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Dear Matthew Yglesias: Yes, Econ is Hard

April 11th, 2012 · 10 Comments · Economics

Economics is hard.

I was sent this piece written by Philosophy major Matthew Yglesias yesterday. In it he attempts to emulate thinking like an economist, and signals in a way that the untutored will likely find impressive. Phrases like “regressive”, “subsidy” and even an “at the margin” are sprinkled in liberally. (Strangely — and very conspicuously for this specific instance, he omits the well-worn favorite of progressive pseudo-economists, and the ever-present justification for market intervention: “externality”.)

Here is his core argument (emphasis mine:)
“…developers assume that there’s widespread demand for cable TV and modem hookups, so they provide them…right now, new construction projects are generally required to provide parking, in effect taxing households with a below-average quantity of vehicles in order to subsidize households with an above-average quantity…at the margin does Seattle need to subsidize extra parking?”

Those who have a distaste for cars, gratuitous mobility, or greenhouse gases will no doubt inherently embrace this line of thinking.

Those of you who have sat through a few econ classes and have pondered scores of case studies over several years will no doubt immediately see numerous holes in his logic. Let’s walk through a few of them:

Parking, Cable and Their Supply Curves: Huge Differences in Incentives for Developers to Provide Them

Inserting cables into walls as they are being constructed impose negligible marginal costs to the builder and absolutely zero opportunity cost (cables in walls don’t displace housing units) — SO DEVELOPERS “PROVIDE THEM”. (Economists universally visualize supply curves in conjunction with demand curves BTW.) Things aren’t made widely available just because people “demand” them.

More parking spaces absolutely means fewer sellable apartments and/or smaller/less profitable ones. Huge difference.

Result? Builders are far more averse to displace apartments with parking than they are to stick cables in walls. Naturally they will maximize dwelling units, and minimize parking.

Parking is a Congestible Public Good, Cable TV is a Private Good

Unlike parking, functional cable TV connections don’t universally sprout out from the street for miles around. Since on-street (and other) parking options exist developers will inherently prefer to free ride on that capacity in order to maximize their revenues. This means fewer than desired parking spaces and hello tragedy of the commons. (Irony alert here — I’m referring to an externality problem…) The logical solution is to ensure developers don’t impinge on existing public capacity, and minimums are the easiest way to do that.

Arnold Kling (Econ PhD — sadly, no Philosophy credentials) deals with this here:

“Ah, but there’s the issue, don’t you see? How do you deal with the Coasian bargaining issues? Suppose somebody wants to put a big apartment building in my neighborhood, without providing parking, creating major inconvenience for those of us who no longer will have street parking available. How do we arrange for the developer to compensate us, or for us to pay the developer to provide us with parking?”

People Still Universally Drive Cars (and Need to Park Them)

Unicorns and rainbows aside, Seattle dwellers have not abandoned their automobiles for streetcars and fixies. If you are a Seattleite renting an apartment, you have a car and need to park it somewhere. Yglesias asserts that 16 percent of households don’t have cars — I don’t believe it. Given the still-ubiquitous nature of cars and the incentive for developers to not provide adequate supply, mandated minimums are appropriate.

Parking is Fungible

A “below-average quantity of vehicles” problem? Did you rent an apartment that includes a parking spot? Are you that one guy without a car? Are you a victim? No. See a doctor, and if he can’t cure you of your freedom/mobility-aversion, rent the space out to someone else. Problem solved.

“Extra” Parking?

“Extra”? Mandates provide parking “extra” parking above what’s needed? Based on the evidence above, try “enhancing supply in an attempt to better align to a proper market equilibrium” instead.

Have any readers tried to park in Seattle recently? Does it seem like there is “extra” parking or a ton of untapped capacity due to these regressive governmental mandates? Anyone? Bueller? I didn’t think so…


10 responses so far ↓

  • 1 Steve Roth // Apr 12, 2012 at 7:10 am

    Despite your effort to cast this as a descriptive or “positive” economic statement of simple, obvious reality, this whole argument is based on a normative assumption: free parking is a public good that government should provide — by taxing residents/not charging for parking, and by requiring developers to include parking and hence charge more for apartments.

    In either case, Seattle government is forcing residents to spend money on something they might not want. In the latter case (parking requirements for developers), it’s requiring them to buy something (a parking space) from another private entity.

    Sounds like a recent Supreme Court case.

    Those who believe in free markets would suggest that this resource would be better allocated via the pricing mechanism. Textbook economics?

  • 2 Steve Roth // Apr 12, 2012 at 7:23 am

    Thinking about this more: isn’t the game theory totally different depending on whether or not there are parking meters? So the required-parking rule should be different in places where parking is paid (downtown) versus where parking is free?

    Which comes back to the public-goods question: should the city start charging for street parking everywhere? Or alternately, should it remove all parking meters?

  • 3 Steve Roth // Apr 12, 2012 at 7:24 am

    And how does that play out over decades, when/if density increases in some areas? So places that don’t currently have meters start getting them. ?

  • 4 Jason Preston // Apr 12, 2012 at 11:01 am

    Roth: Seems like a good point about street parking being metered or otherwise restricted. If a developer builds a new apartment complex in downtown Seattle or Pioneer Square and doesn’t include parking, anyone who wants to park a car would be forced to either:

    – rely on finding street parking, at up to $8/hr
    – purchase a monthly spot in a nearby garage, if there is a nearby garage

    This would probably discourage people who have cars from renting an apartment. Which would mean that the apartment would either fill up with tenants who do not have cars (I actually do know at least two people who rent in seattle and do not own cars) or would go empty and be put out of business.

    On the flip side, we rent an office space in an area that has ruthlessly cut street parking to a minimum, and frequently makes it insanely hard to park at the building, does not provide sufficient parking spaces, and we don’t move. So so much for the notion that not having available parking forces people not to rent space.

    The problem identified by SB is real though in an area where street parking is provided free of charge. The real goal here is not to allow developers to free ride on existing public infrastructure for their private gain. That seems to imply that the law requiring developers to build parking should scale with the rate and availability of public parking?

    Also, re: supreme court, my understanding is that mandating a purchase is not a federal power, but is within the purview of state and local governments.

  • 5 Steve Roth // Apr 13, 2012 at 7:17 am

    Downtown owners could buy/rent a space at a private lot, but it wouldn’t be convenient for everyday drivers. Where parking is not provided as a free public good (downtown), I say let the market work. Developers can play the game any way they like, and buyers can choose.

    Government providing free parking distorts those decisions, requiring it to further distort decisions by requiring private entities to provide, and pay for, parking spaces to protect that “public good.”

    Thinking: suppose you allow new apartment buildings and require parking in Eastlake buildings (where street parking’s mostly free). Thirty years from now, Eastlake’s really dense, and they put in meters. At that point you remove the parking requirement for new buildings? Seems sensible… If there’s an oversupply of buildings with parking at that point, developers would then provide more cheaper apartments that don’t include parking. But it could take decades before those who don’t want to pay for a parking place can make the decision (live in Eastlake) that they would have made if the requirement had never existed…

    “Also, re: supreme court, my understanding is that mandating a purchase is not a federal power, but is within the purview of state and local governments.”

    Funny, I don’t see that argument being made; not sure why. The “required car insurance” argument seems to be countered, rather, by “well you’re not required to have a car.”

  • 6 Steve Broback // Apr 13, 2012 at 1:43 pm

    Thanks guys. Really appreciate the comment love here. Good stuff.

    “Those who believe in free markets would suggest that this resource would be better allocated via the pricing mechanism”
    Yes, but process set via true market forces. That’s very different than pricing being set by a committee of city bureaucrats with near-monopoly power and their own incentives. Another thing that’s great in theory and something a small town in Denmark can probably get right.

    You could auction off the public spots, but my concern is how they don’t all eventually land in some single monopolists hands. (Ooops! slap me, I’m getting all unconstrained here with my great ideas! — see below…)

    “Seattle government is forcing residents to spend money on something they might not want. ”
    – Yes, you’re just parroting Yglesias now. You can commonly rent apartments that don’t include parking. And as I will say again, parking is FUNGIBLE.

    “(I actually do know at least two people who rent in seattle and do not own cars)”
    No motorized transport? It’s true, adult Cargo-cult Manhattanites exist. I knew at least one local urbanite as far back as the late 80’s with that affectation. If you’re not in college anymore and don’t have a vehicle, free government counseling for liberty-aversion might be a better buy. : )

    “This whole argument is based on a normative assumption: free parking is a public good that government should provide …”

    Not true. Again, my argument is that much parking is already a *congestible public good* — period. I work in the “IS” world. I leave the “shoulds” up to all those smart unconstrained thinkers who lay awake nights thinking up kindly/redistributive command and control structures to maximize utility for us all.

    You guys are missing the entire point. I am not trying to postulate magical solutions to the world’s parking problems as they spring forth from my “superior” (economically underpowered) brain. I am asserting quite the opposite. We need fewer philosophers with those kinds of conceits (sadly all too often combined with strong keyboarding skills…) We have a workable/imperfect solution now, we mandate developers to provide a minimum, and still people universally feel spaces are few and far between. To say reduced supply is the answer is borderline mental IMHO.

    What I am doing is simply saying is that Yglesias is a very smart guy who has absolutely no grasp on how to do a reasonable economic analysis of a good like parking. Any third year econ student would have done a far better job than this. It’s called domain expertise. I have almost zero, yet apparently the one-eyed-man etc.

    Seriously: No consideration of the supply curves, no reference to the vast difference in the types of goods being compared, not a single mention of the free-rider/externality problem when we *finally* have a real example of it in action. etc. etc.

    My driving normative assumption is that there is an army of economically untutored people who take at face value stuff like what Yglesias wrote here and will regurgitate it unthinkingly until it might just affect policy. The problem to tight parking is reduced supply(!????), right…

    When I worked in pioneer square in my 20’s I just parked free on the outskirts and hiked to work. I just externalized myself onto someone else’s land. How far out do you want to meter/patrol? See Kling above.

    “Sounds like a recent Supreme Court case.”
    Local zoning makes builders install indoor plumbing too. So what? Is there a point here? Is this something federal and concerned with interstate commerce?

    Even a free-market zealot like me has perpetually argued for zoning. “Externalities!”

  • 7 Steve Roth // Apr 14, 2012 at 7:32 am

    “You can commonly rent apartments that don’t include parking.”

    Yeah but the supply is (much) smaller because of government interference, right? So the mandate must drive up the prices of those apartments, no?

    “not a single mention of the free-rider/externality problem”

    That’s *exactly* what the post is all about — car owners free-riding on non-car owners, courtesy of government interference.


    His invocation of supply curves is only implicit, but it’s also completely obvious — unnecessary to spell out — to a first-year economics student.

    “How far out do you want to meter/patrol?”

    That’s the question I just asked you!

    “My driving normative assumption”…

    …is that car ownership should be subsidized by the government. Because it’s “good.” Fine. But not a clincher.

    Sorry, I really think your notion that his post is ridiculous is ridiculous. It’s perfectly coherent “textbook” economic thinking. It just doesn’t deploy the particular textbook economic tenets that you would like it to deploy, in a configuration that supports your preferences.

  • 8 steve broback // Apr 29, 2012 at 9:03 pm

    “car owners free-riding”
    “…is that car ownership should be subsidized by the government.”

    It’s quite the opposite. Those rare non-car owners get massive public transport subsidies (and often free rides) from us car owners. Our societal
    mobility is based on near-universal car usage. Reducing the infrastructure for that may help mitigate a 3mm rise in global sea-level (not) but please, let’s not discuss this as a market-savvy local economic choice. Hand-wringing over car drivers being extractive is like saying people without indoor plumbing are being taken advantage of by house-dwellers.

    “Yeah but the supply is (much) smaller because of government interference, right? So the mandate must drive up the prices of those apartments, no?”

    Incorrect. I am talking about the many buildings that have parking slots (driven by zoning) that decide to separate out the charge for parking, effectively making it an option, not a mandate for the therapy-needing renter. Problem solved.

    “His invocation of supply curves is only implicit”
    Far from it. His comparison of the two goods implies identical supply structures. I can tell you as someone who spent years of drilling on these kinds of case studies with fellow students his analysis is sophomoric. And let me add I wouldn’t last two minutes against him on a discussion of Plato vs Aristotle.

  • 9 Steve Roth // May 25, 2012 at 11:12 am

    Just saw a fact that reminded me of this:

    Daniel Kahneman has never taken a single course in economics.

  • 10 Steve Broback // Jun 18, 2012 at 10:25 pm

    Yes, and John von Neumann was a chemical engineering major and got a Ph.D. in mathematics. When they give a Nobel prize for a paper covering the economics of fungal infections, I won’t be surprised if it goes to a M.D. If we’re lucky, he’ll have at least an inkling about how supply curves can differ radically between different goods. — But I won’t hold my breath…

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