Raj Chetty of Havard University has done lots of research showing how a child’s outcome in life patterns after their parents and their neighborhood. He is not the first to note the effects between parents and their offspring. James S. Coleman also gained fame from tracking the human capital a parent bestows upon a child. This transference of resources more often than not germinates into flourishings of success throughout the child’s life.
What about in the other direction? If a person is corrupted in some way, do those flaws tie back to the parents? I don’t think I need research or data to make the claim that a kid from a tougher neighborhood has a harder time securing that first job. Employers will think twice before taking responsibility for an employee whose father, brother, or uncle has been in trouble with the law.
And then there are assumptions made when you turn over a whole bunch of your money to a perceived financial wiz kid. What portion of that decision was influenced by the fact that his parents are both attorneys with one of the most reputable universities in the world? Certainly, it must have played a part in calculated decisions to do business with a mere fledgling of a business person. The thought process goes something like, ‘they’d never let their own kid do something completely illegal, would they?’
No matter the exact portion of the impact on each of these economic actions: to hire, to invest. The point is that there is some numerical representation that pegs this social impact.
But while associated, behavior is, as we have already noted, a universal Law, the fact of association does not of itself make a society. This demands, as we have also seen, perception of the consequences of a joint activity and of the distinctive share of each element in producing it. Such perception creates a common interest; that is concern on the part of each in the joint action and in the contribution of each of its members to it. Then there exists something truly social and not merely associative.
But it is absurd to suppose that a society does away with the traits of its own constituents so that it can be set over against them. It can only be set over against the traits which they and their like present in some other combination. A molecule of oxygen in water may act in certain respects differently than it would in some other chemical union. But as a constituent of water it acts as water does as long as water is water. The only intelligible distinction which can be drawn is between the behaviors of oxygen in its different relations, and between those of water in its relations to various conditions, not between that of water and the oxygen which is conjoined with hydrogen in water.
The Public and its Problems, John Dewey (pg 188)
We are each part of at least a few, and sometimes many, associational relationships. Each one is distinct from the others. There may be competition for labor and resources between the associational obligations, even though, within the group, each agent’s actions are associational in nature.
In years gone by, every political season was adorned by a scandal involving the spouse of a candidate charging a bunch of clothing and personal effects to an inappropriate account. The reasoning was the spouse had to maintain a certain status exemplified in their presentation. One could say the the candidates spouse, and family for that matter, required circulating capital in support of the candidate in image and appearance.
Circulating capital is a businessy term which is defined by Webster Marriam as:
: capital consumed in the process of production (as fuel, power, and raw materials) —contrasted with fixed capital
In loose language it pays for the maintenance and utilities to keep the lights on, the machines oiled, the pathways shoveled, and so on. Since the business world has replaced this concept with the term working capital, perhaps circulating capital could capture the more socially relevant maintenance items.
One might say that the resistance of workers to go back to a brick-and-mortar workplace is due to the increase in circulating capital required to do so. The reversion to pre-Covid times may involve purchasing some new dockers, reacquainting oneself with the bus routes, and debating the tradeoffs between a bag lunch or Subway. There’s no question that the circulating capital will suck some profits out of the paycheck.
Another reason to bring back the term is that it is all but ignored in many important marketplaces. The circulating capital required to maintain a houseful of kids in their education and recreational programming is significant- ask any parent. The circulating capital required to provide housing to folks on the margin is substantial ask any half-way house provider. The circulating capital required to keep a small theater group performing is substantial, ask their donors.
It would be helpful to know some of these numbers.
So I can only imagine their collective horror when a few years ago, in my 30s, I shacked up with a farmer schoolteacher (a male one), had two children in quick succession and sank into a quagmire of domestic drudgery in regional NSW.
There, I joined my local branch of the Country Women’s Association (CWA), arguably the nation’s most powerful and conservative women’s group.
I hesitated to mention my new membership to my staunchly feminist mother.
But it turns out that the CWA may have more in common with women’s lib than I’d imagined.
The use of the word sustainable has been popular for at least a decade now. It has the same understood meaning as green or eco-friendly. Although the dictionary definition states “able to be maintained at a certain rate or level”, Wikipedia captures how it is most often used:
Sustainability is a societal goal that broadly aims for humans to safely co-exist on planet Earth over a long time. Specific definitions of sustainability are difficult to agree on and therefore vary in the literature and over time. Sustainability is commonly described along the lines of three dimensions (also called pillars): environmental, economic and social. This concept can be used to guide decisions at the global, national and at the individual level (e.g. sustainable living). In everyday usage of the term, sustainability is often focused mainly on the environmental aspects.
Crop rotation in agriculture is an example of a sustainable practice. By changing the demands on the soil each year, the nutrients are not diminished at the same rate and hence the land will be productive over longer periods of time. Recycling metals in lieu of further extraction through mining is a sustainable practice. Adding insulation to your attic and sealing out the gaping holes around your cannisters lighting is a sustainable effort to conserve energy.
What is interesting is that the word suggests that some of what we do is for the here and now and some of what we do is for future generations. In adapting practices where a little effort or resources are forgone in the short run, wAs this guy ith an anticipated gain in the long run, we acknowledge that there is a bimodal function to our action. There is what is chosen for oneself and what is chosen for a societal goal.
And this is a good thing as this is how we solve problems. As this guy suggests, we will always be able to feed the world.
Mackenzie Scott was in the local news last week after donating six million dollars to the local chapter of Big Brothers Big Sisters. That might be a drop in the bucket for the ex-spouse of Amazon founder Jeff Bezos. “The donation to Big Brothers Big Sisters Twin Cities is one of a number of no-strings-attached gifts Scott has made to charities and racial-equity causes. In all, Scott has donated more than $12 billion to more than 1,250 nonprofits since 2020.” But it is equal to the annual budget of this worthy non-profit.
My son’s frat, SigEp, supports the organization as well. That’s how I ended up with my family at a fundraiser on behalf of Big Brothers last fall. I used to avoid galas because I didn’t find them fun at all. After a few turns on the dance floor, I’ve learned how to enjoy fundraising auctions.
First, give yourself enough time to review the offerings. As in any purchase situation, it’s good to have options. I try to find things I enjoy but often don’t purchase as other more practical uses for money always seem to take precedence. At this event, my interest was piqued by four tickets to a Wolves game at the Target Center.
The whole idea of the event is to raise money. And there is an expectation that parents will participate in the fundraising (not obligatory, of course, but expected). So, there is a demand to make some sort of expenditure. You can always buy those certificates for eateries at face value, but that’s not very fun.
Most auctions are played out through an app. Once you start bidding you gauge the number of buyers for the item based on the response time on a counter bid. If two parties (or more) are bidding up the price without your participation, it might be a good choice to look for another auction item. If only one bidder is countering your bid, stick with it. Let them hold the high bid.
At this event of about three hundred people, the cutoff for bidding on live auction items was fifteen minutes into the presentation. This made it easier. In the last minute of open bidding, the high bidder was listening to the emcee while I placed the winning bid. It was exciting! First, because I had bought something I normally would put off purchasing. Second, I could feel good about playing my role as a parent. And lastly, it was nice to support the work of Big Brothers Big Sisters.
Steinbeck is known for writing from the vantage point of those who struggle on the edges of society. In The Grapes of Wrath, the reader travels along with a convoy of Americans fleeing the dust bowl-ridden southern states for better opportunities in California. The estimated three hundred thousand people who traveled across the country were of little means. They would simply pull over to the side of the road at the end of a day of driving and camp for the night.
In the evening a strange thing happened: the twenty families became one family, the children were the children of all. The loss of home became one loss, and the golden time in the West was one dream. And it might be that a sick child threw despair into the hearts of twenty families, of a hundred people; that a birth there in a tent kept a hundred people quiet and awestruck through the night and filled a hundred people with the birth-joy in the morning. A family which the night before had been lost and fearful might search its goods to find a present for a new baby. In the evening, sitting about the fires, the twenty were one. They grew to be units of the camps, units of the evenings and the nights.
The Grapes of Wrath, Steinbeck
This passage effortlessly describes a transformation that occurs when people share the same mission and experiences. While in route the families keep their possession to themselves and head west. Once they gather for the evening, the individuals meld into a group. This impacts how resources are shared.
The families learned what rights must be observed–the right of privacy in the tent; the right to keep the past black hidden in the heart; the right to talk and to listen; the right to refuse help or to accept, to offer help or to decline it; the right of son to court and daughter to be courted, the right of the hungry to be fed; the rights of the pregnant and the sick to transcend all other rights.
The use of the word ‘rights’ probably has some of you cringing as it parallels the language of today’s activists. Others are about to be dismissive of this depiction as it is one of a simple commune. After all, experimentation with communal living in the 60s and 70s proved repeatedly to be a failure. But transformation into a group of one is only a temporary situation. And at times groups with similar interests are better to ban together and share resources under provisional rules.
The agency of the group becomes more important than the agency of the individual, at least while they are on the road. Every morning each family unit gathers up their few possessions and straps them onto their truck. And in the evening, they rejoin the other travelers. In this morphing of individuals, small groups, and mass immigration of the recently destitute there is a non-pecuniary tumbling of resources in order to pull everyone forward.
Consider another example of resource distribution. It is notable in its discord with traditional economic thinking and is used by clergy to offer another avenue of economic reasoning. The parable in the bible describes how a landowner chooses to compensate his workers.
Matthew 20:1-16 New International Version The Parable of the Workers in the Vineyard 20 “For the kingdom of heaven is like(A) a landowner who went out early in the morning to hire workers for his vineyard.(B) 2 He agreed to pay them a denarius[a] for the day and sent them into his vineyard.
3 “About nine in the morning he went out and saw others standing in the marketplace doing nothing. 4 He told them, ‘You also go and work in my vineyard, and I will pay you whatever is right.’ 5 So they went.
“He went out again about noon and about three in the afternoon and did the same thing. 6 About five in the afternoon he went out and found still others standing around. He asked them, ‘Why have you been standing here all day long doing nothing?’
7 “‘Because no one has hired us,’ they answered.
“He said to them, ‘You also go and work in my vineyard.’
8 “When evening came,(C) the owner of the vineyard said to his foreman, ‘Call the workers and pay them their wages, beginning with the last ones hired and going on to the first.’
9 “The workers who were hired about five in the afternoon came and each received a denarius. 10 So when those came who were hired first, they expected to receive more. But each one of them also received a denarius. 11 When they received it, they began to grumble(D) against the landowner. 12 ‘These who were hired last worked only one hour,’ they said, ‘and you have made them equal to us who have borne the burden of the work and the heat(E) of the day.’
13 “But he answered one of them, ‘I am not being unfair to you, friend.(F) Didn’t you agree to work for a denarius? 14 Take your pay and go. I want to give the one who was hired last the same as I gave you. 15 Don’t I have the right to do what I want with my own money? Or are you envious because I am generous?’(G)
16 “So the last will be first, and the first will be last.”(H)
A current vision of the workplace challenges this story as compensation does not correspond to hours worked. Each worker is an individual and each hour worked is a unit to peg on a tally sheet. And this is often the most productive way to accomplish workplace projects.
But I think here, the message is that the landowner has a different goal in mind. He challenges those that say it isn’t fair as he lived up to the bargain he struck with them at the beginning of the day. The motivation behind the landowner continuing to hire workers until the last hour cannot be judged from their perspective. I feel the story asks you to consider the workers as a set, where each one is offered the daily wage.
Forms and agency of a communal nature have always, and will always, be a part of our economic landscape. They play an integral part in the progress made toward goals such as pollution reduction, safety, and thousands of social and cultural objectives at play in our lives. The goal is to understand their shape and impact on the process.
But while associated behavior is, as we have already noted, a universal law, the fact of association does not of itself make a society. This demands, as we have also seen, perception of the consequences of a joint activity and of the distinctive share of each element in producing it. Such perception creates a common interest; that is concern on the part of each in the joint action and in the contribution of each of its members to it. Then there exists something truly social and not merely associative. But it is absurd to suppose that a society does away with the traits of its own constituents so that it can be set over against them. It can only be set over against the traits which they and their like present in some other combination.
In his book Neighborhoods and Urban Development, Downs makes the case that a certain number of run-down neighborhoods are necessary in an urban area to house the poor. He presents a life cycle view of housing that says the wealthy buy new construction as it is the most expensive, the middle class settle into the midrange homes, and the poor find the least expensive housing in properties that are nearing the end of their useful lives.
Through the 60s, many slummy areas in the US were bulldozed. Minneapolis razed an area called the Gateway District in the name of urban renewal. By the 70s there were already regrets about this unscrupulous destruction of a city’s history. What Downs is saying is that these areas are necessary for affordable housing. Yet in his day, cities did not want to host such services and competed to let other municipalities bear the burden of this public service.
As a result, every municipality is engaged in a competitive struggle with other municipalities in its metropolitan area, each trying to get rid of its deteriorated housing and to avoid accepting any more. These struggles are hidden by the unwillingness of anyone to admit that a certain amount of deteriorated housing is necessary to house the area’s poorest households. Instead, all espouse the myth that deterioration could be completely eliminated if only everyone tried hard enough. That would in fact be true if nonpoor households were willing to pay the public subsidy costs of helping the poorest households occupy housing that met middle-income standards.
From an analysis standpoint, it is important to note that different levels of government act as a private parties even when engaged in public objectives. The citizens of a municipality share the resources of that city, but they are perfectly happy to push off other obligations, even incented to, on a neighboring city. In the same way, school districts compete for students from strong supportive families. There is a morphing within the levels of governance depending on whether the analysis is inward-looking (a public action) to outward-looking (a private action).
The change to note from when Downs wrote this book in the early 80s is that there is a different view of homes or buildings in poor condition. Probably due (at least in part) to his insights, policymakers realize a property in poor condition can be a source of affordable housing. There is even a name for them, NOAH, naturally occurring affordable housing.
Competition still exists between cities around affordable housing issues. But now it is in securing state levels funds from Minnesota Housing Finance Agency to make new mixed-use housing projects feasible. Due to the expense of new construction and the lower-income from below-market rents, a subsidy is needed at all levels to make these buildings work. At least the syncing of the public objective aligned, though not always I grant you. Instead of pushing low-income housing off on others, wealthy cities can find themselves competing to house the poor through a mixed-use project. Unfortunately, they tend to lose out on the support necessary to fulfill their obligation to the needy.
Tony Downs (1930-2021), an economist known for voting patterns and transportation, wrote about real estate. I thought it would be fun to dabble in his 1981 book Neighborhoods and Urban Development to see how the material holds up some forty years later. I must also point out that he matriculated from one of our best local schools, Carleton College, located in the bucolic town of Northfield about an hour south of the Cities.
In the beginning pages of the book, the author tackles delimiting what is meant by a neighborhood. I suppose to set off balance anyone who thinks a locale is simply a set of buildings, stale structures set upon parcels of land, he claims that neighborhoods are awash with the constant motion of resources.
Three aspects of urban development are fundamental to that understanding. One is the dynamic nature of urban neighborhoods (urban includes both city and suburbs). Each neighborhood experiences constant inflows and outflows of residents, materials, and money. Consequently, neighborhood stability can be achieved only by balancing these opposite flows, rather than by stopping them.
I don’t think Downs would care for NIMBYs as they are transaction busters. Although he doesn’t call the influx of resources, and the outcome of what is done with those resources, transactions. No matter. The key concept is that groups of people are moving in and out of areas. Data describing snapshots in time provides little insight as it is the movement and progression of interactions over time that is informative.
As his second descriptor, Downs points out that there is a dual nature to neighborhoods. The first one concerns the dwelling as a place to live. This is a privately titled structure, cared for and accessible to its owner. Yet at the same time, each dwelling is linked to communal services like expressways. The activities imposed by the road system can put strains or add features to the various units of housing.
The second aspect is the dual nature of urban neighborhoods. They are not only places to live, valued for themselves, but units of urban development inextricably linked to all other city neighborhoods and to the entire metropolitan area. For example, a new expressway connecting downtown with the suburbs may cause multiple shifts of activities and people. Industrial and retail employment (including some displaced by the highway) moves to the suburbs; office employment grows mainly in the downtown area; low-income inner-city households displaced by the highway shift to neighborhoods farther out; households initially living in these neighborhoods emigrate to new suburbs. Thus a major transportation improvement affects the population and land use of dozens of neighborhoods, including many nowhere near the new highway itself.
To review, Downs describes a landscape where economic activity occurs in a dynamic manner across neighborhoods via interactions of people, resources and cash. In the process of these ongoing exchanges, there are effects to private property as well as the communal property that links them.
Note: The third aspect has to do with the split between city centers and suburbia. We seemed to have progressed past this rigid divide as metropolitan areas have grown and morphed to the point that thus rigid distinction has faded.
I wasn’t very interested in philosophy when I was younger. It seemed like word games. I liked number games; they were more reliable. But now I see that some fundamentals need to be established, some givens as we say in math, to build an argument. And philosophy tackles how to go about talking of such things.
Many people want to ignore the givens and the rules they operate under (ironically, these are the people who want everyone to follow their rules). I suppose that is why there is my philosophy or your philosophy. So, you start to unravel the yarn to get to the very beginning.
Where else would that be except in the Garden of Eden? Under an apple tree, men and women are confronted by their weaknesses. Before them is a landscape full of potential, yet sin is simply and inalterably part of them. This basic and inextricable potential of humans to do good and harm is the first fundamental truth. Even if the thought of it quickly evanesces like a mirage over the dessert. Good and bad aren’t divvied out by occupation or race or gender. Managing this truth seems difficult for many.
Humans are also vulnerable to desires and greed and jealousy. They respond to recognition and love and kindness. They seek personal satisfaction as well as communal warmth. And although each human may possess each of these attributes, their relative impact comes in a myriad of combinations. As actors, humans are guided and influenced by these characteristics as they make choices throughout their lives.
I suppose that last part means I believe in something called free agency. Which is true. I also believe that for economic value (not psychological or spiritual or emotional value) one must only consider tangible resources that are present. Formulating solutions on aspirations, or how we might imagine things to be, is for another conversation.
To summarize: Humans are flawed and respond to many of the same levers. Resources must be tangible and available to feature in the calculus. With these tenets in mind, you can show how people gravitate toward optimizing outcomes for themselves and their kith and kin in the utilization of resources.
The situation in Ukraine has captivated an audience jarred by the reality that there are still political actors in the world who will initiate violence without any provocation. The tenacity of the Ukrainian people and their ability to resist their super-power neighbor has forced scads of entities to reevaluate their stance on state sovereignty.
I am one of the millions turning to twitter and broadcast journalism to scrounge for the latest news clips and opinions. This is where it has been reported that Sweden, Finland and Switzerland have all come out in support of Ukraine. Since these countries have traditionally remained neutral during European conflicts, their willingness to devote resources has a double impact to a regional goal of liberal democratic governance.
A sudden crisis, whether due to a pandemic or this military incursion, provides a backlight to the duality of actors’ actions. In principle, countries stay out of the affairs of their neighbors. But when a bully shows up and violates a foundational tenet, then resources can shift to become public resources to a newly formed coalition
And this duality is not only being laid out plain to see between political entities. The borderlands between what is private and what is public is also on display in banking and financial systems. Accounts are being frozen. If the rich Russians can’t get their millions, they may not like the drag on their lifestyles. Payment communications are hampered by booting Russian banks off SWIFT. And to be sure these measures cause a loss to the business partners in the west.
Still, many say the sanctions are not enough. The dependence on Russian oil is a good-as-gold cash flow to pay for all the tanks and bullets and bombs that are being dropped on the Ukrainian people. On this evening’s news the tradeoffs being discussed involved pushing environmental advocacy to the side in order to produce and ship North American oil to Europe.
In this dynamic, instead of a public cause like the environment being pitted against the private benefits of big business, there are two valued public causes vying for resources. And in this case, it would be helpful to find where the pricing shows up in order to guide politicians in choices representative of their constituents. When is better for their people to choose safety over climate, or climate over governance, or…
Because every city budget, or country budget, or state budget is a statement on the relative demand for resources amongst the list of public ambitions. Yet the settling of the accounts is due to political jockeying or loud interest group activity. It would be more helpful to have access to a numerical framing de, one which is determined from recent tradeoffs between actors.
The Lt Governor has been a strong advocate for trans youth since she ran four years ago. The posting indicates a continued dedication of her time and interest and political capital to this sub-group of Minnesota’s youth.
A new candidate for Hennepin Couty Sherrif (the largest county in the state, maybe 20% of total population) Jai Hanson, challenges her, and asks why the other kids don’t deserve to be nurtured to their true and full selves.
A third observer makes the claim that these are not competing issues. Herein lies the practical problem. People who feel versus people who count.
Some folks seem to think that the caring and demanding more is all it takes. I care about our schools so I’m going to ask for more resources for the kids. I care about the loss of life due to drunk driving, so I’m going to push for driver safety programs and prosecution of drunk drivers. There’s no thought given to length of the agenda, or whether their issues take all of the air out of the room. There’s a flat-out denial that resources are finite. If you care, you can make anything happen.
In reality, if you are gearing everyone up for one group of kids, then you are not gearing them up for another group of kids. The efforts of activism, or the labor to promote and voice social issues, has a set capacity. It’s not about caring enough.
There is a watershed moment in the works as a Democrat, Amy Klobuchar, and a Republican, Chuck Grassley from Iowa, are teaming up against big tech.
Over the last twenty years a lot of leeway has been given to companies who needed control of frameworks in order to build what we know now as an ecosystem on the internet. A century ago the railroads were given similar leeway as they laid down tracks from east to west across the country. But now there is an appetite to disengage the big players from their power positions and open up opportunities for smaller players to get in the mix.
Most people agree that monopolies in the private sector work against the consumer. If producers gang up and set prices, then consumers have no choice but to pay what is asked of them. When producers compete for their customers’ business, then they become lean in an effort to provide the best product at the best price. The private interest of each individual producer is isolated from the private interest of a conglomeration of producers.
In this blog I describe a transformation which takes place when a group of people acting in a public interest compete for products against other groups acting in their public interest. For instance, during the early days of the Covid N-95 masks were a hot commodity. Minnesota and Iowa and Oregon were all out in the marketplace trying to secure orders from abroad. All were attempting to pursue the public interest of safety for Americans, yet in acting as groups, they bid up the prices of the masks. The appearance was a pursuit of a public good, yet since each were interacting at the state level, the economic behavior followed the private market mechanisms.
Could the same be said for public school unions, that they appear to be a public interest whereas they are truly private? The k-12 schools are provided on behalf of a public interest in an educated citizenry. And although many teachers carry a civic spirit, everyone would expect them to look after their private interests when negotiating the terms of their employment. Certainly, there was a time where the amplification of speaking as a group, with the help of a union, was necessary.
But the teachers’ union has grown in scope and power. They not only dictate teacher contracts, but get politicians hired and have greatly influenced the opening and closing of schools during the pandemic. And in those activities, they have failed to act in the public interest of the children’s education, as they are by essence guarding the private interests of their teachers.
I think I’m not alone in categorizing the teacher’s union as a monopoly in the k-12 industry. I doubt teachers can influence or overturn membership. I doubt that all teachers stand behind their union. I know many parents don’t. If you want to break up tech, why not break up the teachers’ union? They both show monopolistic behavior over a public utility.
Friday evening I went to a seminar entitled Women in Government hosted at the high school by two student groups. It was really well done! In addition to video presentations by Senator Tina Smith and Lieutenant Governor Flanagin, four accomplished women made up a panel on a stage edged by an American flag: a federal judge, a county prosecutor, a state senator and a media personality.
Turn the clock back to when I was just graduating from high school, or even into the first years of college, the only woman in US politics who stands out in my mind is Geraldine Ferraro. She was the US representative from New York and was Walter Mondale’s vice-presidential running mate in 1984. Highly visible, outwardly successful women were few and far between. And those who did venture onto the big stage were pestered and heckled mercilessly. Fortunately, there has been a steady infill of female politicians since that time.
First off what struck me about each of the professionals in the auditorium is how they talked freely about their children, and from the sounds of it each had more than one. They spoke with ease about family life. One expressed thankfulness for the balance and objectivity the birth of her children had given her. Another told how her professional life had intermingled with a stay-at-home mom life, a follow your husband abroad life, and then back to a professional life.
This is a significant change from when I was one of the girls in the audience. Family life was not talked about and diverting one’s ambitions to support a spouse would not have been admired. Back then the statistics bantered about were that women with graduate degrees were doomed to spinsterhood. It seems we’ve progressed past necessitating a choice between job or family, and past a jealousy of a partner’s career.
When asked to offer advice to their younger selves, here are a few of their responses:
Be open to people who are trying to help you.
Gossip is not about you, inevitably it’s about the one trying to spread it.
Relax and don’t stress about everything.
Be open to your path changing course, as it most probably will.
There were quite a few adults in the audience as well. And I think everyone took away something useful from the experience.
That’s how much was raised in Minnesota yesterday during Give to the Max Day. Here is how the Minnesota Holiday started:
In November 2009, Give to the Max Day was supposed to be a one-time only launch party for the new fundraising platform GiveMN.org with a goal of raising $500,000. At the end of the day, generous donors had given more than $14 million in just 24 hours, smashing the goal out of the water, and starting a giving holiday in Minnesota.
Gala and fund raisers are nothing new. Just ask development officers at any non-profit. And many of the techniques employed during yesterday’s day of matchmaking originated from them: a limited timeframe, matching incentives, live-counters adding up the tally to meet a goal. What is different, here, is that the platform opens up a marketplace of giving. The boundaries of where and who is trading in the assists of work in the community changed. The benefactor was no longer one cause; a theater, a shelter, a youth center. Nor were the donors just the flashy wealthy crowd at a glitzy event in a downtown venue. This market is open to all Minnesotans, who can then feel empowered by grouping with others to support their passion of choice.
People give when they see the need. Citizens agree to pay taxes as an acknowledgement of the need. But they also don’t want to be the only one giving- it is a communal activity. A formal taxation system provides assurances that others are also on board to assemble the public goods as intended. In philanthropy, a one day event provides the accounting, the final tally, which confirms success back to its audience.
One can’t help but notice the parallels to the concept of state capacity. This has been a salient term in recent years. Here is how one researcher put words to it:
The concept of state capacity—“the ability of a state to collect taxes, enforce law and order, and provide public goods”1—was developed by political scientists, economic historians, and development economists to illuminate the strong institutional contrast that parallels the economic contrast between rich and poor countries.
On Give to the Max day, donors pay funds (a tax) to support their chosen community works producer, who in turn transforms the funds into their specialized public good. The enforcement of product delivery is partially enforced by laws, but mostly by the pressures of competition to be a good producer for those who depend on the services provided.
What the Give to the Max platform allows is a wider marketplace. What Give to the Max Day shows by the $34,390,470 collected yesterday from Minnesotans tall and small, urban and rural, rich or light in the wallet, is that we have a notable amount of state capacity.
There’s a lot to like in this paper, The institutional foundations of surf break governance in Atlantic Europe, by Martin Rode. The author looks at how surfers handle the distribution of wave riding opportunities. Behavior can span from excluding outsiders from riding the best waves, to the use of established norms to divvy up the crests enabling the riders to show off their favorite form. Rode points out that who owns the wave is the issue at hand.
Both regimes establish property rights over common pool resources with no state intervention, creating a setting wherein users face the question of cooperation or conflict.
It might seem obvious that the ocean is a common pool resource, but the locals undoubtedly think the portion of water beyond their local beach is in fact owned by their town. By them. Often we think property rights are clear cut when in practice the tentacles of ownership claims creep in from many arenas of life. Parents might think twice about selling a small business before checking with their kids. A sports team may find community push back at the mention of the team being moved to another city. It has been well established that neighbors believe in their right to control surrounding property development. Most all forms of ownership can be challenged by some other group interest, even if only in small part.
It is also interesting that preferred data is taken from a Wikipedia style contributor website. The voluntary input of surfer enthusiasts is considered more reliable than sites written under the auspices of earning money from the information, such as travel guides. And it is not to imply that the later is totally unreliable, it’s just to say that on a gray scale, one has to filter information depending on whether a fungible transaction is in play.
Information on all surf venues observed herein was obtained from the participatory open-access website www.wannasurf.com. That site provides detailed travel reports for thousands of surf spots around globe, with most of the information coming from local users. Reports are confirmed further by designated area representatives in order to avoid possible bias.
There are many types of two sided games that people play. Say a politician devotes a large share of his time and energies to a light rail project which in the end is funded. He has a bragging rights to getting a project through, a resume builder. But in his own life he has no interest in using mass transit. It’s inconvenient. It’s time consuming and he’s a busy man.
Or consider the high-priced neighborhood’s reaction to the light rail line plundering down along a low use section of rail, right behind their carefully painted turn-of-the-century homes. No- no rail here when there are so many better routes! Law suits. Delays. The same folks who entertain mega-donors on verandas decked out with overflowing flower planters, raising funds for the morally upright party, have a thing or two to say about transit for the masses skimming exclusive dominium.
Then there are the folks who will use the transit for commuting as it is the best option for them. They will consider the location of the rail in the choice of their housing and their employment. Their lives are not devoted to political activism or moral considerations. Even though the thought of cleaner transport may appeal to them it is a straightforward balancing of accounts and utility which drives their decisions.
There’s a separate accounting for the time and energies and dollars for each of these actors in the development and consumption of light rail.
The claim I make is that entities which are primarily public in nature can be transformed to act like a private enterprise. Here’s an example.
A few years after I gave birth to my son, advertisements started filtering through our postal mail claiming the accolades of a variety of schools. The Parochial schools had the upper hand on morals and strong values. The charter schools within the district offered Spanish Immersion or a science and engineering focus. The International School of Minnesota, a private school, offers a nurturing environment for a level of education geared to compete on a world stage.
I get that the Lutherans and the Catholics need to advertise to be sure people know where they are. And advertising specialty schools within a district follows the same getting-the-word-out need that is the business of ad campaigns. But it was somewhat off-putting when the public school district to the SW of us started a direct mail campaign designed to raise questions the adequacy of our own district with the objective of luring families like ours to open enroll across district lines.
In Minnesota, funding follows the child. So by recruiting kids along the neighboring district boundaries, the school district is vying for additional funding. They are acting in a private market manner, using advertising dollars to draw streams of money and the stronger family units to their enterprise.
In my mind this manifests the same economic form as the bidding on masks by state instead of as a country. The school districts are operating under a Minnesota mandate, yet by delineating the interest group to school districts, their actions outside of their district takes on a private nature.
So what’s the harm in it?
Using a private mechanism within a communal goal can gut out the ability of part of the group to be successful. If all the strong families (both in an educational sense and in an extra-time-to-help with education resources sense) shift over to the adjacent district, then the balance of talent and resources and parent time required will be substantially weakened for the families left behind.
This process works against the state mandate to educate all kids. The districts can act as private as they like outside the state mandate with entities like textbook vendors or playground equipment manufacturers. But the communal structure of all those who fall under the mandate should make it clear that direct mail marketing with the deliberate intent to shift funding dollars across district lines is counter productive to the expressed agreement.
Yesterday’s post was about the two forces which influence how we use our time and resources. Sometimes what we do is heavily weighted by social implications, such as activities within a household or religious community. Sometimes what we do is almost entirely transactional like filling up a tank of gas– no thought is given to the vendor as price and convenience is the primary focus. These impulses or desires to satisfy the self or the group are always in play to various degrees.
What’s interesting is that groups of shared interest also act under the forces of the self or the community. Remember during the onset of the pandemic when everyone was trying to get their hands on the N95 masks? The weakness in the notion of an ubiquitous public became apparent when states started bidding against each other for imported masks, driving up prices. Each state formed a private bidding entity before the outcry of the on-line audience demanded the form change from individual states to the entire US. That the delineation of who was treated like community within the bounds, and who was treated like a private entity on the outside, shift from the state boundaries to country boundaries.
For decades the best known book written about cooperative behavior in groups was The Logic of Collective Action, Public Goods and the Theory of Groups by Mancur Olson. Buried deep in the book the author quotes quite a long section by Hans Ritschl, a German economist. This section best explains the two forces:
In the free market economy the economic self-interest of the individual reigns supreme and the almost sole factor governing relations is the profit motive, in which the classical theory of the free market economy was appropriately and securely anchored. This is not changed by the fact that more economic units, such as those of associations, cooperatives or charities, may have inner structures where we find motivations other than self-interest. Internally, love or sacrifice, solidarity or generosity may be determining: but irrespective of their inner structures and the motives embodied therein, the market relations of economic units with each other are always governed by self-interest.
In the exchange society, then, self-interest alone regulates the relations of the members; by contrast, the state economy is characterized by communal spirit within the community. Egotism is replaced by the spirit of sacrifice, loyalty and communal spirit… This understanding of the fundamental power of the communal spirit leads to a meaningful explanation of coercion in the state economy. Coercion is a means of assuring the full effectiveness of the communal spirit, which is not equally developed in all members of the community.
The objective collective needs tend to prevail. Even the party stalwart who moves into responsible government office undergoes factual compulsion and spiritual change which makes a statesman out of a party leader… There is not a single German statesman of the last twelve years… who escaped compliance with this law.
It’s curious that Mancur Olson takes the time to promote the ideas of a man whose work is not available in English on Amazon today. But in the following paragraph, Olson makes one thing perfectly clear:
Ritschl’s argument is exactly the opposite of the approach in this book. He assumes a curious dichotomy in the human psyche such that self-interest rules supreme in all transactions among individuals, whereas self-sacrifice knows no bounds in the individual’s relation ship to the state and to the many types of private associations. The organizations supported by this self-sacrifice are nonetheless selfish in all dealings with other organizations.
page 101 of the 1971 printing
Whereas I think the mask example bares evidence of the selfish behavior of the states. There’s the chronic complaint that the FBI won’t go the dance with local law enforcement. The CDC has been critized recently of having maintained too tight a reign on COVID research at the expense of the goal to protect lives from the virus.
The duality I speak of in this blog is about form. An individual or a group can behave as an economic unit both in a communitarian way from within and a private enterprise when competing with other groups on the exterior.
I got the title wrong on the post from yesterday. Dawkins describes how it is possible to obey to biological urges towards selfishness while simultaneously using the faculty of reason to weigh the benefits of cooperation. He observes that our human ability to conceptualize how better outcomes occur through advancing the group interest plays us against short term selfishness. It is long-term selfish.
What Richard Dawkins describes isn’t the duality I refer to, but the human characteristics which set the stage for duality. Despite the ever present desire to declare: ‘it’s mine!’ our conscience, our capability to withdraw and look back on ourselves, our recording of history leads us to understand the benefits of responding to altruistic inclinations.
This supports the idea that economic actions can be motivated by dual forces captured in one transaction.
Consider the factors which motivate a choice of professions, of career paths, a considerable monetary decision over a lifetime. If one chooses an employer closer to home for lesser pay, than there is a blending of the benefits brought to bare on the family over income. Or, say, one decides to be an overseas war correspondent due to a strong belief in the necessity for transparency. Society yes, family no. If one considers where people volunteer their time, the choice is between forgoing monetary income in support of a group benefit: firefighter, rotary member, church relief services.
Everyday resource commitments are made in a blended fashion between monetary flows and altruistic featherings.
The duality I speak of in this blog is of a transformative nature. It’s described by Hans Ritschl, a German economist from the early part of the 20th century. More on his insights tomorrow.
It is possible that yet another unique quality of man is a capacity for genuine, disinterested, true altruism. I hope so, but I am not going to argue the case one way or the other, nor to speculate over its possible memic evolution. The point I am making now is that, even if we look on the dark side and assume that individual man is fundamentally selfish, our conscious fore sight our capacity to simulate the future in imagination could save us from the worst selfish excesses of the blind replicators. We have at least the mental equipment to foster our long-term selfish interests rather than merely our short-term selfish interests. We can see the long-term benefits of participating in a ‘conspiracy of doves’, and we can sit down together to discuss ways of making the conspiracy work. We have the power to defy the selfish genes of our birth and, if necessary, the selfish memes of our indoctrination. We can even discuss ways of deliberately cultivating and nurturing pure, disinterested altruism— something that has no place in nature, something that has never existed before in the whole history of the world. We are built as gene machines and cultured as meme machines, but we have the power to turn against our creators. We, alone on earth, can rebel against the tyranny of the selfish replicators.
There’s a good chance that upon strolling by a pre-school classroom you’ll hear: It’s mine! The voice comes from a toddler who is grabbing the Preshool Playhouse plastic airplane from one of his chums. Ah- the battle over ownership starts young. There is a natural inclination, for some more than others, to own something. To be in charge of something. To have control.
Ownership around the house can be communal. The appliances don’t all have coin slots as the washer and dryers do in apartment buildings. Who ever is a part of the household makes use of most things. Perhaps within the confines of a bedroom, private items are stored which are off limits to the general public of the home.
Ownership of the upper-pay, prestigious jobs once belonged almost exclusively to ivy league educated men. Feminists from the 60’s and 70’s would have you believe that these jobs were public to all white men. But this is rather silly when you think about it. The club was a much smaller subset of men who smoked fat cigars in dark paneled rooms and who bought suits from the same clothier and who all shot below 90 on eighteen holes.
Isn’t the tussle over abortion about the ownership of the fetus? To whom does the baby belong: the mother or society?
Say hoodlums set up shop in a local park. Pretty soon none of the neighbors use the park as they are adverse to being mugged. The ownership of a wooded greenspace, that once belonged to a city, now is captured by a subset of the city. And they are not likely to relinquish their place of business voluntarily.
Ownership of a home maybe noted to a couple on the title in the county records, but all that space in between the homes is a joint concern. The effect even edges in over the maintenance of the front yards. Rules about grass height, number of vehicles in the drive all point to a view that the aesthetic of the street is owned by the neighborhood.
The Armed Forces will set you up with an education which you internalize for a private benefit, but not before you serve for four or six years. That way your employer can capture some of those employable skills. Other employers will match a stock option retirement investment in order to tie their employees into an ownership mentality.
The divorce courts have a lot to say about ‘That’s mine!’ Whereas each partner of the matrimonial union may be viewed as an individual by their employers, the court looks at the household when giving guidance on who owns what. You see you can be an individual as well as one member of a group all at the same time. And your ownership position maybe influenced simultaneously by this duality.
Ownership types are good to understand. Ownership by the individual or a group operate under different maintenance plans and incentives. So not only do we need guidance on the dissolution of group ownerships, but we can also be more effective in all sorts of trade once by utilizing the appropriate incentives and mechanisms for each type of proprietorship.
It was a few years ago now that I introduce these structural ideas of capitalism as a system subjected to simultaneous influences of public and private interests at every transaction. My first approach was to make the argument that pure public goods really don’t exist. The classic example of the lighthouse, which provides a seemingly non-excludable benefit by beaming its bright lights across the water, can be taken private. As can virtually all goods.
More evidence that public goods, as classically defined, falls apart under scrutiny is fully unpacked here in Our Problem is a Problem of Design. (Wow, written some four years ago. Where does the time go?)
But the lighthouse, along with any other good, can have degrees of public and private holds on their value. And so it isn’t the nature of the good which determines it’s ownership, but the way that it is used by individuals or groups of individuals. The division of capitalism as the system of private interests and politics as the system of public interests isn’t the correct demarcation.
The division is that capitalism is a comprehensive economic system of public and private interests, where the actors simultaneously evaluate their private and their group (public) interests at time of transaction. The mechanism in each sphere is different but the end choice is a blend of the two. The division puts politics in a separate arena which handles the style and substance of governance.
Chapter Nine in A Book of Abstract Algebra by Charles Pinter starts off in solid math fashion, with definitions.
Human perception, … is based on the ability to recognize the same structure in different guises. It is the faculty for discerning, in different objects, the same relationships between their parts.
The dictionary tells us that two things are “isomorphic” if they have the same structure. The notion of isomorphism of having the same structure is central to every branch of mathematics and permeates all of abstract reasoning. It is an expression of the simple fact that objects may be different in substance but identical in form.
There are lots of cool things that happen when objects, whether tangible in the material world or fabricated through logical thought, share a structure. Properties that apply to one, apply in the same way to another. The natural numbers are a system of 1, 2, 3 which will always multiply add and divide in a like manner, whether they are counting buffalo, beans or bananas.
A professor of economics at Harvard, Branko Milanovic, identifies capitalism as the sole surviving economic system in his book aptly titled, Capitalism Alone. The structure in this case is an economic one: ‘referring to production organised for profit using wage labour and mostly privately owned capital.’ He proposes that the creation of value through production and trade occurs in this manner across the world.
The West, and the US in particular, is the cradle of capitalism, home to Ayn Rand. But now that China in particular has shown how a communist country can harness this economic system, the different categorization of structures needs to be flushed out. Milanovic offers Liberal Meritocratic Capitalism for the West and Political Capitalism as representative of the Chinese system. The Economist summed it up:
Milanovic outlines a taxonomy of capitalisms and traces their evolution from classical capitalism before 1914, through the social-democratic capitalism of the mid-20th century, to ‘liberal meritocratic capitalism’ in much of the rich world, in particular America. He contrasts this with the ‘political capitalism’ found in many emerging countries, with China as the exemplar. These two capitalistic forms now dominate the global landscape. Their co-evolution will shape world history for decades to come.―The Economist
The idea is that the pursuit of value through private trade is the core structure, and yet it can be pushed around and molded by political actors from liberal democracies such as the US, to social democracies in northern Europe, to authoritarian countries in the East. But in its original state, capitalism produces private capital. All the other efforts in society to provide public services, or safeguard the poor, or educate the young are done somewhere else- but not in the economy.
Here lies the weakness in this argument. It is well established that all sorts of social structures provide value to individuals and communities, and these too are economic in nature. There are resources, and labor and transactions. There is capital. It seems necessary to incorporate all fields of economics into one structure rather than push off the inconvenient ones on politics.
What I propose is that at the core of capitalism is capital, but not just private capital. At the core of capitalism is capital which is often in blended ownership of private and public interests. There is capital which is much more private and unfettered by social concerns, like currency, stocks and bonds. But even these instruments are in part valued by their country of origin. The legacy of their political backing influences value.
And then there is capital which is moderately blended by public and private interests. The buy local movement in produce of today, or the buy USA textiles and Ford or Chevy of yesteryear. If you pay extra for these items, than that premium is to support the public interest of a local sub-group. But the mixing doesn’t stop in commodities. Utilities are mostly blended between public and private. Capital, it seems, has a complex nature.
On the seriously social end of the spectrum there are goods that society resists assigning any monetary or liquid value, such as human kidneys. The trading in this case depends on a string of interlocking transactions between group members who all share the similar ambition of gifting an organ to a friend or relative. But a trade still occurs, the capital has a social dimension and the outcome results in tangible value.
What determines the sliding scale of private to public divisions depends on the political management of the country and the multitude of social arrangements present where the economic transactions occur. But the structure of capitalism, which dictates the rules of how the system works, contains private and public capital, not private alone.
We’ll get to their methodology in a minute, but the first thing an aspiring realtor is taught in real estate school is that buyers and sellers determine the value of a home. If more buyers want to buy a home in Boise than sellers are willing to give them up, then prices go up. It’s not an overvaluation. It simply is the market signaling that Boise’s the place to be.
The methodology used for this report is the spread in the property values in these cities, as they diverge from a calculated long term projection of the property prices. Here’s how they report their methodology.
Comparing values to historical trends is interesting in the sense of: Wow, Utah and the Non-Costal West are really becoming popular. This maybe true because of the new work from home arrangements, as inferred in the article. It could be true as a response to wanting more time in the great outdoors after being confined during Covid. The numbers can even get topsy turvey as percentages of low values are easy to bolster. (80% of a low number is still a low number.)
The appearance of Detroit and Stockton on the list is certainly a welcome surprise. That these two cities are outpacing their historical price increases indicates they are fairing much better than they have in the past. This isn’t an over-valuing of real estate. It is a signal that, hey- these communities are pulling together and people want to live there.
Similarly, it may not be wise to think of Virginia Beach as a bargain. The long term trend amongst employers appears to be to allow virtual work. The highest priced areas with the least family friendly infrastructure are going to suffer from this arrangement. A downward decline in the price of Virginia Beach real estate could very well just be starting.
Historical price trends are very one-dimensional. Real estate is a multifaceted product. Its pricing can provide all sorts of information through a more complex model. I’d say the top five influences on value (in no particular order) are 1. crime 2. proximity to jobs 3. schools 4. parks and environment 5. transportation.
Lack of progress is often addressed with the ‘we can do better’ call to action. Things will get better if we just man the boat and check the weather. There is an assumption that everyone is sailing on the same winds. When in fact, there are people in the boat tacking against the wind or dropping the sails completely.
The naysayers can have the best intentions in mind. The naysayers can further the direction of the journey by making others fight for it, define it even further than they had originally considered. The naysayers help refine decisions. But sometimes the naysayer simply sink the ship.
Fences, a play written in 1985, is set in a familial scene where a father naysays his son’s ambitions of becoming a ball player. It didn’t work out so well for him, he reasons, so success will elude his son as well. He will save him the pain. Or will he? Does a father use his power as an adult out of faithfulness to old anguishes, or is he truly acting to cushion his progeny from life’s hardships?
The playwright, August Wilson, doesn’t render judgement.
But anyone who has been around a decade or more knows, to misuse a position of power is to tread away from progress not towards it. In this story, father derails a chance at a football career, so son leaves home and makes good in a military life. You might say he overcame his naysaying father, but at the expense of any further family support through early adulthood. You might say son was better off without them, but at the expense of their greater community.
Wilson, who wrote this Pulitzer prize winner while living in St. Paul, provides more examples of how social exchanges can fence in a family. In business, once the money runs out, no one shows up for work. The business shuts down. In family, chits and obligations can continue to pile up. When left outstanding others must step up to pay the bills. And then possibly others still.
I wish I would stumble across a history of the use of tax incentives as a means of financing affordable housing (google?). When I first heard about the various tax rebate methods, including tax increment financing (TIF), it felt a little back door. And it probably was. I suspect political appetite for funding housing, which is hands down the largest tranche of a family budget, was chronically weak.
While looking into the Four Seasons Mall project, I discovered that Low Income Housing Tax Credits (LIHTC) have become fungible. This means non-affiliated C-Corporations invest equity by purchasing the credits. In return they receive a reduced tax obligation into the future. Give up cash today and receive a stream of money through the forgiveness of an obligation into tomorrow.
On the one hand I salute the effort to generate more financing partners by detaching the credits from the project. (Originally the real estate developer received the credits in order to make the numbers work despite lower rents on the affordable units.) At the same time, by detaching the credits and allowing a C-Corps to purchase them, the mission motive is eliminated and transformed into a pecuniary one.
Furthermore, the successful projects are decided by a bureaucratically designed scoring system. Projects are given points based on a list of objectives. The scoring may or may not actually prioritize the weighted demands, nor the quality of the potential social outcomes. I have no doubt that the Four Season Mall site was passed over as the pecuniary assessments of income (or lack there of). It’s hard to imagine the complex outcomes from residents interacting with higher quality schools, transit, and associational groups can be condensed into a few points on a scorecard.
An alternative to scoring and progressive tax plotting is for mission focused folks to be the equity partners in on the project. This is what happened at Cranberry Ridge. Construction just started on the three story building on May 25th.
The development by Beacon Interfaith Housing Collaborative (Beacon) features 45 apartments for families who earn less than $52,000 a year for a family of four. Twelve of the homes will be for families who make less than $31,000 a year for a family of four.
The Plymouth Housing and Redevelopment Authority (HRA) and Metro HRA each awarded 10 rental assistance vouchers to ensure the homes will remain affordable for future residents with the lowest incomes. Capital funders include the local nonprofit Outreach Development Corporation, Minnesota Housing, Hennepin County, Wayzata Community Church, Plymouth HRA, Greater Minnesota Housing Fund, and Wells Fargo. General contractor Shaw-Lundquist, architect BKV Group, and civil engineer Loucks have worked on the planning and development. Many individual donors provided seed funding to support the planning, organizing, and technical work to get Cranberry Ridge approved and fully financed.
The key component in this potpourri of interested parties is Interfaith Outreach (and Community Partners–IOPC), a very successful faith-based social service provider. With forty years of experience helping families in crisis, they are a mainstay in serving those in need. In a sense Cranberry Ridge brings their clients to them, to the neighborhood, making it that much easier to do what they do best.
I much prefer to see the money and the mission be served up in combination. Incentivizing C-Corps to avoid taxes, instead of support the spirit of community, is counter productive. It allows corporations to bypass a progressive tax code. It also gives a general audience a reason to view corporations as tax evaders. Making it all about money is the motivation in the private market, but this is a public good.
And I hesitate to be critical as I realize that “the Low-Income Housing Tax Credit (LIHTC) program is the most important resource for creating affordable housing in the United States today.” However, one result of the process is that the numbers work out more favorably in mixed use projects. This means that more units are built for the moderately poor instead of the desperately poor.
The Interfaith Outreach folks think this is a mistake. The thought is to house to the most vulnerable first and then work up to nicer housing for the less poor later. They want money to be used more efficiently. Here is a statement from the organization made to the Minneapolis city council which summarizes this view, and expresses recent disappointment in the city council’s lack of interest in taking up the conversation.
Housing is expensive and we will always need to provide shelter to those who can’t provide for themselves. It seems we’ve outgrown the need for a back door approach. Matching the appropriate investors with projects, and residents with neighborhoods could further long term objectives.
One thing that is as clear as a spring blue sky day is that there are wolves lurking amongst the sheep on both sides of the most pertinent issues in America today. With all that has happened it’s hard to deny the rogues in the public safety business. It’s also hard to deny those, who would fundamentally change America’s way of life, mingling blissfully amongst the progressives.
United Renter’s for Justice is an organization pushing locally for rent control and tenant’s right-of-first refusal should their landlord take their apartment building to market. Members think along the lines that one individual owning more than one property is some form of injustice. (Not sure how that adds up for housing those who are not in a position to house themselves).
The new angle on leveling the American playing field isn’t to be progressive about income taxes, nor to understand how to leverage opportunity, but seems now to be focused on shifting capital. The reasoning appears to be no different than that of many revolutionary governments of yesteryear: “We don’t think you acquired your capital in an appropriate fashion, so we will take it, and redistribute it ‘fairly’.”
These folks need to read history, as there is yet to be a successful outcome from such reasoning.
The capital gains tax proposal shimmers a bit from this implied sense of justice-through-acquisition. Or, we have the power to take so we will. This type of authoritarian strong arming is not very popular in a country built by people who fled from governance by arbitrary taking.
But maybe there is some truth to ponder here, that the increased value of some assets are due, in some portion, to a wider public than simply those who own the assets. It is part of the pro-tenant people’s argument. Tenants participate in local civic activities. These activities contribute to the desirability of the neighborhood, which in turn increases demand for property, putting upward pressure on property prices. Despite their lack of direct ownership in real estate, do renters participate in some community work which is left unaccounted for?
That is an excellent question. And if the answer is yes, where in other capital ownership has there been public involvement that could be offset when an owner decides to internalize profits and sell their asset?
I really enjoy late-in-life reflective essays written by authors whose work is too large and too challenging to tackle head on. For example Bertrand Russell wrote Portraits from Memory and other essays, which places him in his time and space as an observer of his contemporaries. And recently I’ve been enjoying Essays on Political Economy by James M. Buchanan.
Taken in small bites, it’s easier to chew on some of the ideas they left for the world.
Consider the fourth essay in the book: The Relatively Absolute Absolutes. Buchanan tells the story of how he was invited to give a talk on the same old hum drum economic stuff when he negotiated their accord to a presentation with this somewhat Suessian title. Keep in mind this is after he won the noble prize in 1986. With celebrity prizes earned, he was free to expend some creative thought.
He explains the commitment to the talk was meant to keep him on track with the good intentions of writing a small book, to bear the same title. Yet it doesn’t appear to have been enough of a push. So we must turn to this essay to learn what this great mind was trying to impart about relativity and absolutes.
I’m sure I am going to fall short of his intentions, but here is goes. The term implies that for purposes of analysis one can pull out a segmented situation and look at interactions at that level for the absolutes that are applicable, even if those absolutes are only relative once the segment is shoved back into the extended deck of playing cards for life.
If all settings of economic activity could be held on plates swirling on sticks, like the jugglers are able to manage, then to do the analysis of just one plate of activity, you are able to temporarily ignore the other relevant factors of being part of a larger group of plates (one being that they will come crashing to the ground once the stick stop jiggling).
In his first example he considers the work of Alfred Marshall who “imposed a temporal order environment within which firms act.” As we all know there are short term decisions which can garner immediate profits, but short change long term goals. Using the relatively absolute absolutes argues that it is OK to consider the short term ignoring the overarching ‘absolutes’ or givens of long term decisions. It’s OK to analyze long tern decisions under similar circumstance. Then pull the analysis together.
The short-period and the long-period planning process may occur simultaneously. The differentiation lies, instead, in the number of variables that are allowed within the relevant choice-set relative to the number of variables that are regulated to the set of constraints.
The next example releases the individual from commitments to institutions. “The individual must reckon on the the temporal ability of the potential choice variables, and norms for rational choice required that some variables be treated analogously to fixed inputs in the Marshallian model, that is, as relatively absolute absolutes for the purpose of making short-period choices.”
He says that this is all pretty straight forward on the surface but it gets more complicated when you consider how many plates everyone is trying to spin without any falling to the ground. Things get a little more interesting when one interest has constraints placed upon it by a higher level interest. For instance the “higher” level interest of loosing weight is biased constraint against the initial impulse to select a second chocolate Easter egg.
The practical part of what he is offering with the relatively absolute absolutes is that analysis and measures can be done on just one plate. “We may, on occasion, walk on ice as if it were solid ground, even if we recognize that to do so requires that certain conditions of temperature, time and place be met.”
There’s an excellent bakery in a little strip mall down the interstate from where I live. The jumbo donut holes melt in your mouth. I’m not sure if it is the glaze on the golden globes, but the texture and flavor and softness is memorable. The store front is small. A twelve foot display counter full of long johns, and bear claws and jelly donuts (my husbands favorite) reveals the day’s offering as you walk through the door.
A middle aged guy runs the place and when he plans the baking for the next day, I’ll bet he’s trying for that ultimate mix of filling the expectations of the steady stream of regulars who filter in, yet not having any pastries left at 11 am when he flips the ‘closed’ sign on the glass door and locks up.
The point is that nothing really bad happens if he doesn’t get it quite right. He might have to take a dozen treats home or give them to the food shelf. Or he may have lost out on some sales if he was too conservative and didn’t bake enough. A few dollars either way, but no one dies because he miscounted his jumbo cinnamon rolls.
That’s why bakery goods are an ideal private good. Their production and consumption are individualized. Everyone can have their favorite. Products that tend to be well suited to public good, by contrast, usually involve groups, either because they service groups, like infrastructure, or because they require a group consensus on their production, like education standards.
To further complicate things, group opinions vary by region and demographic. In order to accommodate these features, the fine tuning of say the reopening of schools, is pushed all the way down to the school district level. The standard for how a community agrees to educate their K12 population during a pandemic is placed into, let’s call it, a first tier group. Not the county, or the state, or the region, or the country.
Unlike the provision of apple strudels, errors involving health and safety can result in physical harm. There’s more at stake than a few bills in a till. And there is often no unique measure to dictate exactly how to proceed—which is exactly why it’s been delegated to a public good. How safe is safe enough; how much school is school enough; how much protection is protection enough? And as a group we are both anonymous and participatory in the decision process.
And as this is a big messy political endeavor, it is much more difficult to ascertain whether errors of commissions, or errors of omissions occur in taking a run at the most efficient social outcome.
The pandemic will reshape our lives for years to come. One lesson learned is that company centric office space is not essential to many forms of employment. This creates inroads to the reality of paid work from home. And the benefits for families to staying in the neighborhood, close to daycare and schools and extra-curricular activities, will make it a convenient option for many employees.
When people started to re-emerge from their homes last spring, at the beginning of what ended as a boom year in real estate, we heard a lot of buyers expressing the desire for home offices. Once children return to a traditional schedule in daycare or school, the home environment will be even more ideal.
There are other options for remote work. WeWork, a US real estate company, has provided office space with shared amenities since 2010. It’s success has been muddied by an outrageous leader and a lack of market confidence in its business model. Recently its co-founder has been embroiled in a law suit with SoftBank. Sensing blood in the water, an international competitor, IWG (International Workplace Group), has made moves on WeWork’s holdings in Hong Kong.
For the third time in less than a year, IWG has opened flexible offices under the Signature brand in a Hong Kong space formerly occupied by embattled rival WeWork.
IWG is based out of Switzerland and provides space in 120 countries. Their focus is on catering to a particular environment with supportive services, access to networks while connecting companies to locations at close proximity to their clients.
Perhaps this flexible model office space is an even better fit in densely populated cities like Hong Kong. Here the average home is 484 sqft limiting space for home offices. The average American lives in a 2164 sqft. dwelling which, in comparison, sounds generous with ample room for work. Yet everything is relative. City dwellers will settle for a 1800 sqft craftsman bungalow while suburban buyers desire a full two story with double the footage and a three car garage.
Whether through a work-from-home setup, or a flexible workspace nearby, households with children will benefit by having at least one adult in the neighborhood. Being available on-demand for children is part of the deal: when daycare calls to pick-up a toddler running a fever, or there’s the school science fair to attend, or little league practice starts at 4pm. Since juggling those demands around commute times is stressful, being close to home is a social benefit employers can provide at no pecuniary cost.
I remember posting my first public comment. I was nervous. I must have read through it a dozen times, and felt so exposed once I pressed enter–no edit back then. The article, Met Council: More focus on growing in place, was an opinion piece by local journalist and urban design consultant Steve Berg, writing here in MinnPost
Ten years have gone by, but the gist of what I was saying remains the same. People trade with an understanding of both a collective benefit, as well as one of self interest. At least that it what I am here to convince you of.
I loved commenting on Steve Berg’s articles because there was so much substance to target. Things have changed a bit since then. He was a classic anti-car guy, which has been toned down since Elon Musk came along. And you don’t hear people harping on sprawl as you once did. Nor market failure for that matter.
Cost burdened is the catchphrase of the day in housing. Over the last couple of years it has popped up everywhere. Articles posted on all sorts of sites use the phrase without specifics on how they came up with all their charts and graphs. Smart Asset was good enough to describe its methodology.
Data and Methodology
SmartAsset used Census Bureau data to determine the most and least severely housing cost-burdened cities. This data, which we found for 126 cities, breaks down residents into the following brackets based on the percentage of the total household income they are spending on housing: less than 20%, 20% to 24.9%, 25% to 29.9%, 30% to 34.9%, 35% to 39.9%, 40% to 49.9% and 50%. The data also lists the total number of households.
We took the number of households in each city paying more than 50% of their income on housing and divided it by the total number of households in that city in order to come up with the percentage of households that are severely housing cost-burdened. We then ranked each city based on this percentage. We also calculated the percentage of households in each city paying between 30% and 50% of their income on housing, but this did not impact the ranking.
Data comes from the U.S. Census Bureau 2017 1-year American Community Survey
You can find more about the American Community Survey here. But I’m pretty sure the information about housing expenses is self-reported by the three and half million who receive the request.
As you do with ranking lists, I checked out my own community (childhood home of Senator Klobuchar no less) to see how we stacked up in the cost burdened arena. According to an extremely well regarded source of data and information to politicians and local officials, half of all residents of Plymouth, Minnesota are cost burdened. Seriously?
I’m not sure how this could be true for one of the more affluent parts of the western suburban Minneapolis-St. Paul metro area. So I checked another affluent area on the St. Paul side, Mendota Heights. Here it is reported that 75.4% of homeowners are cost burdened. Clearly there is an implementation problem with use of the data meant to determine those in need. More alarmingly, there it sits in bold bar graphs given to lawmakers and policy people.
But even if folks choose to pay thirty or even forty percent of their monthly cashflow for housing, who is the Census Bureau or the American Survey or HUD to say that it is too much? Consider these three scenarios.
I choose to live within blocks of my parents, even though their neighborhood is a little expensive. My parents are able to provide fulltime daycare for my toddler as well as before and after school care for my two elementary school children. Living in their neighborhood saves our family upwards of $2500/month.
I choose to live in the city which is noticeably more expensive than some first ring suburbs. This location allows me to take mass transit to work, shop and recreate. It’s easy and cheap and I don’t need a car. Between insurance, a loan payment and gas, I save $400-$500 a month.
I chose to live near my congregation despite the monthly rent being high in relation to my fixed retirement income. My apartment, however, is near my church and the fellowship is such a big part of my life. I am able to share transit to and from my doctor’s office which is close-by. Plus I feel safe.
(For some back of the napkin, points of reference, average rent in Plymouth is $1300. An income that is considered non-burdened (28%) is 4643$/mo. An individual is considered cost burdened (30%) at 4333/mo in income. A difference of $310. )
Evaluating housing based solely on monetary income and rent is grossly insufficient. Consumer housing choices are influenced -think back to your own choices- by all the services found in various neighborhoods. Each of these scenarios show how access to family help, transit infrastructure, and religious communities contribute people’s home economics.
Not only is the present methodology, (which is being projected in stereo as if on a national housing agenda of some sort) yielding reports declaring the poor rich as burdened, I argue the use of pecuniary measures, as the sole means of evaluating quality of housing, is starkly erroneous. If a ratio of rent to income is used (as it has been) as the primary driver in decision making, than less advantaged people will always be pushed into the least expensive rental markets. Surprising to no one is the market reality that these neighborhoods are lacking in support structures.
In a Bloomberg article yesterday, Laura Millan Lombrana encouraged governments attending the United Nations climate talks to push oil and gas companies to fix methane leaks. Due to new satellite technology, which helps identify the location of the seepage, there is an economic efficiency argument to such action.
Methane emissions need to fall 70% over the next decade, a decline equivalent to eliminating CO₂ emissions from all cars and trucks across Asia, according to the report. Fixing methane leaks would be cost-effective for energy companies because the captured methane can be sold as natural gas. The cost of repairs and maintenance needed to capture methane can often be paid for by the value of the additional gas brought to the market.
The new information (as to where the pipes are leaking) is one driver for action, but there is also the notion that the low emissions benchmark, set in the Covid year, offers up a new goal. This combination of information and technology coupled with motivation, made me think of Harvey Lieberman’s concept of “X”-Efficiency. He was a professor at Harvard and is best known for coining this concept. Here’s how he describes it in Allocative Efficiency vs. “X”-Efficiency.
Our primary concern is with the broader issue of allocative efficiency versus an initially undefined type of efficiency that we shall refer to as “X-efficiency.” The magnitude and nature of this type of efficiency is examined in Sections II and III. Although a major element of “X- efficiency” is motivation, it is not the only element, and hence the terms “motivation efficiency” or “incentive efficiency” have not been employed.
He identifies the possibility of meeting a higher efficiency with new motivations, usually in combination with other factors. In the Bloomberg article, the sense of urgency around climate change motivates fixing the methane leaks.
The level of unit cost depends in some measure on the degree of X-efficiency, which in turn depends on the degree of competitive pressure, as well as on other motivational factors. The responses to such pressures, whether in the nature of effort, search, the utilization of new information, is a significant part of the residual in economic growth.
It’s hard to know for sure, but it sure seems like Leibenstein’s “X”-Efficiency refers to the efficiency attained in the blending of the public and private spheres.
A home is consider a private good–one that owned for one’s use and enjoyment. Its says so in the county recorders after all. It would follow that one could do whatever one wants with their home. Well almost.
That sidewalk, that runs along the street, you can’t block it. You have to let the neighbors walk their dogs and the kids to ride their bikes along it. And don’t be digging near any of the utilities that have easements across your lot to bring water, electric power and natural gas onto you property. If you wake up one morning (as in the photo) and there is a huge hole in your front yard, the city can do that too. The workers can dig down and see if your water connection to the street is leaking.
Ok- fine. The front yard has restrictions placed on it, but the backyard is all privately owed, to dig up and do what you wish with it. Not so fast. If you unearth an artifact from a native American tribe, it is not yours to keep. Despite being on your soil you maybe obliged to relinquish it for the public to enjoy and appreciate as part of their heritage.
But inside the house is all mine. Well, kind of. If you live in the state of MN than your spouse has rights to the home no matter if their name in on the title or not. Which isn’t a conflict, usually, as most couples jointly enjoy the fixtures attached to the land. It’s not like there is a penny slot to fill every time you toast a slice of bread, or the washer dryer is coin operated to divvy up the cost of its use. Couples and families use the features of a home in a public fashion, for all to enjoy.
So yes the home is primarily private to the person on the title. But there are all sorts of public interests that take a little nip out of ownership.
Some, like the utility companies, provide valuable, essential services. In fact the reliability of services, like high speed internet, can make an area more desirable. The reliability of a city to be responsive to snow removal and road maintenance can create increased interest in the neighborhoods they serve. Public utilities and city services are daily necessities, hence exhibit high impact. Whereas the likelihood of a pre-historic relic being dug up on a property is rare, and so, although the public has an interest, any practical impact is low.
These are just a few of the public interests in the very private investment of a home. There are many more besides the utility commissions, and the city utilities. There are a bunch of other public entities that make an appearance on your property tax bill. There are fees for police and firefighters, fees for school districts, fees for county services.
Your home is your castle. But your castle shares many commonplace interests with lots of other castles.
For as long as I can remember, my mom tackled an extensive Christmas mailing with mimeographed updates of our family’s progress printed on colored paper. My job was to fold and insert these single-spaced typed communications into elegant cards purchased from UNICEF.
The greeting cards provided a means for people to support the United Nations International Children’s Emergency Fund while purchasing a commodity. Girl Scout cookies blend this genre of multi-function purchase. And some large retailers, like Target, will donate a percent of the purchases to the school of the customers’ choice, distributing funds to public good providers in much the same way.
When a UNICEF ad appeared as I scrolled through my Facebook feed, I clicked to see what they were up to. Holiday cards are still a mainstay with 18 categories to filter through and hundreds of choices from there. But that’s not all. The site has an extensive offering gifts, jewelry, and so on.
They’ve stepped up their offerings but also their accounting of how much the purchaser will contribute towards the benefit of desperate children. For just shy of a hundred dollars the buyer receives a hand crafted ring, and prevents 54 children from contracting measles. In addition to laying out the the tally of how many lives will receive a health benefit, the site allows the buyer to meet the artist. These brief bio’s can further connect buyer and seller through other shared interests.
UNICEF is creating an Amazon of dual sphere commerce.
This afternoon, as a lingering glow alights the World Trade Center and the lights go on at the Empire State Building, as the glimmers extinguish off the Hudson River, and the sun’s rays slide down New Jersey, Pennsylvania, Ohio, across the prairies, and silhouette the mountains of the West until finally slipping off the coast of California, Oregon and Washington, as the rays sink past Hawaii and into the Pacific, we say goodbye to 2020 with a wave. And a wish that we could give it a good kick in the petuti.
But this year allowed me to start this blog and I am very thankful for that. Readers have shown up in the hundreds, well over my expectations. I have relished every like and comment. Thanks so much for visiting.
The most popular article hands down was Is it so simple? A response to Nathaniel Rachman’s article in Persuasion allowed me to unabashedly promote the view that drives me to write this blog. These last three months have been devoted to laying some ground rules to how things work. There’s really no point to continue, if folks don’t see the definitions clearly of the economic nature of public and private transactions.
Since this is an economic philosophy I need to get around to tying it to material values, and I will get to such an accounting in due course. I could bring in the numbers, and show how they are assigned to forms of capital. But should people not accept the actors and the types of activity they do, all will be explained away, talked over. There will be references to cloaking and embedding and behavior.
For people to see the hard cash, they will have to see that private individuals employ time and resources to public endeavors everyday throughout; that governments are riddled with private transactions everyday throughout; that businesses develop goodwill on their balance sheets and accommodate labor demands everyday throughout; that associations are motivated by private ambitions while supporting the group’s goals everyday throughout. Until there is an acknowledgment of this type of dual structure–there is no point to assigning slices of material wealth to each and every activity.
Economics is not just represented with dollars. There are two natures to transactions. The value does show up in capital and dollars, most obviously when being externalized or internalize. Although-that moment is but a snapshot in time, a frozen price point, that could be simultaneously the result of the in-hand trade as well as the tapped capacity accumulated over generations. Hence the necessity to understand time.
For a generation, those who control the public purse have developed a party line, with nationwide control of talking points. They’ve developed an activist type of one issue dominance, with the devastating inability to see subtle trade-offs. They’ve basically obliterated the concept of varying degrees of importance. Covid has made this glaringly obvious.
So happily ring in the New Year! And ring out the old ways, while keeping an open mind to the new.
I’ve been working my way through a list which claims that economic goods fall into four categories– private, club, common and purely public– in order to debunk a misconception on how we sort economic activity. Web oriented services such as Wikipedia, NetFlix and website design hold a variety of placements in the groupings. I think it is safe to say that all three of these goods are private, since, according to a UN report more than half the world’s population is without internet service. Any good provided via the web is private to only the wealthy half of the world.
A resorting mindset is needed in order to tackle vision centered around corporate responsibilities to stakeholders, such as those described in a recent article on the American Purpose by Robert Madsenand Curtis J. Milhaupt: The Expansion of Corporate Responsibility.
Increasingly, advocates of reform argue that businesses should be concerned about their “stakeholders”—not just shareholders but also workers, suppliers, customers, and society at large. The new movement, which is often termed “ESG” (Environmental, Social and Governance issues), is not limited to progressives and liberals, but has made substantial inroads in the commercial and financial community as well. After decades of espousing shareholder capitalism, for instance, in 2019 the Business Roundtable declared a “fundamental commitment to all of our stakeholders” in order to “better reflect the way corporations can and should operate today.”
Stakeholders capitalism, “ESG” or benefit corporations are all a grappling to give this movement a name. What is it that corporations, which are intentionally private organizations, accomplish towards larger societal goals? Madsen and Milhaupt point out that corporate America has a history of such ventures, though most of us do not need convincing that capitalism works favorably upon social concerns. Even the most fervently socially-minded agree.
Yet the authors go onto express trepidation over who sets the agenda and whether expectations can be met.
Although hopes are high for what corporations and institutional investors can achieve through greater emphasis on stakeholder needs as opposed to narrower shareholder benefit, few of the ESG reformists have bothered to define what the movement’s precise goals should be. This matters because in the absence of a concrete agenda people tend to assume more than is possible, and the inexorable failure to meet those expectations generates dissatisfaction and the possibility of political backlash.
Here’s the thing– there is an entire marketplace of social concerns out there to choose from. No matter what the corporate entity decides to take on, the important step is to collect the data and account for it.
*Decide to devote its social ambitions to rectify labor inequity? Account for the extra training and support and follow the employees long-term gains.
*Decide to devote their legal staff to ironing out the thorny wrinkles in cross-country trade and all the implications of contract defaults? Account for time logged while on the company dollar, and the losses taken when the contracts fall through. Track how establishing standards allowed smaller firms to enter the market with confidence.
*Decide to use the idle time of their tradespeople and send them to a financially strapped public schools to tighten up all those leaky faucets? Account for the hours spent and estimate the savings in city water running down the drain.
The opportunities are everywhere and the beauty of the system is not to be hampered by a particular agenda, but to attack the issues which are most readily facilitated by the business and the people who make it up. To find the passion which galvanizes the employees to give of their time and expertise.
But-this is important- we can’t know how it all shakes out until it shows up in a tabulation somewhere. The trick is that the mechanics are different for social activities versus the mechanics of for profit transactions. That doesn’t mean they can’t be held to account. Already things like ‘good will’ show up on balance sheets. Think of the possibility of two colors of ink on the net income statement; one for profit and one public profit. The former total is by far the lion’s share, as by definition corporations exist to produce financial gain. Yet knowing the later, being able to track, tally, and compare it, will be empowering.
Tracking will also play into Milton Friedman’s emphasis on transparency. Through open disclosure, reports identify the social goals tackled and the benefits of eventual outcomes. It also provides signals where possible excesses, corruptions and silly virtue signaling are occurring, if not out and out fraud.
The task at hand is to identify what counts as work towards a public objective. And see how assets are used, stored and accounted for. To identify this concept of capacity and give it a number. Where do the tradeoffs get revealed so individuals will make choices with their time and energy? How could they be engaged by benefiting from a personal social objective while participating with fellow employees? The angles are multifold.
So I say– do not hold expectations in check. Run with them, write them down and see how they all add up.
Back in 1985 the Fairmount Hotel was moved in San Antonio. The clip is 17:47 minutes in length but contains lots of details including a two week halt to dig up artifacts from the Battle of the Alamo, maps, bridge crossing, groups involved ( and great 80’s theme music!). Take a look at the renovated Fairmont Hotel.
Meanwhile, restoration of the Shubert will create 150-plus construction and permanent jobs, bring tens of thousands of dance patrons downtown, complete the performing-arts vision for the successful Hennepin theater district and alleviate a loitering and crime problem that has moved from busy Block E to the lonely stretch of the avenue on which sit the Shubert and the Hennepin Center for the Performing Arts. At least that’s the official pitch. The cops and the new urbanists say having people on the street trumps crime. The arts crowds frequent local bistros and they don’t make trouble.
In 1995 Minneapolis was nicknamed Murderapolis after the New York Times wrote a story pointing out that the city had a higher murder rate per capita than New York. This particular spot in downtown struggled with crime. The jobs were also successfully filled by minority tradespeople.
CEO Louis King of Summit Academy OIC on the North Side, which trains dozens of young minority folks for good-paying jobs in the construction trades, is near agreement with McGough Construction and the city. Up to one-third of the workers on the Shubert project will be women, minority apprentices and skilled minority craftsmen. The jobs will pay $18.50 to $40 an hour for months. That’s a good thing.
Wouldn’t it be interesting to see some sort data estimate and geographic tie-in to how the public investment performed? What proportion of the presence of a renovated and vibrant building on that section of the block helped with crime reduction? Did the minorities and women who worked the jobs progress in their profession? Is there an index to say x- proportion of the investment was preservation, and x-amount inflated into other community value?
If you could count intentions, package them up and gift them, the residents who had their homes rebuilt by Brad Pitt’s Make It Right Foundation, following the devastation unleashed by Hurricane Katrina, would be wealthy. Instead, the 109 property owners of the Lower Ninth Ward of New Orleans are taking legal action against the Hollywood superstar for “unfair trade practices, deception, fraud and negligence.”
Just a little earlier this month, another home in the development was demolished. As Federal courts pull apart the issues, it will be interesting to see how judges view the dynamics and assign responsibility. On the one hand you have the wealthy part-time philanthropist, full-time mega-movie-star, versus a group of mortgage paying homeowners, but then throw in architects with a penchant for environmental activism, builders, suppliers and the crime scene quickly gets muddied. The setting has changed from what Oprah.com describes here in 2010:
Leggett-Barnes and her family are some of the first homeowners in what will become a 150-house community constructed by the nonprofit Make It Right foundation, established by Brad Pitt in 2007 to build environmentally sound residences for low- and middle-income families. “We’re cracking the code on affordable green homes,” says Pitt, who envisions the Lower Ninth neighborhood as “a ‘proof-of-concept’ for low-income green building nationally, maybe even worldwide.”
The plan started with everyone on the same page. The recently homeless needed to return to plots of land, which for some, had been in their families for a couple of generations. Brad Pitt pledged 5 million dollars to take the edge off costs and provide the seed money for what ends up being a 27 million dollar project (that’s $247K per house). But then a new public objective starts to emerge, one driven by an environmental passion. Oprah.com notes:
A Make It Right house is eco-friendly from top to bottom, using at least 70 percent less energy than a conventional house of the same size. “We don’t just want to make homes ‘less bad’ for the environment,” Pitt says. “We want them instead to have an environmental benefit.” Thanks to their ventilation systems and solar technology, Make It Right houses emulate trees, purifying the air rather than polluting it and harnessing the sun’s rays to produce more energy than they consume. The homes are available exclusively to people who lived in the Lower Ninth before Katrina, and Make It Right guides families through the financing process.
It wouldn’t be the first time two objectives were tackled simultaneously: Help families rebuild their homes and make the structures energy efficient. Both admirable. But don’t miss that last sentence, ‘help them through the financing process.’ And just like that we’re off the philanthropy playing field and into the private market game. In this venue the owners are expecting to purchase from a developer, not an actor-philanthropist-activist. They sign for a mortgage. The most common number for the debt was around $150K, bringing the final cost per house to somewhere around $397K.
Just for comparison here is a listing for a new construction home in New Orleans posted on Realtor.com today.
Even at $397K (not including lot cost) one might say the extra money was well spent on energy conservation measures and intended health benefits. One might say that, if the properties hadn’t started deteriorating within a few short years.
By 2015, as most construction concluded, the project had cost almost $27 million. But complaints about the construction and materials used in the homes had already emerged.
These transactions had a philanthropic and environmental and private market component to them. The additional inflow of funds to cover the environmental objectives came in, but the new owners of these properties do not appear to have engaged as critical consumers for the core product. They didn’t check into the materials or the mechanicals or the plans. Just talk to a builder rep if you question whether consumers who build with them hover (daily) to ensure they are receiving what was written up in their purchase agreement. Perhaps due to the power of stardom, or the actual dollars being spent on their behalf, the home-buyers seem to have stepped aside and allowed others to do their bidding. Until as the New Orleans Advocate reports:
In September 2018, homeowners Jennifer Decuir and Lloyd Francis sued Make It Right for what they alleged was deficient construction that caused mold, poor air quality, structural failures, electrical malfunctions, plumbing mishaps, rotting wood and faulty heating, ventilation and cooling.
The dynamics of philanthropy allows for an individual (or group) with extra funds to choose a public need and steer their resources accordingly. The recipients are asked only to consider reciprocating at some future date, should they find themselves in a similar situation. If the courts place the blame on Brad Pitt will that inhibit the flow of goods and services from the wealthy to those in need for fear of liability? Were the end consumers not responsible in a buyer-beware type of way to check out what they were buying? From what the articles (USA Today, NPR), they had owned and maintained homes in the past.
There’s plenty of blame to go around. The architect John C Williams collected $4 million in fees. There were permits and inspectors and building codes. And maybe some blame should end up at the lenders’ door for not questioning the innovative, but untested systems, going into the project. In the end they are on the hook for the paper if a homeowner walks and abandons their property. But mostly, in the for-profit market, the relationship between the developer-builder and the home buyers establish the acceptable combination of durability, green components and price.
The problem wasn’t a lack of intentions. The problem was that the philanthropist-activists bypassed the marketplace and all the small interactions that make it up. The fatal flaw was the thought that with enough money, and passion, all the feedback and tussles between consumers, and inspectors, and building code committees, and brokers, and city planners, and developers, and real estate agents, and electricians,…that all those players interacting in a market setting, just doesn’t matter.
The market continues to shuffled through the consumer choices when judging the environmental impact of products. Standards are set by producers of furnaces and A/C units; power companies offer home energy audits and neighbor consumption comparison; neighbors talk to each other; contractors share incentives; all in the effort to advance a public goal of energy savings. But at each step that goal must be incorporated into the overall integrity of the purchase at hand, or homes will fall apart just like those in the Lower Ninth Ward.
Praise for Brad Pitt remains high, and the contention remains that his intentions were and are completely genuine. It looks, however, as if he will pay dearly for moving toward an ambition without vetting it through the market system. This story shows us that it is not enough to imagine a better world, and poof! It will happen. Progress takes the engagement of all players, giving feedback through action and pricing. Progress depends on markets.
National defense is the most common example cited as an economic public good. It is certainly the oldest public good, harking back to the times of kings and round tables, and even before. Allegiances were made, city walls built. But let’s see if it always meets the economists’ definition of providing a service that is non-excludable and non-rivalrous.
The name alone gives away that it is already a different something than, say, sunlight. Right off the bat the precursor ‘national’ tags the defense to a nation. So it is a service to one nation, excluding all outsiders. In this case being non-excludable really means the service cannot exclude citizens of the nation in question.
However, there also seems to be all sorts of exceptions to this rule. Take the Japanese Americans that were locked up during WWI. Around sixty-two percent of the internees were US citizens and yet a global conflict thrust them at odds with their nation. Recently Mike Pence criticised the President Obama Administration for not rescuing ISIS hostage Kayla Mueller. The claim being that this US citizen did not receive the protections of national defense that she and her family deserved.
Like any definition it only takes one counter example to throw the statement into question. Let’s consider whether the good is non-rivalrous: that the use of it by one consumer does not diminish the use of it by another. This seems right. Everyone in Philadelphia received the same protections against terrorism when Navy Seals took out Osama Bin Laden, as folks in Albuquerque. This mastermind of evil would do harm to any American which means his demise makes all Americans safer.
Yet, our history is riddle with military involvement in countries in efforts to preserve business interests abroad. In the early part of the twentieth century the US defense forces were repeatedly used in Nicaragua to protect business interests. Declarations against such activities include objecting to the use of a national resource to benefit a sub-group, the business community. (excludable) And since the military is run on a budget, the occupation of Nicaragua from 1912-1933 undoubtedly took away from expenditures on other national defense initiatives. The end goal of defending all citizens is rivalrous as there is always a menu of possible national pursuits that could drain the national purse.
It seems to me that there are no such things as goods that are solely for the public benefit. There are only goods, or rather goods and services. And those goods and services can be used by individuals or groups, for private or public objectives. Some goods, by nature, are more prone to be shared within groups. Some are more productively produced while strongly preserving private property rights. Groups with shared interests decide how to employ goods and services, where the groups can be as large as the human race all the way down to a couple.