Priorities and Problem Bundles

April 27, 2025

By Stephen Stofka

This is part of a series on persistent problems. The conversations are voiced by Abel, a Wilsonian with a faith that government can ameliorate social and economic injustices to improve society’s welfare, and Cain, who believes that individual autonomy, the free market and the price system promote the greatest good.

Abel said, “After last week’s conversation on the homeless problem, I wondered about the strategies cities have devised to tackle the problem. I thought Denver and Aurora provided a good contrast. Here are two cities in the metro Denver area that have adopted policies with a different emphasis. They share a common border so imagine you’re standing on one side of a border street. Homeless people on that side of the street get treated one way. Homeless on the other side of the street get dealt with under a different policy.”

Cain smiled, “Well, you had a more productive week than I did. I spent Monday worrying about the consequences if Trump tried to fire Powell, the head of the Federal Reserve. On Tuesday, Trump said the media made too big a deal out of things he said.”

Abel asked, “What did Trump say?”

Cain replied, “That he wanted to fire Powell. Trump’s exact words were ‘his termination cannot come fast enough’ (Source).”

Abel smirked. “Naturally, it’s the media’s fault for broadcasting what Trump says. Anyway, to get back to the homeless problem. Yeah, the mayor of Denver, his name’s Mike Johnston, ran on a campaign of reducing homelessness and took office in July 2023. He immediately announced his administration’s ‘All In Mile High’ program. By the end of that year, the city had bought a hotel and turned it into a shelter for 205 families. Tamarac Shelter it’s called (Source).”

Cain whistled. “A government that got something done in six months. Good for them.”

Abel continued, “By the end of last year, the city had moved 2500 homeless people into housing of some sort (Source). The cost was about $155 million in the 17 months ending in December 2024 (Source). Much of the expense was startup costs, funded by federal grants for the purchase and repair of buildings to house homeless people (Source). The city expects to spend almost $58 million in fiscal year 2025 as ongoing costs to provide housing and support programs for 2000 homeless.”

Cain asked, “How many homeless people does Denver have?”

Abel replied, “A few years ago, they estimated 9000 (Source). That’s less than the 11,000 estimated homeless in 2012 (Source).”

Cain frowned. “So, the city hopes to resolve the problem in the next two years?”

Abel sighed. “Resolve? No. Reduce? Yeah. They estimate that people will spend six to twelve months in the program so I suppose the goal is to show a strong response in the hopes that the problem will ease.”

Cain raised his eyebrows. “Housing is not getting cheaper. That’s going to put some pressure on poorer families who are just one or two paychecks from homelessness. How many of the homeless are these immigrants that got bused up from Texas?”

Abel shook his head. “I don’t know but migrants were the main component of the surge in homelessness in 2022 and 2023.”

Cain nodded. “You said the city estimated a cost of $58 million a year to provide shelter and support services for 2000 homeless people. Napkin math tells me that’s about $30,000 per person. That’s the same amount the federal government spends to house someone in a standard federal prison (Source).  That says something about our priorities and values. In essence, we pay people not to work, whether they commit a federal crime or become homeless.

Abel scoffed. “Well, that’s not exactly giving them money.”

Cain argued, “It’s giving someone money. One man’s expense is another man’s income. That’s the underlying problem. The prison industrial complex naturally promotes more prison time as a solution to crime.”

Abel showed surprise. “You would support more rehab services instead of prison?”

Cain shrugged. “Depends on what the crime is. I don’t think rehab works well with violent people. They have seen violence as a solution to their problems for a long time.”

Abel asked, “That’s not true. Given an opportunity and the right emotional circumstances, an abused wife might kill her husband. Maybe there was not an immediate threat when she killed him, so a jury doesn’t buy her plea of self-defense. She killed him to avoid the likely chance of mortal injury because of her past experiences with her husband.”

Cain nodded. “Maybe you’re right. There’s not a cut and dried rule. Given that each individual’s circumstances are a bit different, I wonder if AI could be used to guide sentencing? An AI could scan through a gazillion histories of court cases involving violent crime, look for patterns that promise a greater chance of success with rehab.”

Abel wiped his mouth with his napkin. “I like that. A more individualistic approach.”

Cain continued, “These damn politicians just don’t think of the long-term consequences of their spending policies. They adopt a ‘tough on crime’ political posture to get re-elected. They support privatization of prisons because private corporations don’t have to be as accountable to the public. Core Civic runs 61 prisons (Source). The GEO Group has 50 facilities in the U.S. that house prisoners and detained migrants for ICE (Source). These are big businesses that are listed on the New York Stock Exchange. GEO had a drop in profit last year because they spent money to build additional capacity for detained migrants.”

Abel’s eyes widened. “Border crossings are at historic lows (Source). GEO can’t be happy about that.”

Cain nodded. “Sure. They’ve invested money. They want to fill those detention facilities. You can bet their lobbyists are bending ears in the White House and Congress. I’m just afraid that cities like Denver are going to promote a similar constituency of companies that provide services for the homeless. Those companies do not want a reduction in homelessness. OK, so what’s Aurora’s approach? You said it was different.”

Abel nodded. “Denver emphasizes a stable home as a priority. Aurora takes a “tough-love” approach that emphasizes work. They have three tiers of assistance. At Tier 1, which is an emergency level, the homeless have shelter but no privacy. They need to work at improving their lives through rehab, volunteer and paid work to earn a spot in Tier 2 housing, which is semi-private, and Tier 3, which is private (Source).

Cain replied, “Yeah, I like that. A program with incentives. In fact, I’d like to see an incentive program for prisoners. They would get basic gruel, a crude bed and a minimum of yard time when they first got into the facility. They would have to prove themselves to get better food, board and time outside their cell.”

Abel frowned. “The prison would need to segregate prisoners by level of accomplishment. The prison kitchen would need to cook separate meals. Housing facilities would need to be segregated. I’ll bet a lot of prisons just don’t have the resources for that. Raise taxes? There would be a lot of pushback from voters for an ‘incentive’ program like that.”

Cain shook his head. “Goes to prove my point. The prison industrial complex wants high recidivism rates. Most of the guys in prison need to have goals set for them. They are there in prison because they wanted something they didn’t deserve. They need to be broken of that habit.”

Abel scoffed. “Robbery, I get your point. Murder? How is that taking something you don’t deserve?”

Cain replied, “Murder is the quintessential example of taking something you don’t deserve. Someone else’s life.”

Abel argued, “That’s an overly simplistic perspective. The abused wife example I gave earlier. What does that have to do with how they are treated in prison?”

Cain put his coffee cup down. “The prison gives them something they haven’t worked to deserve. Food and shelter. That just reinforces the behavior they developed outside of the pen. They are treated better than some prisoners of war who have to build roads or bust rocks for their keep. So, these guys go to war against their society and society rewards them for it by giving them free room and board. No wonder there is such a high rate of recidivism.”

Abel cocked his head. “I don’t see people lining up to get into prison.”

Cain nodded. “Most people don’t like to be caged up like animals in a zoo.”

Abel raised his eyebrows. “The Romans let slaves work their way to freedom (Source). Is that part of  your program?”

Cain shook his head. “I think a lot of states have policies that reduce prison time for good behavior. This could be an adjunct to those programs, I suppose.”

Abel asked, “No, I mean could a prisoner work to have their conviction wiped clean? It would help people looking for a job.”

Cain looked puzzled. “That’s an interesting proposal, but maybe too much of a change? Could a child sex offender get his conviction erased? Would society want that? I don’t know.”

Abel said, “Let’s get back to the homeless. I favor getting them settled into housing first, forming a daily routine, developing a sense of safety before they try various steps to rehabilitation.”

Cain replied, “I like the work first model that Aurora has adopted. Step 13, now called Step Denver, has been using that model with addicts since the early 1980s (Source). They have been dependent on government services for many years. Step provides group housing, but the emphasis is on sobriety and getting a full-time job to break that cycle of dependence (Source). Some of these people have not had a regular job for years. They need to relearn the routines of daily life. Get a paycheck, budget money, go shopping, pay bills.”

Abel argued, “But that program was designed for men only. Women, especially those with kids, need a stable home life. If they have pre-school children, getting a job is a second priority after taking care of their kids. A decade ago, the Colorado Coalition for the Homeless estimated that women made up 45% of the homeless population (Source). You like simple rules, principles that you can apply in all circumstances. That approach doesn’t work in the real world.”

Cain shook his head. “Maybe not but it’s a starting place. In a country with 350 million people, we can’t apply the law based on individual circumstances. The Trump administration is trying a simpler approach in order to expedite immigration policy. Inevitably, the liberal media finds an instance where the application of the law seems unjust because of an individual’s circumstances. Hey, I have a heart. I feel bad for some of those individuals. But student visas and green cards come with restrictions. Sure, those restrictions have often been ignored, but they are there.”

Abel frowned. “There was a dad from Indonesia with a student visa and a pending green card application who was deported because he was convicted of a misdemeanor for spraying graffiti on a semi-truck trailer (Source). The Trump people are treating people like computer programs. They probably search a bunch of databases for immigrants and visa holders who have broken any rule, no matter how slight. A programmer can write a rule and feed that rule into a computer.”

Cain admitted, “Yeah, it’s not perfect, I’ll admit. The DOGE team used a similar methodology. They fired recent hires who have fewer job protections. It didn’t matter what those people did or how critical their jobs were. No matter what method people use to streamline government or any large organization, there are going to be mistakes and injustices.”

Abel asked, “So what are our choices? On the one hand, we can have an incompetent government that can’t get anything done because it tiptoes through a lot of hurdles put up by advocacy groups. On the other hand, we can have a government willing to make some casualties as it enacts policy and hope that we don’t become the victims.”

Cain argued, “You said I was too simplistic. I’d say your alternatives are too simplistic. Look, we invented this complex system of government about a hundred years ago. Each decade, we bolted on policies and procedures until government has become a series of Rube Goldberg machines that are way too complex for the task they must accomplish. Trump is trying to undo some of those machines. It’s not pretty.”

Abel shook his head. “His administration keeps taking things apart before they studied how they were put together. When mistakes come to light, they blame it on ‘politics’ or ‘improper classification of employees.’ Like Trump, DOGE never makes a mistake. It’s always someone else’s fault.”

Cain sighed. “We started out talking about policy solutions for the homeless and now we are discussing problems with redesigning federal government practices. What’s the point?”

Abel’s tone was exasperated. “Governments can’t conduct policy using simple rules because many of the problems that government handles are complex.”

Cain interrupted, “The private marketplace handles complex problems as well. Remember Milton Friedman’s video ‘I, Pencil’(Source)? The manufacturing of a simple pencil uses materials sourced from all over the world. The price system helps coordinate the work of thousands of people and a lot of capital to produce a simple pencil.”

Abel resumed, “That is a good example of a complex problem involving an exchange of goods and services. The buyer of the pencil has one problem to solve. Writing. Government handles problem bundles, where one problem is a container of many, call them sub-problems. What if the pencil had to be used as the rod in a Tinkertoy set as well? The pencil design would have to be more complicated. The lead tip of the pencil would be good for writing but weak for making a connection in a Tinkertoy structure.”

Cain smiled. “I like that.”

Abel continued, “Each problem in the bundle interacts and interferes with other problems in the bundle. It’s like a whack-a-mole game. Solving one problem makes another problem worse. It’s like walking with a bowl full of water. We fall forward to walk. That interferes with keeping the water level in the bowl, so it doesn’t spill. Which is more important? Getting the bowl across the room or spilling as little water as possible? Choosing a priority is a policy decision.”

Cain interrupted, “Ok, I get it. So, Aurora has chosen to get the bowl across the room, to get the homeless working in a productive job, even if that strains the homeless person’s mental or character resources. Denver’s priority is to spill as little water as possible, to keep the homeless person’s personal life stable and level. A go slow approach.”

Abel laughed. “I hadn’t made the connection but OK. It’s like I enjoy the shade tree in my front yard because it blocks the sun during the summer and keeps the house cooler. But it’s messy in the spring when it spreads its seeds and in the fall when it sheds its leaves. The tree’s solution to my need for shade creates other problems. My priority is shade. A lot of government problems are like that, only ten times more complex. That’s why we hand these problems to politicians.”

Cain sighed. “Unfortunately, people vote for politicians who say they have a magic wand that can fix these problems.”

Abel smirked. “Like Trump. He promised to bring prices down, to resolve the war in Ukraine and Gaza. People who don’t pay a lot of attention to politics voted for that illusion. Prices are up and the wars continue. The chaos grows.”

Cain nodded. “We secretly long for simple rules. They help us navigate our personal lives. Why can’t they work for society’s problems?”

Abel looked up. “Jesus thought two rules were sufficient. He was a preacher, not a politician.”

Cain placed his napkin on the table and stood. “A preacher who was put to death by politicians. That’s depressing. Hey, I’ll see you next week.”

Abel smiled. “First week of May. Flower planting time. See you next week.”

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Image by ChatGPT in response to the prompt “draw an image of a whack-a-mole box.”

Homeless

April 20, 2025

By Stephen Stofka

This is part of a series on persistent problems. The conversations are voiced by Abel, a Wilsonian with a faith that government can ameliorate social and economic injustices to improve society’s welfare, and Cain, who believes that individual autonomy, the free market and the price system promote the greatest good.

Abel waited until the waiter had finished pouring the coffee, then said, “This week, Trump is threatening to take away Harvard’s tax-exempt status. This country is becoming a banana republic where those in power use the state to go after their political rivals.”

Cain dribbled a small amount of sugar into his coffee then set the sugar packet on the table. “In his first administration, Trump put an excise tax on the biggest universities (Source). Certainly, there are a lot of religious conservatives who resent the denial of tax-exempt status to religious universities like Bob Jones University.”

Abel argued, “That was a long time ago and the issue was whether Bob Jones was a non-profit institution, not that it was religious. Colorado Christian University in Denver is tax-exempt, for example (Source).”

Cain replied, “Last week you talked about Make America Fair Again. One group of people perceive something as unfair, and that grievance helps bind them together. Another group of people faults the first group for being unreasonable, and the first group circles their wagons, convinced that they are being picked on. Remember when a lot of Tea Party groups were denied tax-exempt status?”

Abel nodded. “The IRS didn’t deny their applications, but put them on hold. Any applications with the words Tea Party or patriots in the name (Source). The agency was overwhelmed with 501(c)(4) applications for the 2010 midterms. One of the reasons they were overwhelmed was that Republicans had cut funding to the agency while they were in power.”

Cain set his cup down. “Perfectly rational explanations. Or a conspiracy? Rebutting a grievance with logical arguments is fruitless, yet we continue to do it. Expressing a grievance is a form of signaling to others. Political parties are built on shared grievances as well as shared principles, perspectives and values.”

Abel smiled. “Good point. This country was founded on shared grievances. ‘Abuses and usurpations’ the Declaration of Independence called them, and most of that declaration is filled with grievances, not the noble sentiments about life, liberty and the pursuit of happiness (Source).

Cain waited as the waiter set the food on the table, then said, “So we were going to talk about collective action problems, something other than the latest abuse by the mad king.”

Abel laughed. “That describes him well. His niece, Mary Trump, warned us in Too Much and Never Enough, the book she wrote about her Uncle Donald.”

Cain sighed. “In his second administration, we are discovering how rash he can be. He’s worse than any Democratic president I can recall for his interference in the economy and the market.”

Abel asked, “Worse than a President Bernie Sanders?”

Cain nodded. “Sure. Bernie has some respect for institutional rules. Trump couldn’t care less. Hey, we were going to talk about something other than Trump this week.”

Abel replied, “Right. I’ve been thinking about homelessness. You are always championing the role of incentives. I thought of a policy that would align incentives to allow more permissive zoning.”

Cain reached for his back pocket. “Let me hold onto my wallet.”

Abel laughed. “There are several characteristics of collective action problems and dealing with the homeless has several of those. People resist multi-family development for fear that it will lower the value of their home. Zoning that permits only single-family housing reduces the opportunities for developers to build more housing. A shortage of housing causes home prices and rents to rise, increasing homelessness.”

Cain interrupted, “Less supply, higher housing costs. Classic supply demand response. But rising home prices are a good thing for an existing homeowner. Naturally, they want policies that preserve the value of their asset.”

Abel nodded. “That’s my point. What’s good for each individual homeowner may not be good for society as a whole. Individual benefit, group loss. Garret Hardin pointed that out in his essay Tragedy of the Commons (Source). Each herder has an incentive to graze their animals on common land, land that no one owns. Together, they overgraze the area and there is no grass for anyone.”

Cain frowned. “Residential land is privately owned.”

Abel argued, “But the zoning is like a common resource. Also, homeowners in single-family zoning are contributing to the homeless problem but paying nothing for the extra city resources needed to deal with the problem. So, they are free riding in a sense, another characteristic of collective action problems.”

Cain finished chewing. Wait. Homeless people are the biggest free riders, but you chose to focus on the hard-working homeowners.”

Abel shook his head. “I’m just pointing out the free-riding aspect of the zoning problem.”

Cain argued, “I hate when liberals say the homeless problem is a zoning problem. Zoning is a relatively small part of the problem.”

Abel replied, “Well, let me finish. Third, there’s the public goods aspect. Presumably, everyone in the city benefits from less homelessness and no one can be excluded from those benefits. Less communicable disease. What else? A sense of pride in the city? And fourth, the homeless detract from people’s enjoyment of public parks, so there’s that aspect of the collective action problem.”

Cain put down his fork. “That’s a nice analysis. Let me come at it from a different angle. Incentives. Look at the incentives to be homeless.”

Abel scoffed, “What? Like free rent?”

Cain argued, “Why do homeless people gather in cities? They like the anonymity. It gives them a sense of independence. They rely on medical services far more than the general population (Source). There are outreach programs available to supply them with food, shelter and clothing. In some cases, inexpensive tents (Source). All of that charity makes homelessness at least more tolerable. One part of the solution is to make it less tolerable.”

Abel interrupted, “What? Put them in jail? Refuse them medical service and let them die? Last week, you said that we should build policies around price incentives. This week, you’re saying let’s build policy on a framework of cruelty?”

Cain smirked. “Give me a break. Last week I said that the price system is thousands of experiments in opportunity costs. Give up this to get that.”

Abel nodded. “The trade-offs act as a counterbalancing mechanism. Homeless people are often beyond the bargaining of trade-offs. In the case of addiction, they’ve already traded their family, their job, their stability for the hamster cage of drug addiction. Those with mental health issues may not be capable of recognizing the choices involved in a trade-off. They may hear voices and imagine conspiracies. Then there are those who are working but are too poor to afford rent in an expensive area. They didn’t voluntarily make a choice to become homeless. Circumstances boxed them in.”

Cain shook his head. “Or there own choices boxed them in.”

Abel argued, “So you’re going to punish them for making bad choices? Isn’t homelessness punishment enough?”

Cain frowned. “Why do homeless people tend to congregate in one area? The police allow it. It attracts more advocates for the homeless who bring food and clothes, the support system that enables their homelessness. The city should prevent such encampments. Why doesn’t it? Policy decisions from liberal politicians who follow Marx’s rule of distributing stuff according to need, not ability. They sacrifice the well-being of their hard-working citizens to tolerate homelessness.”

Abel shook his head. “How many cops want to get involved in restraining and removing people who are not right in the head or on some kind of drug? Cops are likely to quit one police force and join one in a neighboring district where the homeless problem is less acute. It’s a complex problem.”

Cain asked, “So what’s your policy solution?”

Abel shrugged. “Not a solution, but something that would address the zoning aspect of the problem. What if there were a property tax charge for every subdistrict in a city that had single-family zoning? People would then be paying annually for a zoning regulation that they think preserves the value of their property. I would call it an equity insurance fee rather than a tax.”

Cain replied, “I live in a neighborhood that is zoned for single-family homes only. So, I would see a separate charge on my property tax bill for that zoning?”

Abel nodded. “Yes. Connecting the annual cost to the benefit you receive from the zoning.”

Cain raised his eyebrows. “How I would react would depend on the percentage change in my property taxes. If it was another $100 a year, I might not object. But you want to make it cost enough that it would encourage homeowners in a single-family zone to lower their resistance to multi-family development.”

Abel nodded. “That’s the point. I don’t know what percentage increase would do that.”

Cain replied, “Essentially, single-family zoning would become a privilege that only those with higher incomes could afford to pay. Last week, you talked about Make America Fair Again. How fair is that policy to homeowners in older, more established neighborhoods? They are more likely to be retired and on fixed incomes. Already, they resent the increase in their property taxes from higher assessed valuations. Now the city is going to impose yet another fee on them.”

Abel sat back in his seat. “No policy can be fair to everyone.”

Cain objected, “What if there is no visible sign of homelessness in a neighborhood? Homeowners may not see the necessity of such a policy. They will be motivated to vote against it. I like the analysis, though. Shows the complexity of these problems. A viable solution would address all four of those aspects.”

Abel agreed, “You always emphasize the relation between prices and incentives. Homeowners are not incentivized to adopt policies that will increase the supply of housing if it will make the value of their property decline.”

Cain replied, “Exactly. Any policy you put in place will act against that natural tendency. You call it an insurance fee, but since it applies to all homeowners in a district, it acts like a tax. Unlike a price, a tax does not obey the natural forces of supply and demand.”

Abel argued, “A tax raises the price and higher prices reduce demand.”

Cain shook his head. “Yeah, but prices react to something real. They react.”

Abel shrugged. “Can’t see the difference. A tax reacts to something real. In this case, it’s homelessness.”

Cain argued, “The tax you are proposing is an incentive, not a reaction. It is a stimulus you hope will get homeowners to adopt a more lenient attitude toward permissive zoning. Take this, for comparison. A city does not impose a sales tax because they hope it will dissuade people from buying goods. The tax is a reaction to city’s need for revenue to fund the services it provides.”

Abel replied, “So called sin taxes are meant as incentives to get people to buy less.”

Cain laughed. “Don’t try to sell your insurance fee as a sin tax. Owning a home isn’t a sin in anyone’s playbook.”

Abel moved his plate aside. “So, Trump’s tariffs are meant as incentives or punishments and they distort the market.”

Cain nodded. “Before the 16th Amendment, tariffs were the chief source of revenue for the federal government. They served other purposes, yes, but they generated much needed revenue. Today, any tariff revenue would be a drop in the bucket. Trump’s tariffs act as carrots and sticks. That may be the extent of all of Trump’s policies. Carrots and sticks.”

Abel frowned. “There are a lot of carrots and sticks in the income tax code. Tax deductions for college expenses, health insurance, retirement contributions. These are all attempts to get people to do more of something that they would naturally. So how can saving for retirement or going to college distort the market?”

Cain replied, “Tax-advantaged plans were introduced in the 1970s (Source). The financial sector manages trillions of dollars in retirement accounts. That gives it more market share and political power.”

Abel asked, “I take it you’re opposed to any tax whose primary purpose is to influence behavior, not collect revenue?”

Cain drew a deep breath. “I do, but I’m a realist. People get into politics because they want to exert their values, their sense of justice on other people. Now we’ve got someone in the White House who takes that to the limit. I worry for the free market system. I worry for democracy.”

Abel raised an eyebrow. “You weren’t worried last November?”

Cain smirked. “You are more of an institutionalist, but I think I trusted in the institutions that have kept this country together for more than two hundred years. The institutional rules as well as the laws. Seeing long-standing practices fall so quickly has made me question the strength of those institutions. In a political sense, I feel homeless.”

Abel asked, “You think there was insider trading going on while Trump flip-flopped on tariff policy?”

Cain nodded. “Sure. The SEC is not going to investigate. It seems like most of the government is being run by acting commissioners without Senate confirmation. Those of us who complained about the complexity of government are getting a chance to see what it is like when a bunch of loyalists run the government.”

Abel stood up. “I am afraid that we are losing the world’s confidence in American institutions, particularly its currency. I’ll see you next week.”

Cain seemed lost in thought for a minute. “Yeah, next week.”

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Image by ChatGPT in response to the prompt, “draw an image of a tent with a disheveled person poking his head out of the opening of the tent.”

Housing Affordability

August 14, 2022

by Stephen Stofka

The National Association of Realtors (2022) publishes a Housing Affordability Index (HAI) that measures median housing prices, mortgage rates and median family income to determine a ratio of housing costs to family income. June’s index was the lowest affordability since 1989. Since the Fed began raising rates this year, affordability has fallen by a third. In the notes I’ll include some comments on the methodology behind the HAI.

With technological progress, we expand our definition of what is a necessity. We argue whether government has a responsibility to ensure that each family has a certain level of sustenance – adequate housing, food, a source of income and access to educational resources. Those in neighborhoods with single family homes resist efforts to build affordable multi-family housing. A real estate developer earns a higher profit building expensive townhomes than affordable housing units. Should a developer be compensated if required to build affordable housing? City councils would prefer not to bring up the subject of using tax money to compensate a developer for doing less.

We disagree about who should pay, who should get and how much. Several decades ago, the homeless were less visible, a huddle of a human being lying under a tree or on a park bench, occupying about 18 square feet. In destination cities like Denver, Portland, L.A and other western states, encampments of homeless in colorful pop-up tents line downtown sidewalks and along streams and rivers that course through the town. Depending on the size of the tent each person may occupy up to 50 square feet. Like the rest of us, they are taking up more space per person. Are there more homeless or are they simply more visible?

The reasons why people are homeless are numerous and varied but the dynamics of housing supply and demand are key factors. Where demand for rental housing is low, landlords of affordable units may skip a criminal background or credit check. When demand is high, rents are higher and landlords are more discriminating. They may require higher security deposits as a tool to screen out renters. The annual change in rental costs was 6.3%, below the 7.3% increase in housing costs but workers’ wage increases have not kept pace in the past year. (I’ll put the series identifiers and index numbers in the notes at the end). Over a long time period, have earnings kept up with housing costs?

I began with 1973, the year that the U.S. and most of the world adopted floating exchange rates between currencies. This allowed capital more freedom to move around the world. Several economists mark that as a turning point when the returns to labor began to lag behind the returns to capital. Today’s workers make $612 for every $100 that workers made in 1973, a 6:1 ratio. Housing costs have risen even faster. The Bureau of Labor Statistics calculates that a person spends $888 for shelter today for each $100 spent in 1973. In computing the CPI, the Bureau of Labor Statistics (2022) and the Census Bureau include mortgage payments, taxes and insurance – PITI – to determine the cost of shelter itself (32% of income), about 5% for utilities and another 5% for maintenance and repairs. Together they make up more than 40% of a family’s income.

We measure things in order to compare qualities. An example might be measuring the width of a bookcase and the width of a space in the living room where we want to put the bookcase. Comparing total housing costs across five decades is difficult. We prefer to live in bigger spaces and in far greater comfort than we did 50 years ago. Today’s new homes average 2600 SF. The thirty year average is 1800 SF. Moura et al (2015) estimated that each of us has twice the space of a person living in 1900. Total housing costs may have grown almost 50% faster than wages but per capita housing space has grown at least as much. Adjusting for the larger personal space, we could conclude that wages have kept up with total housing costs. But that’s not how many of us perceive affordability. More space and comfort has become our standard.

Changing standards and expectations cause a shift in definitions and benchmarks. The BLS includes the cost of cell phones, computers and internet access under Information and Information Processing. Many families consider these to be utility expenses as necessary as the heating and electric bill. The BLS estimates a family spends 3.5% of their income on these modern day necessities – about $3000 a year. TV cable subscriptions add another 1%. Five decades ago, a family had a $0 monthly cost for these. Together that cost represents $320 per month that impacts housing affordability. The cars we drive today are safer, more mechanically reliable and more fuel efficient but we spend more of our income on transportation costs. In the post-war period, food and clothing were almost half of a typical family’s expenses. Today those items make up just 13% of a family’s spending (BLS, 2014). We live in bigger homes because other items that used to take up a lot of space in our budget have shrunk.

News media often puts current economic measures in historical context – the highest since and the lowest since – but these quantitative measures are not adjusted for improvements in the qualities of goods. On a hot summer’s day five decades ago, there might have been several overheated cars on the drive home from work. Changing a flat tire on the side of the road was common. Automobile deaths were far higher. Older people died from heat exhaustion in uncooled apartments and homes. Our standards and expectations have changed.

Each month economists measure thousands of data points – as numerous as the stars in the night sky. Economists and politicians connect those dots using different paths of reasoning, motivation and perspective. We may cling to a particular doctrine that clouds our interpretation of the data. In the end economic issues are personal. Have our earnings kept up with our housing costs?

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Photo by Tierra Mallorca on Unsplash

BLS. (2014, April). One Hundred Years of price change: The consumer price index and the American Inflation Experience : Monthly labor review. U.S. Bureau of Labor Statistics. Retrieved August 12, 2022, from https://www.bls.gov/opub/mlr/2014/article/one-hundred-years-of-price-change-the-consumer-price-index-and-the-american-inflation-experience.htm

BLS. (2022, February 11). Relative importance of components in the Consumer Price Indexes: U.S. city average, December 2021. U.S. Bureau of Labor Statistics. Retrieved June 17, 2022, from https://www.bls.gov/cpi/tables/relative-importance/2021.htm

Lautz, J. (2022, January 7). Tackling home financing and down payment misconceptions. http://www.nar.realtor. Retrieved August 12, 2022, from https://www.nar.realtor/blogs/economists-outlook/tackling-home-financing-and-down-payment-misconceptions

Moura, M. C., Smith, S. J., & Belzer, D. B. (2015). 120 years of U.S. residential housing stock and floor space. PLOS ONE, 10(8). https://doi.org/10.1371/journal.pone.0134135

National Association of Realtors (2022). Housing affordability index. http://www.nar.realtor. Retrieved August 12, 2022, from https://www.nar.realtor/research-and-statistics/housing-statistics/housing-affordability-index. As constructed, an affordability index of 100 should be affordable. However, the NAR calculates a mortgage payment that is not typical. They base their calculation on a 20% down payment. The average down payment is only 10%. First time buyers typically put down only 7% (Lautz, 2022). This raises the mortgage payment and lowers the affordability. After adjusting for this, an HAI reading of 140 is probably a better benchmark of affordability.

 U.S. Bureau of Labor Statistics, Consumer Price Index for All Urban Consumers: Housing in U.S. City Average [CPIHOSSL], retrieved from FRED, Federal Reserve Bank of St. Louis; https://fred.stlouisfed.org/series/CPIHOSSL, August 13, 2022. July’s annualized increase was 7.3% and climbing.

U.S. Bureau of Labor Statistics, Consumer Price Index for All Urban Consumers: Rent of Primary Residence in U.S. City Average [CUUR0000SEHA], retrieved from FRED, Federal Reserve Bank of St. Louis; https://fred.stlouisfed.org/series/CUUR0000SEHA, August 13, 2022. July’s annualized increase was 6.3% and climbing.

U.S. Bureau of Labor Statistics, Consumer Price Index for All Urban Consumers: Shelter in U.S. City Average [CUSR0000SAH1], retrieved from FRED, Federal Reserve Bank of St. Louis; https://fred.stlouisfed.org/series/CUSR0000SAH1, August 12, 2022. Note: Total cost of shelter was 39.90 in April 1973 and in 2022 it is 354.45, an 8.88 ratio.

U.S. Bureau of Labor Statistics, Average Weekly Earnings of Production and Nonsupervisory Employees, Total Private [CES0500000030], retrieved from FRED, Federal Reserve Bank of St. Louis; https://fred.stlouisfed.org/series/CES0500000030, August 12, 2022. In July 1973 the index was 153.14. In July 2022 937.38. A 6.12 ratio.

Dueling Dancers

December 13, 2020

by Steve Stofka

As I read and listen to arguments on both sides of an issue, they fall into two categories: the ontological and the utilitarian. Those terms make our arguments sound erudite and rational. In the wrestling match of ideas and opinions, we need shorter names that will fit on a wrestler’s robe: the Onts and the Utis. This fight has been going on a long time.

If you are an Ont, you argue about the nature of things. Most of the time, you try to gain the upper hand in defining an issue. If someone is new to this country and is hungry or homeless, you might argue that people who have just arrived here are not entitled to government benefits. They may be human beings, but you narrowly describe them as free riders, something which is of great interest to Onts, who see everyone else’s free riding, but not their own.

The Ont does not think city governments should tolerate homeless people on downtown streets. Onts have characterized homeless people as drug addicts and self-indulgent people who should get a job or sit in jail making license plates. Homeless people command a lot of city services, particularly visits to the local emergency room. Taxes support the well-being of free riders, a divisive issue with Onts.

Onts are concerned about moral hazard, the inducement to take on more risk when a person doesn’t have to suffer the consequences. If an Ont gave a homeless person some money, that person would probably spend it on drugs, putting themselves further at risk. The Ont is doing a noble act by not encouraging the ruinous behavior of a homeless person.

If you are a Uti, you think that the practical solution is the right solution in an imperfect world. You care about the homeless person because you care about yourself and can’t stand the thought that you live in a society that would permit such human tragedy. Do you go downtown and hand out some of your savings to those homeless people to show you care? Well, maybe that wouldn’t be practical, you tell yourself.

A Uti recognizes moral hazard but doesn’t crusade against it the way that an Ont does. People put themselves at risk because they don’t bear the consequences of their risky behavior. Yes, we’d like to minimize that, but we don’t want to put others at even more risk because the community ultimately bears the consequences of their risky behavior.

A Uti lives in the real world, an imperfect version of the imagined utopia of the Ont. Yes, things are supposed to work a certain way, but “frictions” – messy entanglements – interfere with the perfect. The Uti wields his scythe, cutting the harvest while the Ont hoists his pickaxe and joins the crusade against the unholy.

A thousand years ago, Pope Urban II called on Christians in Europe to free the Holy Land from the Muslim infidels. The Pope appears on his balcony above the faithful crowds at the Vatican. At his rallies, President Trump emerges from his big plane and speaks to the devoted crowd. Think of President Trump wearing a pope hat embroidered with “MMGA” – Make Me Great Again.

Like the crusades of old, 136 Congressmen joined the army behind Texas’ attempt to get the Supreme Court to nullify the electoral votes of four battleground states. The court told them to turn in their pickaxes and go home. An Ont clings to their conviction that their solution is right even when it is not practical. If challenged, an Ont redefines the issue.

The practical problem that an Ont wants to solve is how to be right on every issue. The Ont is a Uti in disguise. The Uti use an Ont maneuver when they define the practical solution as the right solution in an imperfect world.

When both wrestlers in any argument take their robes off, it is difficult to tell them apart. As the two wrestlers circle each other, bystanders cheer on their favorite fighter but it is the bystanders who get hurt in a tangle between two political heavyweights. Media companies profit hugely; we are both the unpaid performers and the spectators of the political and cultural circus.

Who knew that philosophy could be so much fun?

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Photo by The New York Public Library on Unsplash

The Urban Refugee Crisis

Photo by Julie Ricard on Unsplash

September 13, 2020

by Steve Stofka

In popular urban areas, affordable housing has been a persistent problem. Housing costs can consume 50% or more of a working person’s pay. Urban residents have become refugees in their own city, living in tents on downtown sidewalks.

Homeless tent “cities” in urban areas were already a problem, and the Covid crisis has exacerbated the situation. The tent areas are a breeding ground for 19th century diseases like cholera and typhus (Gorman, 2019).

The free market has not been able to solve this problem. Wanting to maximize his return on a property investment, a developer has more incentive to build luxury units than lower cost condos or apartments. Are they greedy and rapacious? Let’s take the developer out of the equation. Imagine telling a farmer that they must dedicate part of their land to growing more affordable wheat when rye is twice the price. In front of capitol buildings in mid-west states, there would be tractor protests by farmers. So why should it be different with a developer? They have an asset, an input, and want to get the most out of that asset.

Cities have tried several solutions with poor results. Santa Monica, a destination city in California, passed a rule that 30% of new multi-family housing had to be affordable units. Residential building has come to a halt (SCAG, 2019).

The city and state of California have passed funding laws to support affordable housing, but it is expensive (Camner, 2020). In popular coastal states where taxes are already high, a proposal of affordable housing subsidies to developers arouses ugly passions.

Affordable housing is a negative externality, a cost not borne by the developer or the buyer of a upclass condo or townhome. Perhaps there should be a fee on each unit? The cost of the externality is so expensive that the high per unit fee would limit sales of new units and raise little revenue to build affordable housing.

Let’s suppose that a couple buys a new condo from a developer. The couple has paid in the 75th percentile of housing prices in that area, but they enjoy ocean views and the cultural and social amenities of the neighborhood. In front of their new condo complex, several homeless people pitch tents on the public sidewalks. The couple is outraged. For the price they have paid, they reason that they should not have to endure the sights and behaviors of the homeless. The couple complains to the developer and the city. An urban economist would understand that the couple shares some tiny responsibility for the homeless problem but they, and their fellow residents, are bearing the costs out of proportion to their responsibility.

If there were a way to cut up and distribute the homeless problem among all the residents of an area, the problem might not be so noticeable. Fortunately, we live in a society that does not dismember human beings to achieve a perfectly equitable distribution of society’s costs. There will always be what biologists call a “clustered” distribution of homeless people.

Planned refugee camps have better health conditions than tents thrown up on a sidewalk. Should a city like Santa Monica accept the clustering problem and house their homeless in urban refugee camps? The city could provide better sanitary conditions and perhaps build a clinic at the refugee camp that would relieve downtown emergency rooms of attending to the many medical needs of the homeless.

In want of a perfect solution, our society has created an ever worsening problem. If the homeless can abide living clustered together with little privacy and no sanitation on a public sidewalk, then they would certainly abide a tented refugee camp with a bit more order, sanitation and medical facilities nearby.

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Notes:

Camner, L. (2020, February 10). Santa Monica’s affordable housing policies have failed -. Retrieved September 11, 2020, from https://www.smdp.com/housing-policies-have-failed/185877

Gorman, A. (2019, March 11). Medieval Diseases Are Infecting California’s Homeless. Retrieved September 11, 2020, from https://www.theatlantic.com/health/archive/2019/03/typhus-tuberculosis-medieval-diseases-spreading-homeless/584380/

Southern California Association of Governments (SCAG). (2019). Profile of the City of Santa Monica, p. 12. Retrieved from https://www.scag.ca.gov/Documents/SantaMonica.pdf