Economics for Idiots

Sunday, March 13, 2016
Posted in category Economics

This article from The Economist is a parody without the author even knowing it: “Building more houses is only part of the remedy for high prices.” This is about the British housing market, but the same mentality applies here.

I WANT to hammer home a point that we made in a piece a few weeks ago. Whenever economists talk about the British housing market (which by some measures is the world’s most expensive except Monaco) they will have a simple solution to bubbly prices: build more houses. The logic is impeccable: there is high demand for housing, but not enough supply. That leads to high house prices. Increase the supply of housing, and prices will fall. Simple.

“Impeccable logic” and “simple.” What is so horrendous is not that someone wrote it, but that some editor decided it was publishable. The author continues:

Now, all this is not to say that building more houses is a bad thing. More supply will lead to falling prices. But if you really want to bear down on prices, then focusing on getting people to move houses more frequently (and thus increasing supply of second-hand homes to the market) would be far more effective.

Advocating for a planned, micro-controlled economy is the wet dream of socialist megalomaniacs. The proponents of “nudging people” via government policy and institutional means would be delighted.

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