
My Journey from Free Market Ideologue, Part 5: Commercial Development - oftenwrong
https://www.strongtowns.org/journal/2019/7/15/my-journey-from-free-market-ideologue-part-5-commercial-development
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ksdale
This is a super interesting series, but I'm failing to see how most of the
issues he covers are market failures. I love the way he explains
infrastructure as an investment, but it seems like most of these
infrastructure projects would... not be pursued by someone who was responsible
for the full cost (naturally, negative externalities can be market failures,
but are they in this case?)?

I suppose it's some sort of market failure that municipalities are allowed to
basically kick the can down the road, building ever more infrastructure
without the revenue to sustain it, but that's generally not at all what people
mean when they talk about market failures, is it?

As I said, I love this series, and he sounds right about everything, but
calling it a journey from free market ideology seems odd, since most of the
issues he has are with governments making bad investment decisions (unless I'm
completely misreading this). If they were companies they would have gone out
of business and lost their ability to make such bad decisions (hopefully, if
not, that would also be a market failure). It just seems odd to describe
actions by governments as actions by market participants when the line is
usually drawn between government actors and market participants.

~~~
burlesona
As a friend of Chuck, I can tell you he means it as follows:

Originally he believed that we had a well-functioning free market, and that
everything that got built was just the market expressing consumer preferences.
Over time he (and I and many others) began to realize that the system was not
a functioning free-market at all, but rather a strange amalgam of layers of
public policy and social engineering with really bad side effects.

This isn’t super easy to see because it’s hidden in a bunch of cultural stuff
we just take for granted. Things like how so many postwar neighborhood have
40’ wide paved streets with curb and gutter, sewer, and buried utilities. That
must be because it’s practical and affordable, right? But when you really dig
into it you find that the homes lining that street don’t even pay a meaningful
fraction of the maintenance cost of that infrastructure... so where does the
money come from? That turns out to be very opaque and hard to answer. (You can
read about it here: [https://www.strongtowns.org/the-growth-ponzi-
scheme](https://www.strongtowns.org/the-growth-ponzi-scheme))

And so on. So as we began to figure this stuff out, we built Strong Towns to
share what we were finding and try and get a lot more people to look at it in
their own communities so we could figure out how widespread these phenomena
were, and start to figuring out what to do about it. That journey is still in
progress.

~~~
Torwald
Then the title of the series is badly worded. The journey is not from free
market ideology to another viewpoint, as the title suggests. It is more an
awakening to the fact that we do not have a free market or at least to a set
of facts about how strongly the markets are inhibited by governments.

~~~
voodootrucker
Absolutely no idea why this is being down-voted, given the grandparent gave
all the evidence required to support this argument.

~~~
TomMckenny
The article explicitly warns of that sort of confirmation bias.

In particular, it points out that the free market had already failed the
people in the community. The remedy, essentially government financial
incentives to business, was the only thing that made enterprise possible. But
since the whole system innately runs at a loss for the comunity, a harsh
future reckoning arises.

So it points to a possible deep flaw in our economic system and underling
assumptions that simple theories obviously do not explain.

After all, one should believe the simplest working explanation, but certainly
no simpler. The complete confidence in completely unfettered markets is
apparently overly simplistic. Likewise, some forms of business incentives are
counter productive.

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whatshisface
> _Last month, the Utica Observer-Dispatch reported: Fort Stanwix a $6.1M
> Economic Boon for Rome Area. That sounds good. That sounds really good. In
> fact, if I were still the same free market ideologue I was back in the day,
> the kind that looked at ratings agency reports and bond market yields as
> affirmations, I would say that this sounded a lot like success. Even if the
> fort was a big government project, now we’re seeing the free market respond
> and generate a whole bunch of economic activity. That’s good for Rome!_

Not to be the guy that always jumps in to defend the market, but it sounds
like this business park was a case of the government throwing away money and
using the market to decide who would get to take it. The free market will eat
up free money like nothing you've ever seen, which is why some of the worst
failures have come from a well-intentioned government policy getting extracted
like a natural resource.

It's a fallacy to think, "the market is like a friend, tax it and it won't
help you, give to it and it will." The reality is closer to, "the market is an
angry dragon that just so happens to be pulling your plow."

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g_langenderfer
If the market decided, these small towns with all their centralized services
wouldn't last. Either people would move from rural to urban areas or private,
decentralized, and economically viable services would develop.

~~~
TheOtherHobbes
If the market decided, the planet wouldn't last, because markets are
absolutely incapable of long-term strategic planning - long-term meaning half-
century or more.

When your accounting system includes biases that specifically exclude certain
kinds of value - i.e. anything currently labelled an externality - there's
going to be a hard limit on the rationality and foresight of any decisions
that rely on it.

~~~
g_langenderfer
Markets are incapable of optimizing against externalities. For example, no one
owns the air, so no one pays for the exhaust produced by their cars as they
drive to work.

If there were air rights-say every property owner gets rights to the air one
mile up from their property-, the holders could sue polluters for the damage
they cause.

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cabaalis
> These city governments needed revenue in order to operate. In fact, they
> needed to run a profit; that is, they needed their revenues to be at or
> above their expenses, and that needed to continue indefinitely.

What exactly is being argued here? That the local cities should be market
players, and join in the income from growth they help stimulate?

Local governments have a method for doing that, taxation.

> Rome’s local government is funded largely by property taxes. ...... But for
> the Rome city government, tearing down multiple blocks of taxpaying
> properties—even if they were in terrible shape at the time—and replacing
> them with a tax-exempt property, under the guise of creating economic
> activity, is a really terrible transaction. Absolutely devastating.

You're right, it would be a terrible transaction. They cannot be a market
player in growth under their current structure. So as I see it, what you're
arguing for is that Rome and Brainerd implement more transaction-based
taxation. Which would be absolutely fine, as they then have a proper incentive
to increase growth.

~~~
mywittyname
It seems like less of an argument and more of a demonstration on how local
governments are getting swindled by property developers. These developers make
promises that all this money will be generated in the local economy if local
governments agree to subsidize development. The agreements these developers
make with the governments effectively ensure that most of that economic
activity goes into their pockets, while ensuring that locals end up bearing
the costs of maintaining the new facilities through increased property taxes.

In essence, these deals get sold on the fact that they will bring $X million
dollars into the local economy, but nobody realizes that 0.95*$X million
dollars is going right back out again until it's too late. After a few years,
the city coffers would be empty and maintenance costs of the infrastructure
built for these developments would leave them insolvent.

The tie back to the "free market" is a little less clear. But it seems to be
to be a collection of anecdotes that "economic activity" doesn't magically
flow into government coffers. The whole concept of cutting taxes to raise
revenue is a joke and doesn't work. Small towns need to operate like a for
profit business and take a hard look at the ROI for infrastructure
investments, and this means collecting taxes.

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davidw
Worth reading the whole series and other Strong Towns pieces too.

Chuck is not anti-market, he's just going into a lot of the details about how
this stuff works out in practice.

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UK-Al05
Surely these are problems with a lack of market.

If your building something without the revenue support it then you would
normally go out of business

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smacktoward
_> Outcomes I Like = Result of a Free Market_

 _> Outcomes I Don’t Like = Result of a Distorting Government Intervention_

A modified version of this can frequently be observed in right-wing media,
where the generally accepted term is "crony capitalism." When capitalism
produces outcomes they approve of, it's because capitalism is good. When
capitalism produces outcomes they _don 't_ approve of, it's because what was
going on wasn't _really_ capitalism, it was its debased, photo-negative,
bearded-Spock version, "crony capitalism." In other words, it's a form of the
"No true Scotsman" fallacy: _true_ capitalism wouldn't have done those bad
things.

Which is frustrating, because "crony capitalism" is a real thing that actually
means something specific: see
[https://en.wikipedia.org/wiki/Crony_capitalism](https://en.wikipedia.org/wiki/Crony_capitalism).
But in this usage it's just a convenient way to handwave away market failures
by dumping them at the feet of a straw man.

~~~
opo
Cronyism is found in all political systems and in some systems like fascism
might even be considered a defining characteristic. People trying to
manipulate the political system for economic gain is unfortunately always
going to happen whether there is little or a lot of economic freedom in the
system.

>...When capitalism produces outcomes they approve of, it's because capitalism
is good. When capitalism produces outcomes they don't approve of, it's because
what was going on wasn't really capitalism, it was its debased, photo-
negative, bearded-Spock version, "crony capitalism."

Can you give an example?

~~~
smacktoward
Watch Fox News or listen to conservative talk radio for a couple of days,
you'll have more examples than you know what to do with.

~~~
opo
You said that "frequently" right wing media would mistakingly claim that any
result they didn't like was "crony capitalism" when the issue in question
would not fit the definition of crony capitalism. It is unfortunate that you
don't have some links to examples if it does happen frequently.

~~~
SantalBlush
I've heard Peter Schiff blame "crony communism" on a radio show. I'll see if I
can find a link after work. But it is true that the term is used as a
scapegoat.

It's not like you haven't heard the term before, so I'm not sure why you're
asking for links.

~~~
opo
>...I've heard Peter Schiff blame "crony communism" on a radio show.

That sounds like something different than the OP said.

>...It's not like you haven't heard the term before, so I'm not sure why
you're asking for links.

It's like I said, cronyism will be found in any political system. What was
odd, was the original poster was saying that frequently when people didn't
like some result, it was blamed on "crony capitalism" and as the OP pointed
out:

>"Which is frustrating, because "crony capitalism" is a real thing that
actually means something specific"

I don't think I've seen examples of people in the media using the term "crony
capitalism" wrong, but then again I don't watch Fox News, so I asked for an
example. Does that make sense?

~~~
SantalBlush
Yes, that makes sense. But it also suggests to me that any example someone
provides will be handwaved, so I'm not going to bother. At any rate, I agree
with OP that it's used as a scapegoat.

