Be Wary of the Return of Big Government

Nick OttensJanuary 6, 2021February 14, 2021

Union Station Washington DC — South Front Entrance of Union Station in Washington DC, July 4, 2019 (Unsplash/Caleb Fisher)

Big government is back.

Massive rescue programs have prevented business failures and unemployment on the scale of the Great Depression, even though last year’s economic contraction was nearly as bad. The European Union agreed a €750 billion recovery fund, financed, for the first time, by EU-issued bonds. The money comes on top of national efforts. The United States Congress passed a $2.2 trillion stimulus, worth 10 percent of GDP, in March and added another $484 billion in April. An additional $900 billion in relief was included in this year’s budget.

Joe Biden, the incoming American president, wants to spend $2 trillion more over the next four years to transition the United States to a greener economy and create a public health insurance program. Corporate tax would go up from 21 to 28 percent.

In Spain, a socialist government has introduced the biggest budget in Spanish history — partly to cope with the impact of coronavirus, but also to finance digitalization, electric car and renewable energy subsidies, infrastructure and rural development. Taxes on income, sales and wealth are due to increase.

In the United Kingdom, the ruling Conservative Party is building more social housing and it might renationalize rail. Unlike during the last economic crisis, it does not propose to cut spending even though tax revenues are down.

Same in the Netherlands, where all the major parties agree the government needs to do more to reduce pollution and prevent people at the bottom of the social ladder from falling through the cracks.

I’m not opposed to more government per se. I’ve argued that the United States should imitate countries in Northern Europe to improve its public services, particularly child and health care and housing.

But let’s be careful not to throw “more government” at every problem. Sometimes government is the problem. Read more “Be Wary of the Return of Big Government”

Statism Makes a Comeback in the United Kingdom

David DowningOctober 31, 2020December 26, 2020

The British flag flies over the Cabinet Office in London, England (Shutterstock/Willy Barton)

Two months ago, I argued Britain was once again the sick man of Europe. It had the second-highest per capita COVID death rate among major countries. Economic output had fallen 20 percent from the year before.

The crisis wasn’t lost on policymakers. The dual shock of coronavirus and Brexit — Britain formally left in 2019 but still applies EU rules and regulations this year — has led to something of a quiet revolution in Whitehall: the potential rebirth of the interventionist state.

There is still much wrong with how the British government has handled both events, the poster child for COVID being the decimation of the British aviation and travel industry as well as the arts. Not since the closing of the coal mines has an entire industry shrunk so dramatically.

Yet the seeds of a new statism have been sown — by a Conservative government. Read more “Statism Makes a Comeback in the United Kingdom”

Biden’s Housing Plan Emulates Europe

Nick OttensJuly 10, 2020September 7, 2020

Homes in Seattle, Washington, April 21, 2011 (Harold Hollingsworth)

One of the areas in which I think America should emulate Northwestern Europe is housing.

Stagnant wages, restrictive building codes and underinvestment in construction have caused home prices to rise faster than wages in eight out of ten metro areas in the United States.

Young Americans are one-third less likely to own a home at this point in their lives than their parents and grandparents, delaying their wealth accumulation and possibly family formation. Among young black Americans, homeownership has fallen to its lowest in more than sixty years. Americans of all ages are less likely to move, which has contributed to a decline in social mobility and an increase in regional inequality.

I like the Dutch system, which is a combination of government-built social housing rented out at below-market prices and rental subsidies, which can reach up to a third of the average private rent, and for which about one in five households qualify.

Turns out that’s close to Joe Biden’s plan. Read more “Biden’s Housing Plan Emulates Europe”

The American Dream Could Use Some European Inspiration

Nick OttensFebruary 25, 2020August 30, 2020

Copenhagen Denmark — Cyclists in Copenhagen, Denmark (iStock/Leo Patrizi)

One can tell two very different stories about the American economy.

In one, growth is robust, unemployment is at its lowest in half a century and the stock market is booming. This is the story President Donald Trump likes to tell.

In the other, two in five Americans would struggle (PDF) to come up with $400 in an emergency. One in three households are classified as “financially fragile“. Annie Lowrey writes in The Atlantic that American families are being “bled dry by landlords, hospital administrators, university bursars and child-care centers.” This is the story Bernie Sanders and the Democrats tell: for millions of Americans on seemingly decent middle incomes, life has become too hard.

Sanders’ solution is to bring “democratic socialism” to America. He cites European countries like Denmark and Sweden as inspiration. They’re not bad places to imitate — but they have actually moved away from socialism and toward a mix of free markets and the welfare state. It is why they rank among the freest and most competitive (PDF) economies in the world.

Americans can learn from the Scandinavian experience, if they get the balance right. Read more “The American Dream Could Use Some European Inspiration”

Berlin Shows How Not to Do Housing Policy

Nick OttensJanuary 12, 2020July 31, 2020

The sun sets on the Saint Nicholas’ Church and town hall of Berlin, Germany, January 26, 2010 (Mika Meskanen)

If you’re trying to control housing costs in your city, don’t look to Berlin for inspiration.

The German capital is due to implement a five-year, across-the-board rent freeze in March. The measure is expected to save around 340,000 tenants money during that period, but it will come at the expense of housing affordability in the long term.

The German Economic Institute in Cologne estimates that Berlin’s policy will reduce the value of some properties by more than 40 percent.

A consequence of that will be underinvestment. The BBU, a trade association of developers in the Berlin and Brandenburg region, says its members expect to reduce investments by €5.5 billion and construction by a quarter.

Germany needs 350,000 new homes each year to keep up with demand. Only 286,000 were built in 2018. If the BBU is to be believed, that number will fall — driving up housing costs across Germany. Read more “Berlin Shows How Not to Do Housing Policy”

EU Budget Fight, California’s Housing Crisis and Trump’s Threats

Nick OttensMay 3, 2018July 31, 2020

President Jean-Claude Juncker and other members of the European Commission listen to a debate in the European Parliament in Strasbourg, September 14, 2016 (European Parliament)

Austria, Denmark and the Netherlands are unhappy about the European Commission’s proposal to eliminate rebates in the EU’s next seven-year budget.

The commission has proposed to cut solidarity spending by 7 percent and agricultural subsidies by 5 percent to make up for the loss of Britain’s contribution.

It also wants to eliminate “correction” mechanisms that benefit the wealthier member states.

The stakes are low. The rebates add up to €6 billion. The proposed budget — €1.25 trillion — altogether represents about 8 percent of the EU economy.

Expect a big fight nevertheless. For center-right leaders in Austria, Denmark and the Netherlands, who face competition from the nativist right, this is a perfect opportunity to bolster their Euroskeptic credentials. In the end, the commission will give in a little and everybody walks away happy. Read more “EU Budget Fight, California’s Housing Crisis and Trump’s Threats”

Merkel Presents Alternative Eurozone Plan, Erdoğan Calls Early Elections

Nick OttensApril 19, 2018July 31, 2020

German chancellor Angela Merkel delivers a news conference in Berlin, March 24, 2015 (Bundesregierung)

Angela Merkel’s response to Emmanuel Macron’s EU reform push is to beef up the Eurogroup: the regular conclave of finance ministers from the nineteen countries that use the single currency. Merkel would add economy ministers to the meetings and expand the Eurogroup’s remit to include all areas of economic policy.

Mehreen Khan argues in the Financial Times that it’s a good way to sabotage eurozone reform: “you effectively hollow out decisionmaking power and create a glorified talking shop.”

I think that’s an exaggeration, but Merkel and Macron do have different priorities.

The former, backed by a Dutch-led alliance of liberal member states, calls for structural reforms to boost competitiveness in the south. Macron argues for investments to promote convergence.

The end goal is the same, but the way they would get there is very different: Merkel puts the onus on the laggards while Macron argues for a shared responsibility. Hence his push for a common eurozone budget and a European finance minister. Read more “Merkel Presents Alternative Eurozone Plan, Erdoğan Calls Early Elections”

The Rent Is Too High, Partisanship Versus Democracy

Nick OttensApril 10, 2018July 31, 2020

Homes in San Francisco, California, April 5, 2010 (Jerome Vial)

Will Wilkinson of the libertarian Niskanen Center tells The Washington Post that expanding affordable housing in America’s major cities is the key to reducing inequality.

Wages have barely budged in decades, yet housing costs have soared due to restrictive zoning and land-use policies. Young and working Americans are now unable to save. Homeowners are getting richer.

Kevin D. Williamson, a conservative columnist who was recently hired and then fired by The Atlantic for his right-wing views (more on that here), has similarly argued in National Review that working-class Americans left behind in the Rust Belt need to move to the coasts. He partly blames them for staying put, but recognizes that policy plays a role.

Consider California, where so many of the jobs in the new economy are. Its housing crisis (you can buy a private island or a castle in Europe for the price of a San Francisco apartment) is entirely man-made, “a result of extraordinarily restrictive zoning and environmental codes and epic NIMBYism of a uniquely Californian variety.”

A Republican Party wishing to renew its prospects in California (which it once dominated) or in American cities could — and should — make affordable housing the centerpiece of its agenda for the cities.

More on why Republicans ought to compete in American cities here. Handelsblatt reports that Berlin fears San Francisco-style housing problems. Read more “The Rent Is Too High, Partisanship Versus Democracy”

British Housing Shortage Requires National Effort

David DowningOctober 17, 2014October 24, 2019

Mansions in London, England (Shutterstock)

In the past, revolt and unrest in Britain were typically sparked by the cost of bread and corn. Today, it is the price of housing.

This month, the average price of a home in London reached £500,000. The average housing price in the whole country is now ten times the average wage. The increase is due more to limits in supply than to a steep rise in demand.

If Britain wants to defuse this time bomb that is anemic to the idea of a “property-owning democracy,” a concerted national effort has to begin immediately. To make up for the housing shortfall, it is estimated that between 250,000 and 300,000 homes need to be built every year for at least the next decade.

Those who say that this can’t be done should look to the achievements of Harold Macmillan. Despite the constraints of rationing and postwar austerity, 300,000 homes were build every year while he was housing minister between 1951 and 1954.

How was this done? Well, there was a concerted effort by the national government. Most famously, “new towns” were created, such as Hemel Hempstead and Stevenage, both close to London.

At this year’s Conservative Party Conference in Birmingham, there was a whole raft of events all centered on how to try to end the housing crisis. It was generally acknowledged that new garden cities and ecotowns only represent the start of what has to be done. There needs to be more construction on urban brownfield land and the idea of apartment living should be rehabilitated.

Part of the problem lies in the notion that all development is bad development. This is simply not true. It’s only that developments that blend in well with their surroundings tend to go unreported.

The more serious problem is lack of space. In the last eighty years, the average space of a home has shrunk from 153 square meters in the 1920s to 96.8 square meters today. Houses in Britain are now 80 percent smaller on average than those in Germany and 53 percent smaller than those in Denmark. Little wonder that only one in four buyers would choose a home that was built in the last ten years. Simply ramping up production of the sort of homes that are currently being built would appear to be a mistake.

In a country where the phrase “An Englishman’s home is his castle” still holds more than a grain of truth, this is an issue that can not be left to partisan politics or even to the markets, as that is what has brought us to this point. Until there is a significant chance in policy, the dream of owning a property will remain just that for many young Britons — a dream.

Atlantic Sentinel

Tag: Housing