician, as a means to objectively calculate prices in a command economy. The mechanics of such equations are never fully fleshed out, leaving the reader to wonder exactly how a third party can, in some manner, come to such a measure of the multitudinous subjective values and preferences that individuals intrinsically have towards goods and services.

These "superior resource allocation algorithms" have been conjectured among numerous economists over the past century as it has played a central role in the socialist calculation debate. And while political scientists and technocrats continually busy themselves with tweaking the economic "black box" with various inputs, they fail to grasp how prices arise.[10]

Unfortunately for Stross, the future holds no deus ex machina in store to rescue this storyline, because a finite set of supercomputers cannot encompass a problem set containing infinite sets of possibilities. In this respect, the idealized command economy is a mathematical impossibility.[11]

Misplaced Energies

At one point in the story Macx's French mistress broadcasts news that Macx is in town:

"Oh, and he's promised to invent three new paradigm shifts before breakfast every day, starting with a way to bring about the creation of Really Existing Communism by building a state central planning apparatus that interfaces perfectly with external market systems and somehow manages to algorithmically outperform the Monte Carlo free-for-all of market economics, solving the calculation problem. Just because he can, because hacking economics is fun, and he wants to hear the screams from the Chicago School."

In this passage Stross now makes the error of "solving" Mises's calculation problem with the band-aid solution of copying consumer goods prices from a market system and transplanting them into the command economy. The use of this technique only affirms Mises's position, and is hardly a novel solution considering that Soviet planners were regularly thumbing through Sears catalogs for their coefficients.[12]

But we can still make lemonade out of this sucker — in theory we would have no issue per se with the argument that a super[-human] intelligence could drive entrepreneurial activity, and make smarter choices than a mere human opportunity exploiter. This is where the present and future can possibly diverge: can a two-state computational engine ever approximate human intelligence?[13]

Bursting Bubbles

While discussing what to do with a guest in their spaceship, several characters meander off the deep end:

The orang-utan explains: "Economics 2.0 is more efficient than any human-designed resource allocation schema. Expect a market bubble and crash within twelve hours."

Stross is guilty here of the mainstream economic error of cum hoc ergo propter hoc, by attributing the phenomenon of the business cycle to the emergence of capital markets in the industrial revolution. Under such mistaken impressions, it would be then quite natural for him to assume that an immense acceleration of the market process would also speed up the rate of market boom and bust cycle, although never explaining how or why it occurred in the first place.

Contrary to the mainstream, the Austrian Business Cycle Theory posits that cycles are exogenous to the market, a creature wholly belonging to the governments manipulation of the money supply, which, by artificially lowering the rate of interest, misrepresents the general level of time preference and ultimately misleads entrepreneurs en masse into malinvestment of the capital stock in sub-marginal pursuits.[14]

In contrast to the tenets of the neo-classical error, the condition of a free market would tend toward the evenly rotating economy (ERE), although never achieving equilibrium, as the minor perturbations mirror the transient value preferences on the market.[15] Under such conditions, Stross is incorrect to think that ratcheting up the intelligence and computational speed of the market would have a bearing on the amplitude, rather than only the frequency of misallocation.

However a simpler question may be posed to Stross: if "Economics 2.0" is more efficient than human-based pricing and has perfected an all-encompassing algorithm that allocates resources with near-absolute precision, how can capital malinvestment ever occur?

What is a reputation worth, anyway?

One of the most intriguing concepts found in the novel is that of "reputation markets."[16] While Stross also does not deign to explain in detail how this concept would function, one can make some guesses, although none of the interpretations seem to add up to anything useful or novel.[17]

Apparently Stross imagines that reputations will supplant the usage of currency and markets in a post-scarcity world as one is lead to believe from passages such as the following:

His reputation is up two percent for no obvious reason today, he notices: Odd, that. When he pokes at it he discovers that everybody's reputation – everybody, that is, who has a publicly traded reputation – is up a bit. It's as if the distributed Internet reputation servers are feeling bullish about integrity. Maybe there's a global honesty bubble forming.

… She doesn't approve of Manfred's jetting around the world on free airline passes, making strangers rich, somehow never needing money. She can see his listing on the reputation servers, hovering about thirty points above IBM: All the metrics of integrity, effectiveness and goodwill value him above even that most fundamentalist of open-source computer companies.

While we can only guess at what Stross meant by reputation markets, there are only the two possibilities: either it is a commodity-backed market, or not.

The problem with the former scenario is two-fold. First, because we are supposedly dealing with a post-scarcity world, the concept of commodity-trading is absurd as would be the trading of air or ocean water in our present world. Goods that are in superabundance are not subject to the study of praxeology, and certainly not within the scope of catallactics.

It is clear, though, that the world that Stross has created cannot be a post-scarcity world, if one still has to exchange in order to acquire the use of goods and services. The exchange of a valued reputation sounds interesting, but is quite problematic as will be explained momentarily.

In the latter scenario, if we posit that reputation markets are not commodity-backed, (and ignoring for a moment his apparent confusion over what comprises a post-scarcity world), all Stross has managed to do is recreate the concept of money substitutes, with the nexus of reputation markets to facilitate the exchange of this currency.[18]

In both these scenarios then, the objective exchange value of this money or money substitute comes into question without the benefit of the regression theorem to explain its present monetary valuation by the economic actors.

There are other fundamental questions to be asked about a reputation-based currency, most notably, how are reputation monetary units quantified or graded, and who or what intelligence will determine that?[19]

One can make the case, however, that although "reputs" (the story's marketable reputation units) may presently hold no objective exchange value (as they are essentially mere data patterns stored on a server) they may still hold monetary value, if and only if they once held objective exchange value.[20][21]

As intriguing as the technological wizardry within the story may be, the plot is unfortunately riddled with economic misconceptions and non sequiturs.

---

Tim Swanson is a graduate student at Texas A&M University. Send him mail. See his archive. Isaac Bergman is a real-estate developer in New York City. Send him mail. Comment on the blog.

Notes

[1] For instance, from Arthur C. Clarke's imagination sprang the notion of placing communication satellites into geosynchronous orbit. And Gene Roddenberry was one of the first individuals to envisage an all-in-one handheld device, capable of measuring, communicating, and storing information.

[2] Accelerando can be viewed online for free at www.accelerando.org.

[3] While somewhat tangential, Charles Stross operates a Wiki to further explore and explain many of the ideas discussed in Accelerando. Of particular interest is his critique of libertarianism, in which he simply links to Mike Huben's smorgasbord of pro-statist arguments.

[4] The nomadic and quasi-Bohemian lifestyle that Macx lives has been described as a "serial entrepreneur"; however it is arguably closer to the life and times of grey hat hackers such as Adrian Lamo. These individuals attempt to highlight security vulnerabilities at companies, while having a credo of operating for little or no personal gain. In the story, Macx's character conveniently is able to side-step these economic uncertainties through the generosity of third-parties (e.g., "a grateful multinational consumer protection group" paid for his hotel visits). Note: one argument surrounding individuals such as Lamo is that they are, in fact, attempting to gain publicity in order to market themselves for monetary contracts.

[5] This is reminiscent of the classical argument that all monetary systems should be scrapped and replaced with a system of credits for hours of labor, as determined by the rate of a person laboring for an hour with a shovel. Not only is this average unrealistic but it also ignores the dissimilar, heterogeneous abilities and productive levels each individual is capable of. See also "labor notes" and the Cincinnati Time Store. Reading "Harrison Bergeron" by Kurt Vonnegut may also be instructive.

[6] Apropos Peter Klein, while we enjoy an entertaining storyline, we can only suspend our disbelief so far.

[7] See also Heterodox economics and Heterodox traditions.

[8] The academic discourse comparing the LTV and STV is voluminous. For instance, see chapter 5 in "Epistemological Problems of Economics" by Ludwig von Mises. For a recent layman's explanation of the STV see "Artwork and the Subjective Theory of Value" by Yumi Kim.

[9] See, "Praxeology: The Methodology of Austrian Economics" by Murray N. Rothbard, "Praxeology and Understanding" by G.A. Selgin, and Human Action by Ludwig von Mises.

[10] Prices themselves are not fixed points along a line, but rather temporally subjective valuations of goods and services. For more discussion on this paradigm of "perfect information" and what a price "should be" see "Knowledge vs. Calculation" from Stephan Kinsella.

[11] See Robert P. Murphy's "Cantor's Diagonal Argument: An Extension to the Socialist Calculation Debate" in The Quarterly Journal of Austrian Economics, Summer 2006, 9(2), pp. 3-11 (available in PDF).

[12] For the Sear's connection see, here. See also Gennady Gerasimov's joke of sparing the markets of New Zealand.

[13] Regarding the centralization of knowledge and prices, see: "Socialism: A Property or Knowledge Problem?" by Hans-Hermann Hoppe and "Why a Socialist Economy is "Impossible"" by Joseph T. Salerno. See also "Knowledge vs. Calculation" from Stephan Kinsella.

[14] For more discussion on the ABCT see, The Austrian Theory of the Trade Cycle compiled by Richard M. Ebeling, Money, Bank Credit, And Economic Cycles by Jesús Huerta de Soto, and "Expectations and Austrian Cycle Theory" by Frank Shostak.

[15] For more on the ERE see, chapter 14 in Human Action by Ludwig von Mises, and the Study Guide to Man, Economy, and State from Robert P. Murphy.

[16] This criticism can also be leveled towards the Whuffie system used in "Down in Out in the Magic Kingdom" by Cory Doctrow.

[17] Rating, risk analysis and credit scoring companies exist today; based upon a plethora of metrics they will rate the value of companies, bonds, etc. However these "reputation" companies are providing a service good, not a currency. Incidentally, both Standard & Poor's and Moody's have been erroneously sued in the past for providing debt ratings of government solvency. Stock market's themselves are institutions that — when free of regulation — can also accurately reflect and rate the health of organizations.

[18] One seemingly extraneous example that illustrates the difference between the hypothesized reputation currency and a money or money substitute system is Frequent Flier miles. These miles can arguably be called money, since they have monetary exchange value in which people acquire and maintain "cash" balances for future consumption or exchange. In the case of frequent flyer miles, the miles are initially valued for their objective exchange value, because they represents a claim on a specific good: transportation via airplane. However the reputation currency has no such explanation of any historical objective use balance, and is unlikely, if not entirely impossible, to become valued for its monetary function. See, The Theory of Money and Credit by Ludwig von Mises.

[19] "Reputs" are to reputation scales what 'utils' are to cardinal value scales. Furthermore, how exactly do you cash in a few points of reputation? Are they redeemable for any material object? As long as the reputation system is an exchange system, it is subject to economic laws. And assuming that Stross's reputation system somehow solves the "decider" problem, a number of other issues remain unresolved. For instance, how many "points" can each person use throughout the day? Do you get to give someone a point for every time someone does something? Every 5 seconds? Once an hour? Can you remove your vote? Is a point for yawning weighted as much as shooting a bulls-eye in archery? Ad nauseam.

[20] This aggregation mystery belies subjective indices such as BCS football rankings, college rankings, and even GDP. "What is up with GDP," by Frank Shostak, articulates perhaps the clearest account of why the GDP framework is fallacious and misleading.

[21] Regarding the present valuation of money, Ludwig von Mises writes in The Theory of Money and Credit:

Before an economic good begins to function as money it must already possess exchange value based on some other cause than its monetary function. But money that already functions as such may remain valuable even when the original source of its exchange value has ceased to exist. Its value then is based entirely on its function as common medium of exchange.

when logic need not apply

Some people just don't get it-- and this is not just anyone, it's a blog written by one of the most respected property appraisers in New York City, who you would think would know, well you know, about property values, and the formation of prices in general.

According to his foolish naïveté, it's the housing boom that drives the middle class out of the city, not misguided market intervention (which is a truely understandable conclusion for an empiracist who illogically correlates a boom in the housing supply with the exodus of middle class workers and deduces that an increased supply of a good = higher prices).

Go figure.

Below are the comments I left this wunderkind.

"This is one of the byproducts of the housing boom and revitalization of urban areas."

That dog won't hunt.

This is a direct product of people naively believing in the Central Planning Fairy.

The main reason why middle class incomed people are being priced out of the cities is tri-fold:

The primary problem is the irrational belief in the goodness of centrally planned zoning; that which dictates the density, dimensional proportion, usage type, etc. allowed. Of course planners are only human, so they cannot fully forsee all the long-ranging effects of their economic devestation and class-polarity housing policies.

The act of zoning is the grand pretense that experts have the right and privilege to tell you what is good for you, Citizen Joe, as though Joe would not have common sense enough to not live in unlivable living conditions.

It thus serves to stifle development of all kind, leaving unmet demand at all price levels, but most especially the middle and lower price ranges.

Think about it, because it's purely logical. If you restrict availablity of any given product, the price will rise as people will bid up prices. Those who cannot afford to bid higher must seek alternatives. Those alternatives include finding housing in less desired areas, and maybe even out of state.

Essentially, zoning thus serves to raise the price of housing by restricting competition. When private organizations engage in this activity, it is known as cartelization and angrily condemned. But when pretensious city planners do it, they are met with celebration as anybody can attest about the shameful participation and agitation by groups such as ACORN or the GVHPS.

Secondarily, the white collar workers are the direct victims of the price war, as they cannot bid away the same quality housing as the rich, and they must live in inferior housing, less choice neighborhoods, etc.

But tertiary, and most insultingly, the white collar workers are the ones subsidizing the lower classes, who thru the mechanizations of the city and state (such as Section 8, HUD, and rent control/stabilization, and IMD regulations*), end up bidding away the housing with the middle classes' money!

So in the end, the white collar worker are the rat which gets chopped from both ends-- the rich can afford the higher prices (and might even prefer the exclusivity the housing shortage provides), and the lower class uses the middle classes redistributed money to buy up the lower end product. It's no wonder the middle class are "fleeing", as they are not in any politicians grace to not be plundered.

The definition of insanity is to continue to act in a manner which is detrimental to your well being, because only the insane repeat the same actions and expect different and better results each time around.

Alternativly, we can pull our heads out of the sand and abandon these puerile fantasies of "smart", managed growth, and leave it to the wisdom of the common individual to decide how tall is too tall, how dense is too dense, etc.

* This was introduced into the blog post for the sake of clarity and does not appear in the original comment.

Suckers, Patsys, and Friars

Here is a real howler. Via The Real Deal, comes this article in the New York Observer's real estate section.

The article states:

The Landmarks Preservation Commission's Web site recently posted a study by the Independent Budget Office that analyzed residential property values in the city's various historic districts. The report is not new--it's dated 2003--but its conclusions seem to back up preservationists' claims that historic districts increase property values.

Oh they do, don't they?

On face value, this is supposed to be a positive phenomenon, showing that wowwee, government planning actually works!

The question remains, do rising values necessarily imply a positive outlook on the housing market?* Has that truly been beneficial to everyone? Could it be possible that it's beneficial only to a select few, those who already are comfortable in their purchased homes?

Alas, that question is never answered, but worse so, it is never even asked.

Coincidentally, just last week, I fired off an email to a dear Austriomentor™, asking him:

If a home or business is designated a landmark, the owner suffers a reduction in property value, both for their personal use and when the owner attempts to sell, it will fetch lower prices since there isn't much use the next owner can expect to get out of it. At the same time though, since there is an intervention causing artificial scarcity of land uses, it will drive up the price of housing/business for everybody in the market.

In hindsight it's not such an intellectual obstacle to overcome in this perhaps seemingly counterintuitive example, and shortly after I sent the email, I was kicking myself in the pants for not being thoroughly convinced of its truth sooner.

While I'm tempted now to reword that question, I think the point comes through clearly.

Anyway, I fired off a quick rebuttal on the NYO's blog, mocking them for being the Landmark Commissions patsy:

Well duh! If government intervenes in the market and restricts supply, ceteris paribus, prices will rise! (zoning, landmarking, and other land usage restrictions place artificial and arbitrary constraints on supply)

It doesn't require any empirical research to prove this a priori fact.

Secondly, and less well understood is the fact that the affected property owners suffer unquantifiable losses when restrictions are placed on their property. For example, they might have wanted to add a penthouse on their roof, or changed what they think is an ugly facade. This is even before you tack on the costs of compliance with the property owners having to go through yet another layer of bureaucracy to make alterations to property they own in a nominally 'free' country.

*I'm now thinking that this whole confusion only begins because some people can't distinguish between prices and values. Costs, for that matter too.

**Friar is Israeli slang for biatch when used in the sense of "sucker"

contextual stupidity

I've had it to here [motions with hand held perpendicular to neck] with the anti-development crowd in my great backyard of Brooklyn. Call me a crass, uber-vulgar libertarian if you'd like, but I'm sick and tired of playing the vertfrei [dilettante] economist who purports to walk the narrow line of disinterest when making observations about what happens when a landscape of contextual idiots decide to use the immoral power of government coercion to impose an irrational and meaningless "order" upon the spontaneous arrangement of housing and zoning.

So when I came home to read this pathetic rant, I was compelled to respond. (The excerpt blurbs from the rant are in red text)

I wrote:

Geez, "contextual development" is the dumbest non-sequitur invented by statists to date. My head is gonna go splody if someone says it again like it's self-explanatory, and somehow magically justifies government intervention to stop rightful property owners from making use of their property AS THEY SEE FIT.

"Developers, the majority of which do not live in the neighborhoods they prey upon"

You DON'T own your block/community, by the mere fact that you "live there", and it doesn't make a wad a difference if the developer is from intra-community or from Kalamazoo- what the hell does it matter where they reside? Community-ism, like Nationalism, is an irrational distinction where none should be made. Hence, you are not a higher-class member of a certain locale because your mothers' water broke in that district.

"nor stop their predominantly negative impact on the social, economic and architectural landscape of Brooklyn."

Nor Aaron or Mic seem to have a grasp of economics- for the simple reason that if the developers didn't think the market could bear the condo product, they wouldn't attempt to deliver it in the first place. And if ultimately the developers miscalculated and are wrong about it, the units will eventually clear at lower prices. So everyone wins. What the hell are they complaining about again?

Negative social and architectural impacts? First, how does one objectively determine what constitutes a "social cost", and secondly, architecture is a purely SUBJECTIVE discipline, hence there can be no legitimate comparison between styles in terms of "right" and "wrong".

"Our voices have been heard and the issues discussed ad nauseum, but is anyone really listening?"

A better question they should be asking themselves-- why do these punks think they're somehow entitled to decide how other people must deal with their property simply because they spoke up and made a stink of activism?

"Unholy development alliances have formed: Brooklyn mega-developer Isaac Katan teams with architect-of-ill-repute Henry Radusky of Bricolage Designs and demolition mogul Marie Grosso (MMG Designs). Real estate forecasters and consulting firm The Developers Group finds properties for “acquisition” in next year’s hot neighborhood, then links buyers with high-end architects and builders (how a produce purveyor can afford to build a Robert Scarano–designed five-story, 70-foot high, 35-unit luxury condo)."

I read this over carefully a few times, and I couldn't see how this is anything but progress. Used to be that if you wanted to build something you were all alone, and now the market has spontaneously arranged itself in a fashion which it can locate housing opportunities and link it up with all the appropriate people in a sort of production line in a factory. What do Aaron and Mic want, a return to the barter system?

"Such alliances are exploiting communities,"

Another stupid cliche and yet meaningless phrase- how does one exploit an aggregrate of homes?

"utilizing loop holes in zoning and the Department of Buildings (DOB) building codes"

That's great, and I encourage more of it. The DOB has no moral right to meddle in the first place- secondly it constitutes and unjust takings according to the U.S. Constitution's 5th amendment eminent domain clause when property owners are denied the fullest use of their properties according to you supporters of the 14th amendment's incorporation doctrine.

"working at a fast track pace that has created numerous dangerous job sites"

This sentence should continue as follows: "because developers who work hard and put a lot of money on the line are getting shafted by NIMBY statists who are quickly downzoning neighborhood after neighborhood". If it weren't for the recent rezonings, development would have likely continued at a safer, and slower pace.

"These violation-ridden sites not only jeopardize workers, adjacent properties and neighboring residents, but the community as a whole."

Workers, mind you, who CHOSE this dangerous line of work. You're not their grandmother, so stop pretending like you give a shit about their safety. Adjacent properties which suffer damages from improper construction should use the tort system to remedy their unfortunate situation, not some blanket zonings proposal which has diddly-squat to do with it. Communities as a whole!? Tell me, do you ever stop and think about what you wrote? This is as bad as your "exploiting communities" nonsense.

NYC's Housing Woes

And how to eliminate them.

By last counts, I read that some 750,000 people are seeking housing in NYC's market. Some of those will rent a basement, others a classy/posh/hip long-term rental unit. Greenback-endowed snobs will buy a coop in the snazzy new Astor Place (~$9k in maintenance fees, - forget about the mortgage!), and still others will drop $15+ million for a townhouse to hobnob with the elites on the WASPy Upper East Side.

What do all these people have in common? They are all negatively affected by the arcane, asinine, and the totally arbitrary zoning regulations which govern and actively stifle the ability of profiteers (read: developers) to provide housing at all income levels.

You see, we have a major problem in NYC, and it's price. The reason for the price? Supply and demand of course. The demand simply cannot be met in a satisfactory fashion for the bulk of the homeseekers in NYC. Surely, you realize that if a developer paid market price, for example $250 per buildable square foot, after his costs of demolition, construction (hard & soft), contingencies, financing fees, interest, legal, marketing, et al, he will have to sell it for at least $800-1,000 per square foot.*

Where does this leave affordable housing? Nowhere. All the developer did was alleviate demand by increasing supply of units that 90% of NY'ers can't even dream to afford. Not that there is anything wrong with that; any potential developer would have probably done the same, since that's where you have to be if you want the project to be profitable.

Does this mean that developers hate the poor and middle-class, and only want to sell expensive units to rich people? Hell no!

It would be silly to ignore the largest market of potential buyers. All you need is the right product at the right price. Developers should be fighting tooth-and-nail to build the most affordable housing of the highest quality standards to gain these customers, no? So why aren't they-- because the land is too damn expensive to build more affordable housing.

Sure, if you've got nothing better to do than stir a hornet's nest, go ahead and try building a Mitchell-Llama project, get yourself a modest tax-abatement, and prepare for the headache of dealing with 2,000 tenants in a rent-stabilized/controlled project, sit thru 400 community board meetings with hippies and self-appointed "contextual"-development utopians/authoritarians, who insist on how you build, where, when, and what amenities you have to offer to whom, renovate these 16 adjacent tenement buildings, and fix the local subway access while you are at it. By the time you are done with these board meetings, you have your hands tied behind your back, forcing you to give in so you can get your little concession: helping low-income people buy or rent affordable housing.

Well that's if you haven't defaulted on you 18-month construction loan, while visiting and revisiting the Landmarks Department for the 30th time. You might have already simply hung yourself from the ceiling fan, too.

The proper solution for all this is a re-instatement of property rights, to the hundredth degree. Have a disagreement with the hipster neighbors who hate your proposed glass curtain facade? Tell them to go f-k themselves at a nightclub on the LES. Same with those statist pigs who insist on "contextual" development. Tell them to go tear down their home immediately and replace it with the forest/farmland/cornfield which existed prior to their homes development.

Property rights mean that a developer can build as much or as little, as expensive or as frugal, etc as he desires. Want to put a skyscraper? Go ahead! A farmhouse? Sure thing. A strip mall? All yours. An apartment tower? Why not?

All of a sudden, something incredible will happen. That $250 per buildable square foot will be over-priced! If every property all of a sudden becomes capable of building to the-skys-the-limit, the amount of buildable square footage which was once in short supply becomes abundant, and hence, cheap, cheap, cheap!

Does that mean that unsustainable development will occur? The answer is no. A rational developer will know that there is no incentive to outbid others on what is no longer in limited supply; square footage becomes almost a commodity, and will probably constitute a minute fraction of their total project cost, as opposed to today.

More importantly, there will be no more incentive to only produce expensive units. The developers would probably than choose to compete on producing the market-determined amount of affordable units needed to supply the demand of the lower and middle classes. Developers would hence be cautious, not producing more units than needed, and therefore will limit themselves on the amount of projects and units they complete annually.

The fierce bidding wars will probably be a thing of the past. There is even a good deal for the hippies in this scenario; the profit margin for developers might dip low enough for them to ignore sensitive, battleground markets, such as the Village and the Lower East Side.

It will be good news for rich people too, unless they resent the idea that a significant portion of the middle class will now have access to comparable units of their own, at far lower prices.

This whole thought experiment ends here; because property owners are enjoying the lazy status quo. The current high prices, serve their needs. Selling a couple of high-priced condos per year is certainly much easier than building 5,000 affordable units in the same time frame. The elimination of zoning regulations will mean the lowering of their property's value, as the scarcity disappears and supply dramatically increases. They will fight to keep a lower-standard of property rights, even though one would think that they should want the right to determine what they want to do with their property, instead of groveling before the building department and other bureaucrats to beg permission to develop a project.

I know that this article may read like a missive from Nigerian scam artist, but its only because my writing skills are average, and secondly because it's way past my bedtime. Please feel free to comment on this thought experiment, and where you think the housing market would lead if all zoning laws were repealed.




*Land value should never exceed 25%-30% of the total development costs. Cost to build in NYC grew an average of 300% in 2004, leading to many a default. Of course this also means that it's an excellent time to be in the bridge-lending/mezzanine business, as yesterday's developments come today begging at the door for much-needed funds. The $800-1,000 per square foot of course is based on net, or sellable/rentable square footage, not including the gross square footage you had to build but have a loss factor of common areas, elevators, hallways, etc, which sometimes reaches an 18% ratio (considered high) or as low as 12% (considered incredible). Also, the price quoted will be an average blend; you expect the less desirable units to sell for $600-750 per square foot, while the penthouse, and better units to come in at the $1,200-1,500 range.