Capitalism vs. Statism: Housing; College; Inflation
#10 in a series of Think Right or Wrong, Not Left or Right: A 21st Century Citizen Guide (2nd Expanded Edition)
Note to readers: This week, the Think Right or Wrong, Not Left or Right: A 21st Century Citizen Guide (2nd Expanded Edition) serial continues with more capitalist virtues. Enjoy, like and comment!
5.11 Capitalism Makes Housing Affordable
Housing is often a mess under welfare statism. First-time renters and homebuyers face limited choices and often have to wait a long time before finding something affordable. And, in hot markets, demand outstrips supply, driving up prices in all housing segments. Some of this is part of how the market works—if an area sees a large influx of newcomers, prices spike as more people temporarily chase a limited supply until new construction catches up. But welfare statism makes the problems chronic.
Rights-violating nationwide and local building codes slow down innovation, prolong the time of construction, and increase building costs. Local zoning laws and “anti-growth,” “anti-sprawl,” and “not in my back yard” (NIMBY) regulations limit what and where developers and builders can build. Taken together, these restrictions reduce the supply of new housing as builders have a harder time finding profitable prospects. The resulting lower supply of new construction drives up prices on existing homes and apartments. And in markets with rent control, the supply is even more constrained, because the cap on rents makes new construction even less profitable, and existing rental properties often do not generate enough revenues to cover needed maintenance.
Zoning laws, building codes, and rent control regulations violate the individual rights of landowners, developers, builders, and landlords who are prevented from following their vision and best judgment in the use of their property, time, and financial resources. Furthermore, rent control violate the individual rights of prospective buyers and renters who are prevented from freely negotiating with housing providers.
The welfare statist housing market creates haves and have-nots where local cronyism runs rampant. Those fortunate enough to own a home in an attractive area often lobby for zoning laws and regulation that limit new construction. They fear that an increase in the supply would dampen the price appreciation of existing homes, and perhaps make the neighborhood less attractive. (Under capitalism, people can create voluntary covenants to control building in their immediate neighborhoods, but they cannot use government force to restrict housing more broadly.) And often people who live in a rent-controlled apartment oppose initiatives to remove the welfare-statist rent-control regulations that would make housing more available for others.
In a capitalist social system, a roof over your head is accessible and affordable. As you get ready to leave the nest, landlords line up to offer apartment options for all wallets. Developers and builders are not restricted by rights-violating building codes, zoning laws, and other regulations. This means that continuous innovation in architecture, design, and building methods and materials increase variety, improve quality, and drive down average rents over time.
Perhaps you get caught in an apartment supply shortage that drives up prices in the area where you live. Or perhaps the area you are moving to is going through a growth spurt. No worries. The shortage won’t last long because, absent welfare statist “anti-growth” and “anti-sprawl” regulations, developers quickly take advantage of the chance to profit by embarking on new housing construction projects. And existing homeowners with space to spare jump in to address the temporary shortage. They may sign up with Airbnb or a similar broker, and the service is not shackled by the crony restrictions that hotel chains and community “activists” in our mixed economy often advocate. The resulting increase in supply ensures that prices rarely get out of hand.
When you look to buy your first home, you benefit from similar conditions as when you rented your apartment. You have plenty of affordable options to choose from. The most affordable options may not be as conveniently located, but many developers pursue a blend of housing, offices, schools, and retail to increase the attractiveness of new developments. So, very likely, your commute will be shorter than in today’s regulated world. And as we discussed in the previous section, if you decide to have kids, market-driven educational opportunities most likely remove the need to relocate to find a good school for your children.
The absence of government enforced zoning and building codes doesn’t mean that building safety goes out the window in a capitalist social system. On the contrary, developers and builders use safety as a marketing argument to attract you to their area. And insurance and mortgage companies that stand to lose if something goes wrong work with the building industry, developers, and landlords to ensure that good safety standards are in place.
5.12 Under Capitalism Fewer Need a College Education
Higher education gets a lot of attention these days. College is getting more expensive and student loans are ballooning, in many cases trapping young men and women financially for life. Welfare statist federal student loans were implemented to address the fact that many cannot readily afford a college education without financial support. Higher education students with limited financial means have become another statist collective with alleged “rights” trumping individual rights, this time claiming the “right” to an affordable college education. But tragically, this student aid has become a major driver in skyrocketing college costs.
As is often the case, being singled out as a group in need, and having politicians fight for your “rights,” hurts you in the end. What often gets lost in the debate is that an abundance of easily available student loans drives up college tuition; when more dollars chase a limited supply, prices go up. Which means that you end up borrowing more than you would have needed had federal student loans not existed in the first place.
In a capitalist social system, concerns about college affordability is a marginal issue because the high quality of basic education will make higher education redundant for most people. As we discussed earlier, under capitalism, your parents’ values and wallets guide them to what they think is best for you, and they have an abundance of affordable, quality options to choose from.
As you finish your basic, high-quality education, perhaps around age 15, you entertain (with your parents’ consent) exciting job offers from a variety of employers, many that provide training programs for skills that you didn’t learn in school. In today’s high-tech, industrial world, employers generally look to hire you for the thinking skills that you developed while in school. With that base, they can teach you, and you can learn, pretty much anything on-the-job. A few specialized professions such as medicine, law, engineering, and natural science require additional study for which future employers, banks, and other financial institutions compete to provide financial support. But most professions are taught on-the-job through a mix of on- and off-site courses and real-life practice without the need for financial aid. To cover the costs involved, some employers who provide extensive training might offer employment contracts that require either a certain term of employment or a repayment option should you choose to leave early.
Does this sound like fantasy? Tragically, education is a sector especially damaged by welfare statist taxation, regulations, and subsidies. Welfare statism has made education worse, more expensive, and massively time-wasting. Parents are not allowed to vote with their values and their wallets, and educators are not allowed to create new curricula and teaching methods without regulatory approval. And entrepreneurs and investors are not permitted to pursue their educational vision on a level playing field without competing with subsidized government (public) schools and dealing with costly government regulations. Education is the only major sector that hasn’t seen major improvements in quality and, besides healthcare, the only sector where costs haven’t been reduced in real terms over the past 100 years. You may not think of today’s government (public) education as expensive because you don’t get a regular bill in the mail. But you pay for it dearly in the form of federal and state income taxes, and property taxes or rent (depending on if you own or rent your home). And you, your parents, and grandparents have paid a very steep price through the lack of progress in education.
Under capitalism, with education inventors and entrepreneurs, teachers, parents, and students in control, the unimagined would be unleashed in this field. Under this vision, adolescents finishing their basic education around age 15, while seemingly science fiction, is very attainable.
5.13 Capitalism Eliminates Inflation
Just as recessions are a result of statist policies, so is inflation. Contrary to what you may have heard or read, there is only one source of inflation: the government increasing the quantity of money faster than the economy grows when lacking the funds (the tax revenues) to pay for everything from war expenditures to welfare schemes.
In days of old, statist rulers indirectly increased the quantity of money by diluting their gold, silver and copper precious metal coinage with less valuable base metals or by “clipping” coins (making them weigh less). When paper money was invented, the printing press took the place of base metals. And with the advent of information technology, electronic transactions mostly replaced the printing press in the statist money-creation scheme.
When the government creates more money than is required by economic growth to cover the excess spending, sooner or later the citizenry catches on and begins demanding higher prices for the goods and services they sell and more pay for their work. These price increases are often mistakenly labeled “inflation,” when in fact they are the effect of inflation, not its cause.
In the United States today, the Federal Reserve (the entity that serves as the central bank responsible for our government’s monetary policy) has become a major buyer of debt issued by the federal government to finance the spending that is not covered by tax revenues. Where does the Federal Reserve get the money to buy government securities? It simply conjures up new dollar balances and electronically credit them to other accounts. The result is a lot of money created out of thin air, causing inflation. As the money start to circulate in the economy chasing a limited supply of products, services and labor, prices increase.9, 10
Inflation is a sneaky, indirect violation of your individual rights. With each percentage point, a statist government erodes your savings and makes it harder to work towards a secure, financial future. If you have $100 today and inflation averages 2% the next 10 years, your $100 are only worth about $82 10 years from now. With 4% inflation, they are worth $68. And with 8.5% inflation—the rate recorded in March 2022—no more than $44. Inflation impacts everyone but is especially hard on those who depend on a wage or salary for their living which tend not to keep up. More affluent citizens are often less impacted due to having assets in stocks and real estate which overtime tend to rise with inflation (although they can be severely hit in the short run). Hence, inflation increases the gap between rich and poor in both welfare statist and more authoritarian and totalitarian societies, something we see in the United States today.
In a capitalist social system, the government (including the Federal Reserve), does not have the power to issue money. Private banks and other private financial institutions issue currency and credit backed by the assets that they manage (deposits by consumers and businesses). The assets grow as the economy grows, and the money supply grows with it. To maintain sufficient reserves, the financial institutions enter into voluntary agreements with one another to ensure support in the event of sudden withdrawals threatening the reserves. Without such agreements, they appear risky and so have problems attracting customers. And private deposit insurance companies that insure your savings provide another level of checks on the financial institutions.
Furthermore, under capitalism the government has extremely limited powers to take on debt, and only to finance its valid functions: the military, law enforcement, and the court system. And as we will see in a future section on taxes, not even this form of debt financing may be needed.
With the government out of the picture, the increase in money supply will always be in lockstep with economic growth which means that inflation cannot occur. Protecting your individual rights from government money creation that erodes the value of your earnings and savings, is one of the most important practical benefits of a capitalist social system.
"Education is the only major sector that hasn’t seen major improvements in quality and, besides healthcare, the only sector where costs haven’t been reduced in real terms over the past 100 years." Yes, this absolutely true. It's time to "end run" the state-sponsored educational establishment with a multitude of private educational applications. The process is already underway - let's accelerate it!