Sunday, October 18, 2009

Bloomie's Broken Window Blooper

by Taylor Conant

This ain't the 'Broken Window' theory championed by Rudy, Billy and Howie in NYC in the early 90's. No, this is the 'Broken Window fallacy' of French economist Frederic Bastiast of the 50's (the 1850's, that is), and NYC mayor Mike Bloomberg is all over it! According to the

Mayor Michael R. Bloomberg is closing in on a milestone: building or preserving 165,000 city-financed apartments and houses for low-, moderate- and middle-income families, the goal of a $7.5 billion housing plan he announced in 2002 and expanded in 2005.

It has already financed the creation or preservation of 94,000 units, including 72,000 for low-income households, city officials say.

But those efforts have been overwhelmed by a far larger number — the 200,000 apartments affordable to low-income renters that New York City has lost over all, because of market forces, during the mayor’s tenure.

Oh Bloomie! While you may be in charge of executing the law, and your police buddies are responsible for enforcing it, Bastiat wrote the book, literally. Bastiat's The Law, published 1850, decried the twin evils of "stupid greed" and "false philanthropy" and served as a follow-up to his earlier pamphlet That Which Is Seen And That Which Is Unseen, which first related his Parable of the Broken Window which made the simple observation of redistributive welfare economics-- it doesn't work. For every dollar spent by the government on a welfare project, corporate or individual, there is concurrently one less dollar available to be spent in the private sector. In The Law, Bastiat railed against the "protective tariffs, subsidies, guaranteed profits" of stupid greed and the "guaranteed jobs, relief and welfare schemes, public education, progressive taxation, free credit, and public works" of false philanthropy.

Hey, Bloomie, which of these farcical fallacies have you pursued in your wanton violation of unrepealable (economic) Law?

When you read the sly propaganda of the NYT and learn that Bloomie has almost "built or preserved" 165,000 apartments and houses for "low-, moderate- and middle-income families" with his $7.5 billion program, you ought to make like Bastiat, the economic Lawficer, and ask yourself these questions:

--Whose money did Bloomie use to do this?

--How did he decide on the $7.5 billion figure (what calculation did he arrive at to conclude this was an optimal amount)?

--How many apartments and houses, for families and individuals of all economic strata, were NOT built because the funds to do so were absorbed by Bloomie's program? (If each of these apartments/houses house just one family, then the cost of construction/preservation was more than $45,000 per unit!)

--Furthermore, how many buildings providing all kinds of goods and services (housing, healthcare, food, entertainment, recreation, transportation, etc.) were NOT built because the funds to do so had been appropriated by Bloomie's ambition?

--Go one step further... imagine everything that could've been built/preserved with that money, and wasn't, and ask yourself how Bloomie knew that this use of the $7.5 billion total was the best, most economic/welfare-enhancing use of that money for NYC's society, in light of the nearly infinite multitude of alternative uses?

--How many votes do you estimate Bloomie bought with NYC-taxpayer money?

The last question is an important one, and the effects of the expenditure are obviously both direct and indirect. Nearly every one of the families housed by Bloomberg's affordability extravaganza will likely feel indebted to him for their cheap dwelling, but there will also undoubtedly be a ripple effect an order of magnitude greater in number amongst the voting 'conscientious' in the Big Apple.

Let's face it, "affordable housing" is a misnomer, if not an outright lie. Like the politicos who push it like a drug on the corner outside the local bodega, it's a definitional perpetration of the 'Broken Window fallacy' Bastiat warned us against. For every individual who is seen to gain a unit of "affordable" housing, another individual goes largely unseen in bearing the incredibly unaffordable tax burden placed upon him that permits the "affordable" housing to exist. And the tradeoff is rarely 1:1... a poor man gains his housing while a wealthy man loses the tax levied on him to pay for it. But maybe someone else loses, too, like the other poor man and his now non-existent job, who would've been hired by the wealthy taxpayer. Or maybe the wealthy man was an investor, who can now not afford to invest in a start-up company that would've provided a new good or service to thousands of people but which was unfortunately unable to secure their start-up capital.

The possibilities are endless, and they're all unrealized and therefore unseen.

And while the NYT laments the lack of "reasonable places to live" (gee, how do they calculate that one? Is it 'reasonable' to have your own bathroom? kitchen? dishwasher? laundry machine? bedroom plus dining room?) no one seems to miss all the other "reasonable places to live" and great places to hang out and cool new products and services to try that, thanks to Bloomie's "stupid greed" for votes and "false philanthropy" simply don't exist at all.

But that's not the most confusing part. The article continues:

Including public housing, the number of apartments considered affordable to low-income households — those earning less than 80 percent of the city’s median income, or less than $37,000 — decreased to 991,592 from 1,189,962, a drop of nearly 17 percent, from 2002 to 2008. About 42 percent of the city’s households fit in that income category in 2008.

The data were supplied by the Furman Center for Real Estate and Urban Policy at New York University, which analyzed the city’s Housing and Vacancy Survey from 2002, 2005 and 2008. The center and other housing experts consider an apartment affordable if it costs no more than 30 percent of a family’s income, or about $925 a month for a family earning $37,000.

The city says a low-income household is one earning less than 80 percent of the median income of $37,000 (by the way, if this is a relativistic definition based on a sliding scale, it's possible for a household to qualify as low-income making $150,000 if the median income is $200,000). The Furman Center at NYU says an apartment is affordable if it costs no more than 30 percent of a family's income. But what do the people say?

The people say all kinds of things about affordability. Some people are thrifty and won't spend more than 20 percent of their income on housing. Some prefer to spend more of their income on housing than on other monthly expenses and will spend 40 percent. Some think it's more "reasonable" to spend more if they conclude they're getting a safer housing experience, others spend less when they find their housing options to be inconvenient to their lifestyles. There's no right or wrong answer when it comes to individual perceptions of affordability... unless you happen to work in the mayor's office or on the campus of NYU.

Comically, the NYT gives us the best proof of this concept possible with their own portrayal of one of the 'victims' of the affordability crisis:

Before the recession, James Hadden was earning up to $1,000 a week cutting hair at a Harlem salon, but more recently he has taken home $400 to $700. So he has fallen behind on the $1,300-a-month rent on his one-bedroom apartment, a fourth-floor walk-up on Lenox Avenue. His landlord began asking him to pay weekly. “I’m going to go pay this man’s rent so he’ll stop calling me,” Mr. Hadden, 42, said Tuesday.

Of course, the plight of poor James Hadden, a man who once made $4,000 a month styling people's hair, tells us absolutely nothing about how "affordable" or "unaffordable" housing in New York City is and everything about the choices and trade-offs individuals will make when it comes to allocating their own resources to housing. Mr. Hadden has presumably already made the decision to accept a 'less desireable' housing location in the city (Harlem), for a much lower average rent on same-space (even in the middle of the Next Great Depression, it's hard to find a studio apartment for less than $1,800/mo, and a 1-BR for less than $2,200 if you want to live further south in the city).

But there's even more to Mr. Hadden's economizing on housing than just cost:

He said he was happy to be only 16 blocks from work; closer to the salon, on Fifth Avenue at 116th Street, rents are even more expensive. But he said he sometimes heard gunfire outside his building on Saturdays. “My family comes to visit me and I’m embarrassed to show them where I live,” he said

Ah, so you see, Mr. Hadden also trades the convenience of living near work for the safety and security of living somewhere else. And although he's taken a pay cut lately -- his housing was already "unaffordable" by city/NYU standards at 32% of his income, even though Mr. Hadden presumably didn't begin complaining about the situation until recently -- Mr. Hadden continues to pay rent even at these elevated cost-to-income ratios because he appears to find this a more "affordable" set-up than the other alternatives presently available to him. But don't tell the "experts" that, or they might suffocate you in charts, facts and figures.

Bloomie's policy brings us one more treasure, too-- housing by lottery:

Affordable housing is in such demand that most new apartments are awarded by lottery. Alan Ceballos, 30, said he was grateful to have won his two-bedroom apartment, costing $839 a month, in a new building on University Avenue in the Bronx.

Mr. Ceballos, who earns about $33,000 a year as a sales associate at a car rental agency, won the spot three years ago, allowing him to move out of a one-bedroom that cost $794. He and his wife had two children then, and now have three


Let's see, limited supply of "affordable" housing... nearly unlimited demand for it. How do we solve this problem? Bloomie wonders. Oh, I know! he shouts, Let's have a lottery!

Seems fair, right? Until you ask yourself, "How many families are there who could've paid $839 a month or more in rent and outcompeted Mr. Ceballos, but instead must settle for their next-best housing alternative as a result of not winning the lottery?"

The market's solution is impersonal and, dare I say it, fair: prices rise and fall in terms of rents asked for and rents bid until supply and demand equilibrate and those who value a unit of housing the most are those who get the housing.

Bloomie's solution is arbitrary and mean. He sets up a lottery and then says "Too bad, so sad" to those who don't win but could've afforded the housing nonetheless. Don't forget, this is the kind of 'solution' we'll be seeing with rationed public healthcare soon enough, too.

Public housing programs and "affordable" housing regulations are a disaster. They punish and reward at random, they suppress profits and leech taxes out of private wealth that could be used to maintain and expand the supply of ALL private goods and services, including private housing, and they violate economic law in a tragic race-to-the-bottom. The more housing resources and wealth in general under control of the State and Michael Bloomberg, the less housing resources and wealth in general will be available to you, me and everyone else to do as we prefer with it.

Keep in mind, whereas the private sector does everything it can to try to promote the kind of quality, convenience, security and accessibility that maintain and drive property prices higher, it is the stated policy aim of governments everywhere to drive property prices and values lower. And while it is the competition of the marketplace which is the only phenomenon capable of actually achieving the government's aims (lower real property values), the government will nevertheless achieve one of its goals (lower nominal property prices) by inviting in all the crime and decrepitude normally found in government-owned ghettos the world-round, and spreading this social malice as far and wide as it is able to do so.

So, in a nutshell, Bloomie, you blew it. Your pursuit of "affordable" housing for the benighted people of NYC will forever remain elusive, but your success in visiting more stagnation, rot and hardship on those same poor people will indeed be great and remembered forever!

Taylor Conant writes about economics, politics and liberty from Southern California. He believes the world would be a better place if more people minded their own business.

Copyright 2009 EPJ Group LLC


  1. Bravo, excellent piece by Taylor. Bastiat is a perfect antidote for the fumbling NYT writers.

    But why reach 3,000 miles to the east when your own backyard is target rich?

  2. I think Bloomberg should focus on getting that poor girl some more clothes.

  3. Efinancial,

    But why reach 3,000 miles to the east when your own backyard is target rich?

    For one, I left part of my heart in NYC. It pains me deeply to see the city torn apart in this (albeit entirely predictable and historically consistent) way.

    For another... just too damn easy. This post pretty much wrote itself, I was simply the medium through which it was channeled. Funny how good comedy usually works like that.