Wednesday, December 18, 2019

A nice review of "Shut Out" at CATO

David Henderson, one of the frequent posters over at econlog, who I have always enjoyed following, has a very nice review of "Shut Out" at Cato.  It begins:
In his recent book Shut Out, Kevin Erdmann, a finance expert and visiting fellow at the Mercatus Center at George Mason University, has two main messages. The first, which is not controversial among economists, is that restrictions on residential construction in coastal California and the urban Northeast have constrained supply so much that housing in those areas is virtually unaffordable for people in the lower- and middle-income classes. His other message is more controversial: the financial crisis last decade was not due to a housing bubble but, rather, to bad policy decisions based on the idea that there had been a bubble. Whereas I was already convinced of his first point, I, like the majority of economists, was skeptical of his second. But because of all the data and reasoning he brings to the issue, I now find myself at least 90% convinced.
Please click on the link (pdf) for the rest.

I need to get that darn second book finished to address the other 10%.


  1. I wanna hear from the person who read the book and WASN'T at least 90% convinced; if such a person exists.

    1. :-) Thanks. I suspect Robert Murphy would count in that category. Probably Dean Baker too. Logan Mohtashami‏. But, the people that would be unmoved by the content would probably also be unmotivated to read it.

    2. I suspect, sadly, that Russ Roberts might be in that category.

    3. David Dayen would likely be unmoved. Mian & Sufi. John Taylor. Robert Shiller. Bethany McLean. The more I think about it, the faster the list grows.

      It would certainly be interesting to see how they would react. It would be interesting to see a full review from Arnold Kling. I would expect him not to like it, but he has been very generous at his blog about my work. I hope eventually he sees fit to comment at length.

      It would also be interesting to see the response of "passive credit" researchers who found many of the same elements I have, but who didn't take the full step into "there wasn't a bubble" territory.

    4. Looks like I spoke too soon. I was pleasantly surprised that Russ Roberts mentioned the work, and this blog, in this week's econtalk episode. It looks like Russ has taken the time to look into some of this, and is convinced that at least some of it is important.

  2. I am not dismissing the financial side of your book, which I think is correct.

    But it seems the rather obvious and irrefutable point is that the US has criminalized new housing production exactly where there has been job growth. We have urbanizing job markets without urbanizing housing production.

    Of course, housing prices rose.

    All the economists you mentioned should be beating the drums constantly about this main point of your book, even if they want to quibble with this or that aspect of the financial side of the story.

    Somehow we have lost sight of the obvious, that less housing means lower living standards.

    Not only that, the problem of urbanizing job markets without urbanized housing production is not limited to regions of the US, but extends to places like Hong Kong, Great Britain, Canada, Australia, Spain and so on.

    The average age of a new home buyer in the US is now 47 and rising. The average age of a vehicle on the road is 12 years.

    So, tell this story: the average American cannot afford to buy a home until they are 47 and they drive a 12-year-old car. Americans no longer have enough kids to replace themselves.

    Is this a higher living standard than 60 years ago?

  3. I am not sure in which post you make the point, but on your point about closed access cities balancing housing supply and demand by "squeezing out" existing residents and replacing them with migrants. Eric Kaufman, in his excellent book "Whiteshift" (not wild about the title) argues that "white flight" is mostly a myth, what we have is "white avoidance".

    Somewhat extending his argument to fit in with your analysis, urban areas have considerable churn in residence anyway, but "whites" avoid areas with high "non-white" residence. So as "whites" leave, closed access housing supply favours people more willing to crowd their residences (migrants) to replace them and migrants moving in also leads to "white" avoidance. The result is rapid ethnic change in high migrant closed access cities. Such as London. So the "white flight" story is actually somewhat mischaracterising a more complicated flow-and-preference story.

    (I put "white" in italics because I really dislike race talk, regarding it as clumsy way to talk about ethnicity -- ancestry and culture -- which is both reductionist and makes engaging in racial stigmatisation so much easier.)

    1. Lorenzo:

      In Los Angeles, it has been upper-income people, who are generally white or Asian (or Indian, or upper class immigrants from anywhere in the world) who are effectively displacing blacks and Hispanics. Although in large parts of the city anyone not upper-middle class has been displaced, regardless of race. (I hate race talk as well). In Los Angeles, many low-income people have been "pushed" into the Inland Empire or even desert cities. A single-family detached house anywhere in Los Angeles today is expensive.

      Sheesh, the average one-bedroom apartment in L.A. rents for $2,500 a month. $30K a year in rent?

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