If Capitalism Is to Work, It Must Value . . . Capital

Of all the nutty propositions belched up by “experts” in matters of social/economic policy, one of the nuttiest holds that part of America’s challenge with its housing stock is that it is . . . too durable.

Yeah, you read that right. Too well-made.

I won’t embarrass the author of that piece, the leadership of the magazine in which it appeared, or the corporate ownership by naming that publication here, but that was the central premise of an article I stumbled across recently: America needs more housing that will fall apart sooner than the homes we’ve been building.

It’s like a whole-home application of Bastiat’s broken-window treatise, which has been the foundation of sane economic policy for nearly 175 years—at least when the public-sector leadership has paid attention to his lessons.

Doubly confounding is that the author’s main source of employment was through a non-profit started by none other than Charles Koch, scion of Wichita-based Koch Industries, well-despised by anti-capitalists everywhere for his free-market business philosophies. You know: the ones that have built the nation’s second-largest private company.

The crew designing search algorithms for Google graced me with a link to that article during research for our construction-sector coverage. We were studying the impact of more and better construction practices on the overall quality of the U.S. housing stock and the potential deterioration brought on by a prolonged pause in the construction cycle during the Great Recession.

The author noted that, at the time of publication, more than half the nation’s homes had been built before 1980, and roughly 1 in 8 before 1940. Anyone who counts the value of a paid-off home among the assets in their portfolio surely knows that durability—read: value—of what may be their biggest asset is a problem, right? (Note to self: does a /sarc switch work in print?)

The take-away from that piece was that if cities like Detroit hadn’t built great homes earlier in the 20th century, it would have been better for everyone to just knock ’em down and replace them with more attractive units and potentially cheaper ones when the auto sector tanked. That way, you don’t have expensive homes being abandoned or sold at steep discounts by those who have the means, the skills, and the education to flee economic decline.

When they move out, the author postulated, the quality of the greater work force declines, and those in lower-paying jobs account for a rising share of potential buyers, touching off a cycle of declining prices and a buyer pool that is increasingly unable to afford the quality that comes from durability.

What a lot of rot—and not just wood rot.

One thing the nation needs in spades right now is more affordable housing. Prices in decline might actually be a good thing. If the municipal concern is driven by a fear that declining home values will contribute to further urban decay, then it’s up to that local leadership to craft incentives to maintain, even upgrade, homes left behind by those moving out.

Otherwise, we’re looking at raw capital destruction. Might want to bone up on your Bastiat if the implications of that escape you. 

It’s not unlike one of the greatest, yet least-explored, instances of capital carnage most of us have ever witnessed outside of a war zone—the late, lamentable Cash for Clunkers program of 2009. Remember that policy gem? It was going to help ignite consumer spending during the Great Recession by jump-starting purchases of new cars—after claiming your government check, which likely exceeded the value of the gas guzzler you had to give up.

But consider this: Even if that dinosaur you surrendered had the value of a single dollar, it represented a dollar of capital being extinguished. And it wasn’t a single dollar—there were billions of others involved. Why that simple concept was lost on backers of the program remains a mystery to many of us today. 

The real kicker: The anticipated car-buying frenzy didn’t salvage the U.S. auto industry—in fact, it made things worse. Gee: Who could have foreseen that? Not only were most newly incentivized participants planning to buy a new vehicle within the coming six months anyway, they were required to buy a more fuel-efficient car. Did that help Ford and General Motors? Uh, no. That helped Toyota and Honda, which claimed half the spots on the list of top 10 vehicles purchased through the program.

What a great idea. “OK, so it didn’t work with cars . . . but wait until we try it with houses!”

The collective clown show running the circus in Washington, it seems, will never learn. Of course, I could be wrong about that: They may know full well the impact of these kinds of policy prescriptions.

In which case, they’re not ignorant.

They’re evil.