25 Jan 2016

Murphy Twin Spin

Shameless Self-Promotion 31 Comments

==> At IER I explain how the NYT gets it wrong on the carbon tax.

==> Costco magazine featured an exchange between Kshama Sawant (yes the Seattle socialist) and yours truly, on rent control. (The previous sentence was one you never expected to read, I’m sure.) You can adjust the magnification if you want to do more than look at our headshots.

==> Regarding my Costco piece, someone emailed me the following critique (which he gave permission to reprint), and to be clear the sentence “(All caps mine).” is from my correspondent in the original email:

I like Ms. Sawant’s answer much better than Mr. Murphy’s answer. Why? Her answer shows that a “one size fits all” approach is not the way to go. She looks multi-cultural like me.

I have lived in multiple countries, multiple states, multiple cities, and multiple zip codes so I know that each neighborhood has its own special characteristics.

In the January 2016 issue she states that “more than 200 municipalities across the country have SOME FORM of rent control regulation”. (All caps mine).

It is clear to me that she understands a tiny percentage of neighborhoods couldn’t thrive under ANY form of rent control while another tiny percentage of neighborhoods COULD thrive under any form of rent control. Most neighborhoods fall somewhere between these two extreme examples.

I either make my own hats or buy hats that say size LARGE or EXTRA LARGE. Why? Hats that say, “One size fits all” or “One size fits most” don’t ever fit my 23 inch circumference head, that’s why!

Mr. Murphy may be some kind of professor but his answer clearly shows his MENSA IQ score is much higher than his FEMSA IQ score.

31 Responses to “Murphy Twin Spin”

  1. Harold says:

    Even if you are right, I think it demonstrates that those that say the global warming brigade want us to roll back society to the stone age, or make drastic cuts to our standard of living are the real alarmists. It is likely that carbon cannot be cut without some costs, but the scale of these costs is really rather modest.

    Rather than protest about carbon tax, perhapd it would be more useful to protest about capital taxes?

    • Matt M says:

      I think the average member of the “global warming brigade” would take the position that a modest carbon tax is simply the best we can hope for given the current political realities.

      But they still WANT to do much more. At least that’s my impression.

  2. Anonymous says:

    Can Someone tell me what a FEMSA IQ score is?

    • E. Harding says:

      Dunno either.

      “The previous sentence was one you never expected to read, I’m sure.”

      -Yeah. Not totally out of the realm of the ordinary, but I still had something moving in my throat when I read that.

    • Josiah says:

      I take it that FEMSA is supposed to be a women’s intuition version of men-sa.

      • E. Harding says:

        Got it. Makes sense.

  3. RPLong says:

    Sawant writes:

    “The problem is that, left to their own devices, developers generally maximize their profits by building high-end units. And rather than lowering rents, such development tends to drive up prices in a given neighborhood, as existing affordable housing on the market is torn down in the process.”

    It’s kind of funny that she chooses this particular argument to make in The Costco Connection, of all places. Costco and other wholesalers famously make their money by offering razor-thin margins and relying on sales volume to generate profits.

    Costco shoppers would presumably be more suspicious than the average person of the claim that developers would tend to focus on high-margin, low-volume rental unit allocations, wouldn’t they?

    • GabbyD says:

      So her argument isnt true?

      surely selling grocery items/food is different from selling (and building) apartments/condos. The former may find it profit maximizing to focus on volume and low margins (after all, we buy multiple units of grocery items), and the later may focus on high margins.

      • RPLong says:

        Sure, maybe. But “maybe” isn’t a good argument.

        Anyway, that’s beside the point. My point is that people who are conditioned to think in terms of volume-dealing would be less inclined to find speculations about high margin / low volume particularly persuasive. Assuming Sawant wanted to be persuasive, it was a bad rhetorical strategy.

      • Greg Morin says:

        “surely selling grocery items/food is different from selling (and building) apartments/condos”

        Actually it’s not. It’s all a matter of scale. Building a high volume (capacity) lower rent complex of apartment buildings is no big deal for the guy with a $100 million to invest. Just as building a chain of grocery stores is not big deal for the guy with $10 million to invest. Just as selling cold drinks outside of a sports venue is no big deal for a guy with hundreds to invest.

        Everyone is doing the same thing, it’s just that the decimal is in a different position.

        But yes I too found it odd this was pointed out in Costco of all places. To say that those with money to invest only seek the high price premium products to sell to the exclusion of “serving” the individuals of more limited means flies in the face of reality. Who does Kia market to? Who does Costco or Walmart market to? Who does JC Penny market to? In every sector of the economy (well the sectors not influenced by subsidies) there is a range of providers from luxury to value.

  4. Garrett M. Petersen says:

    I googled “FEMSA IQ score” but didn’t find anything. Is it some kind of measure of intelligence based on head size?

    • Tel says:

      I found “Fomento Económico Mexicano” so pretty obviously it’s the intelligence you get from drinking a lot of Mexican beer. You just blow into the IQ meter…


      The specific objective of the pilot phase of FEMSA, which began in 1996, is to compile profiles of four countries, Cameroon, Ghana, Tanzania and Uganda. The country profiles will document the status of girls access to schooling and their participation and performance in mathematics and science at primary and secondary level, as well as providing data on interventions undertaken by NGOs and donor agencies and ongoing research efforts.

      Well, that explains why Bob scored so low. Didn’t drink enough Mexican beer while hanging around girl’s high schools in Cameroon. Could be a reason for that.

  5. pnw says:

    Dr. Murphy, Re: Costco article, should be “less-objective”?

    “Without the option of letting tenants bid up the price, landlords might use less-subjective criteria to pick the winners…”

    • Bob Murphy says:

      Yeah they changed it. I think originally I just said “subjective.”

  6. DZ says:

    Do you have a rebuttal on her claim about increased production in rent-controlled areas during the two time periods she mentioned? Have to do with the scale/type of rent controls?

  7. guest says:

    How were you able to concentrate with all the sexy Kshama brought?

    I submit that it’s not her socialism people are attracted to.

  8. guest says:

    Is the critique of your Costco piece from Fareed Zakaria?

  9. Major.Freedom says:

    Kshama wrote:

    “There is no direct link between rent control laws and slowdown of new construction. The two largest building booms in New York City’s history occurred in periods of strong rent control—first in the 1920s and again from 1947 to 1965.”

    This is false. The advocates of free markets never claimed that rent control manifests in an outright reduction in construction, such that we observe a temporal decrease in the number of new units produced per year. What rent control does do is reduce the quantity of construction from what it otherwise would have been. The construction booms during the 1920s and the period of 1947 to 1965 would have been higher had there been no rent controls.

    Kshama does not seem to understand that in the long run, rent controls actually reduce the quantity of produced units to be lower than they otherwise would have been, which pushes up the market price even higher than they otherwise would have been, which makes any given rent control price even more destructive to new unit production.

    Moreover, rent control does not even succeed in helping to get more poor people into housing. Rent control turns finding an apartment into a lottery, a game of chance, since the demand is higher than the price. Those who are lucky enough to find an available rent controlled unit may be poor or they may be wealthy. Rent control does not guarantee poor people will be able to live in a given quality apartment in the long run. It does the opposite. It guarantees there will be poor people who will lose the lottery. With free market prices on the other hand, the pricing out of poor people is not a long run phenomenon, for the normal, higher profitability attracts more investment in and thus production of new rental units.

    The government can control the price of rent, but they do not control the costs of providing rental units. Inflation of the money supply puts continually higher pressure on the costs of producing rental units, while the rent controls prevent the sale prices from rising. This reduces investment in the production of rental units. Boom or bust notwithstanding, this is well established economics.

    “The main determinants of housing development are macroeconomic factors linked to the boom-and-bust cycles of capitalism.”

    We don’t have capitalism, we have socialist money and banking, which is the cause of the boom bust cycle. And even if the boom bust cycle variable has been the variable with the highest correlation with construction of rental units, this does not in any way negate the fact that rent controls are a hinderence in the production of new rental units.

    “As a matter of fact, construction has been booming in Seattle and many other urban centers. The problem is that, left to their own devices, developers generally maximize their profits by building high-end units.”

    Then the problem is obviously not the lack of rent controls on lower units. It is not enough high end units, in which case a boom in the production of high end units will reduce those prices from what they otherwise would have been, thus making it more and more affordable for those with more modest incomes.

    That is how cars and cell phones started from being a rich man’s toy to being available to the masses.

    • Darien says:

      Funny you should mention cell phones, Major, since Sawant hates those too:

      “Does it benefit us to have an endless range of phones where, actually, we could have a few models of really well-functioning smartphones, and not have all these massive resources being devoted to having a little bit of an edge here, a little bit of an edge there? Rather than having those resources dedicated to solving the basic problems of society? … How do we bring the global economy to function in an efficient way, where resources are directed to the most pressing needs, rather than this nonsense of competition? The alternative would be these technological companies, or any other company really, being democratically owned by humanity, by people, precisely because we all have an interest in solving these basic problems.”

      (Source: http://crosscut.com/2015/08/socialist-councilmember-sawant-calls-for-a-new-tech-revolution/ )

      In nearly every published remark I’ve ever read, Sawant comes off as the utterly stereotypical “humorless Marxist” who derides every increase in human happiness as wasteful, and then trots out shibboleths about some undefined, undifferentiated class labeled “the poor.”

      • Major.Freedom says:

        Great way to force Marxist doctrine to make you see what you want to see. Since the doctrine holds that wealth gains initiated by technological and production increases merely passes the workers by, via exploitation, and accrues to the wealthy, the actual wealth gains that accrue to the working class are really not wealth gains, but at best misdirected allocations of wealth that should have gone elsewhere.

        It must be difficult, taking doctrine over truth.

      • Tel says:

        In nearly every published remark I’ve ever read, Sawant comes off as the utterly stereotypical “humorless Marxist” who derides every increase in human happiness as wasteful, and then trots out shibboleths about some undefined, undifferentiated class labeled “the poor.”

        I’ve sat through a few of her speeches on Youtube today and it’s all clinched calls for working class uprising, disastrous climate change, fight against racism, fight against sexism, oh noes micro-aggression, free health, free education. Every off the shelf lefty trigger phrase.

        Nothing remotely original in any of it.

        • RPLong says:

          In her defense, socialism is thousands of years old. Think how hard it must be to come up with something original in socialism.

      • guest says:

        “How do we bring the global economy to function in an efficient way, where resources are directed to the most pressing needs, rather than this nonsense of competition?”

        False dichotomy.

        The ends that consumers’ actions can satisfy at any given point in time are limited, so they are forced by reality to favor some ends before, or over, others.

        In order for a producer to make a profit off of consumers’ actions, the consumer has to buy from that specific producer.

        This is why competition is always necessary, rather than being nonsense.

        When Kshama shops at one store over another, that store has outcompeted the others that she passed up.

  10. Darien says:

    It seems to me that Bob’s unnamed correspondent has offered a stunningly weak defense of Sawant’s position. I’ve read it a few times, and all I can get out of it is “rent control wouldn’t destroy every theoretically possible neighborhood.” I mean… okay, yes, it is less bad than carpet-bombing.

    Perhaps I just need to level up my FEMSA IQ. As soon as that is a thing, I will get right on it.

  11. Tel says:

    The “multi” part of multi-cultural certainly excludes anyone white, male or Christian. Because there’s nothing worse than prejudice.

    As for “one size fits all”, that’s the socialist way:

    We gather here at a momentous time , to be sure this is not an easy period for the working class. There are mass movements, thousands have moved into struggle, but there are also setbacks, globally we see both revolution and counter-revolution, but the working class stands at the threshold of movements on a gigantic scale that will convulse society in the months and years to come.

    Socialism 2014, London.

    Yup, sure sounds like she is thinking of local neighbourhood solutions there.

  12. Kevin Erdmann says:

    The correspondent makes an excellent point. For instance, a fundamentalist would argue that it is never a good policy to smear human feces on everyone’s face. Obviously a reasonable person can agree that some people might do ok without it. But maybe some people need a little, and others need to have it smeared all over. I mean, if you’re not going to be flexible about it, you’re just imposing one size fits all on everyone.

    • RPLong says:


      • Kevin Erdmann says:

        Commercial density in places like Manhattan is massively higher than residential density. The reason is that nobody ever picketed in from of a new office skyscraper to demand fair rent for Goldman Sachs. Goldman Sachs has all the affordable office space they need in Manhattan.

        If you’ve got an open mind about the benefits of feces, you’ve got a shovel full, and you’re itching to use it to help someone, who are you going to apply it to? Of course, it will be the marginalized, the poor, the folks least able to avoid your altruistic urges. And, it might even help that, for a bit, they feel like it did them some good.

  13. Josiah says:


    I thought it was interesting that you led off your piece by citing the IGM economist survey. I went and checked out what the survey results were for carbon taxes, and it turns out the consensus that a carbon tax would be less damaging than an equivalently revenue generating income tax was slightly stronger than the consensus against rent control.

    • Bob Murphy says:

      Very nice Josiah. At this point all I can say is that at least three of those respondents (judging from their comments) are obviously unfamiliar with the tax interaction effect. It would be the analog of saying, “We know reducing rents helps tenants, so of course rent control is a good policy.”

      I understand what your purpose in posting this was. Definitely, if you can point out that the economists who actually specialize in rent control think that the shortage argument can go the other way (kind of analogous to the minimum wage literature), then I will have to say I shouldn’t have used the IGM survey as a trump card.

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