Government Spending That Is Not Cost-Effective Makes The People Poorer

In your family, you have a limited budget.  If you spend some of your money wastefully, that means that you will not have enough left for your higher priorities.  It is obvious to you that wasteful spending makes you poorer.  So you are careful to spend every dollar effectively. 

And then you have the progressive vision of government as the source of perfect fairness and justice through government spending.  The money comes from the tooth fairy.  Spending on favored progressive causes is a moral issue -- how could you be so cruel and callous as even to consider cost-effectiveness of spending when we are dealing with values as fundamental as fairness and justice?  Try to find any example of a progressive considering the issue of whether wasting public money makes the people poorer.  And thus we get, for example, the folly of "affordable housing."

"Affordable housing" has been in the news this week in several suburban and rural jurisdictions around New York.  Read anything you can find on the subject, and you will find one hundred percent acceptance by all participants in the discussion that the building of "affordable housing" through some kinds of government support or subsidies is a good thing and indeed some kind of moral necessity.  Has anybody (other than yours truly) ever asked whether this government spending is cost-effective?  If it has ever happened, I can't find it.

Now, recognize that in the suburban jurisdictions the cost-ineffectiveness of the "affordable housing" is not nearly at the extreme level that we see in Manhattan.  Only in Manhattan do we hand out to poor people apartments that, if in the private market, would have values in the range of $3 million to $5 million each -- meaning that we provide these "poor" families with annual subsidies in the range of $150,000 to $250,000 per family.  And yet, because these families continue to have little to no cash income, we continue to count them as "poor."  It seems almost inconceivable that the taxpayers could spend $250,000 per year to subsidize some families, only to have them remain poor.  That's what you get when you spend taxpayer money out of guilt without considering cost-effectiveness.  But just because the suburban "affordable housing" programs are not as financially disastrous as their Manhattan counterpart does not mean that they could remotely make sense if cost ever got considered for a moment.

Anyway, out in New Jersey, affordable housing is in the news this week.  New Jersey has long imposed state mandates on its municipalities to generate affordable housing within their borders, supposedly enforced by a state agency called the Council on Affordable Housing.  But according to the Wall Street Journal on June 27, in 2015 the state Supreme Court found that the Council had failed to enforce the appropriate requirements, and stripped it of its powers.  That sent the matter to the state's appellate division court, which is expected to rule shortly on the extent of the responsibility of municipalities for failure to generate affordable housing during the period 1999 to 2015, when the Council was said to be falling down on its job.  The pending appellate division decision has set off a debate between those who consider "affordable housing" a moral necessity versus those who want to "preserve the character of our towns."  Of course, neither side even mentions the critical issue, which is cost-effectiveness.

As an example, for the side of "moral necessity," we have Richard Smith and Christian Esteves writing at nj.com for the Newark Star Ledger on June 6:

We are confronting a moral reckoning in New Jersey.  The Garden State remains one of the most segregated states in the country — where too often the color of one's skin determines a person's future.  This system of de facto segregation is undergirded by a long history of exclusionary zoning practices by suburban municipalities seeking to keep low-income residents confined to struggling inner cities, where they are unable to take steps toward achieving the American dream in the form of safe neighborhoods, good schools and access to jobs.

OK, Richard and Christian, if as you say the answer to lifting the poor out of poverty is to provide them with government-subsidized "affordable housing" in previously segregated communities where they can then "take steps toward achieving the American dream in the form of safe neighborhoods, good schools and access to good jobs," then can you kindly look right across the river to your neighbor Manhattan and explain to us why tens of thousands of people on that little island, supplied with multi-million dollar subsidized "affordable" apartments in the richest county in the country, still remain mired in poverty for decade after decade?

For the other side of the debate, the Journal quotes one Jeffrey Surenian, an attorney for the town of Barnegat in the litigation before the appellate division, who is seeking to minimize the obligation of his client to make up for affordable housing not built in the 1999 to 2015 window.  His argument:

“If the numbers are so high that every site has to be zoned for affordable housing, that is a huge infringement on how the municipality is ultimately developed,” Mr. Surenian said. “You could have sites that are developed at densities 10 times greater than they were originally planned for.”

OK, but how about pointing out that subsidized "affordable housing" costs a fortune in taxpayer subsidies for a small number of beneficiaries, and then, instead of helping them escape poverty, it traps them in poverty for life?  Somehow, no one thinks of that argument.

The Journal article does not get into any detail on the economics of so-called "affordable housing" in New Jersey.  But in Connecticut, where I am now sojourning, an article in the current (June 30) issue of the Lakeville Journal (sorry, this particular article does not seem to appear on their website) gives us the details of the economics of one "affordable housing" project in this jurisdiction.  The article has the headline "Sharon Ridge," and is authored by the former vice-chair of the Sharon Housing Authority, Lea Davies.   

For those who have not heard of the place, Sharon is a rather tony town of only about 3000 people in northwest Connecticut, most famous as the long-time home of the Buckley clan (William F., James, et al.).  The mansion where the Buckley brood was raised sits right on the main drag just south of the town green.  (It looks rather stately, but actually has long been carved up into condominiums.):

But yes, even in remote Sharon, they have government-subsidized "affordable housing."  Ms. Davies writes to brag about the recently-completed 12-unit addition to the Sharon Ridge project. Here is her statement of the economics:

Development costs were approximately $4 million.  The land was already owned by the SHA and zoned for additional building lots, simplifying the process enormously.  Government funds for a project of this size were essential to ensure a financially feasible project.  The SHA received a grant of more than $3 million from the state of Connecticut.  In addition, the SHA obtained a $1 million, 30-year loan (at a 3.5 percent annual interest rate) from the United States Department of Agriculture (USDA) Rural Housing Program.  Of paramount importance was the USDA providing annual rental subsidies for the new units, making them even more affordable.  

See that -- it's as good as free!  A $4 million cost, paid for with a $3 million state grant (free!) and a $1 million federally-subsidized loan (almost free!); plus ongoing operating costs substantially paid for by ongoing federal subsidies (free!).  Or alternatively, we can do a little simple math: $4 million for 12 units comes to $333,333 per unit.  Oh, but they already owned the land, which somebody must have paid for.  So say, about $400,000 per unit.  Plus ongoing operating costs.

Go to websites for real estate listings, like Zillow or Trulia, and look for the town of Sharon.  Even in this tony town, you will find about a dozen listings for houses for sale under $300,000, including several under $200,000.  Check under the adjacent (less tony) town of Canaan, and you will find several dozen listings under $250,000.  From the pictures, these places look perfectly pleasant, if modest.  So why exactly are the taxpayers spending $400,000 per unit, plus a lifetime of operating subsidies, to construct new "affordable housing," when there is plenty of perfectly good housing on the market at half the cost?  The only reason I can think of is, so that some bureaucrats can get bigger empires and more staff and growing budgets.

But why should we care if it's all "free"?  Somehow Connecticut, while getting big kicks out of passing out the "free" money for progressive moral crusades, has taken itself into a dead end of endless budget crises and economic stagnation.  Do you think the two might somehow be related?  Well, at least they don't spend $5 million per unit on their "affordable housing" like we do in some spots in Manhattan.

The McDonnell Reversal And Its Implications

On Monday the Supreme Court unanimously reversed the "honest services fraud" and "Hobbs Act extortion" convictions of Bob McDonnell, former governor of Virginia.  Please recall that I predicted this result on May 3.  (OK, I admit that I only made the prediction after the oral argument at the Supreme Court, where justices from both the liberal and conservative wings raked the government's lawyer over the coals.  But I did note that the McDonnell prosecution was "one of the flimsiest" of many flimsy federal phony prosecutions of recent years.)

The Supreme Court's opinion is here.  It's unanimous, written by Chief Justice Roberts, with no concurrences.  Mostly it's a lot of technical parsing of the meaning of the term "official act" as that term appears in the federal bribery statute, 18 U.S.C. Section 201.  But, you say, McDonnell wasn't even indicted or convicted under that statute and the term "official act" does not appear in the statutes under which he was convicted; how is this even relevant?  That's just an illustration of the sad fact that today you can't get any idea what you can and can't do in this country without reading all the Supreme Court opinions.  If you had read the Skilling opinion of 2010, you would know that the Supremes saved the "honest services fraud" statute from being declared void for vagueness by importing into it the restrictions of the bribery statute, 18 U.S.C. Section 201.  It's more than a little odd, because the bribery statute only applies to bribery of federal officials, and McDonnell was a state official.  

Whatever.  The government accepted that it had to prove an "official act" done as a quid pro quo for some kind of payment.  The government's allegations were that, in return for various personal gifts from a contributor (amounting in total to some $175,000), McDonnell agreed to set up meetings with government officials (executives of the state university), hosted a meeting, and followed up with those officials to urge them to make a decision on the contributor's requests.  But ultimately the UVA officials declined to do what the contributor was requesting.  The "official acts" were setting up and hosting the meetings and following up to get a decision.  After extensive parsing of the term "official act," Roberts finds that merely setting up meetings and following up don't meet the test.  Here's how he describes the fundamental problem:

[C]onscientious public officials arrange meetings for constituents, contact other officials on their behalf, and include them in events all the time. The basic compact underlying representative government assumes that public officials will hear from their constituents and act appropriately on their concerns. . . .     

Or to put it another way, if McDonnell was guilty of "honest services fraud," then literally every other elected politician in the country is equally guilty.  Is there actually a single sitting politician in the country who has not agreed to set up a meeting or follow up with a bureaucrat for a decision on behalf of some campaign contributor?  Sure, McDonnell's conduct was rather "tawdry" (to use Justice Roberts' term), particularly in the size of the gifts and the fact that they were personal (as opposed to contributions to the campaign).  But the statute doesn't make guilt or innocence turn on some visceral reaction to the "tawdriness" of the conduct or the size of the donation; if what McDonnell did constituted "official acts," then he would have been equally guilty if all he got was a $1000 campaign contribution.  And really, even at $175,000, he was small time compared, for example, to the New York politicians who take millions of dollars annually from the teachers unions in return for favorable organizing legislation, keeping contracts in force after expiration, suppressing charter schools, making it impossible to fire a teacher, and so on.  Why aren't those New York pols prosecuted?  (Hint: McDonnell was a Republican in a swing state, the prosecutors were working for Barack Obama, and the prosecution helped to swing the governorship of Virginia to the Democrats; in New York the teachers unions contribute almost exclusively to the Democrats, and the relevant prosecutors are all Democrats.)

Which brings us to the case of Dean Skelos, recently (until his federal indictment on bribery and extortion charges) Majority Leader of the New York State Senate.  At the time of his indictment in May 2015 I called the charges against Skelos "remarkably thin."   He was accused of leaning on some of his contributors to give some employment to his son, and at least a couple of them did give him at least some employment.  Skelos was convicted in December and currently remains free on bail pending his appeal.  His lawyers did a good job preserving the "official act" issue for appeal.

Looking at the indictment (not available online without a subscription as far as I can find) and the decision of the District Court denying a motion to dismiss the indictment, I can say that much of the guts of the conviction have now been undermined.  However, I can't confidently predict a full reversal.  In her decision on the motion to dismiss, District Judge Wood relies at multiple points on the Fourth Circuit's decision in McDonnell, now unanimously reversed.  Then there is this from her opinion on that motion:

[C]ourts interpreting "official acts" in the context of bribery and extortion have held that "official acts" encompasses such conduct as: . . . taking steps to promote and ensure the success of a business venture, including corresponding with officials and investors who might be helpful, scheduling and conducting meetings, and seeking to secure contracts on behalf of the business . . . .   

I'd say that's now dead wrong under McDonnell.  The single most important thing that Skelos was alleged to have done was to lean on his friends with the Nassau County legislature to approve a contract with a company that employed his son.  But Skelos had no position of any kind with Nassau County.  The Supreme Court's decision does not explicitly address how such a thing could constitute an "official act" of Skelos, but really, how could it under Roberts' parsing of that term?  

But there is an allegation in the indictment that Skelos threatened to block legislation favorable to one or more of the entities that he wanted to employ his son.  I can't say how that one came out in the evidence without reading the trial transcript, which I don't have.  So there is at least some chance that some part of the Skelos conviction may survive.

For what it's worth, I don't think that the conviction of Sheldon Silver is threatened by this decision.

To all those wringing their hands over the fact that conviction of corrupt pols has now become that much harder, I say, it's no solution to make the conduct of every politician criminal and then leave it in the hands of supposedly fair and neutral prosecutors to only go after the really bad guys.  The prosecutors are not fair and neutral, and if given discretion to convict essentially anyone they want, they will use that discretion to convict politicians of the opposite party holding swing positions so that a governorship or a legislative body can be swung to the political party of the prosecutor -- in other words, exactly what has happened in the cases of McDonnell and Skelos.  Do you really want to do something about corruption in government?  There is only one solution:  shrink the government.

How To Tell Whether Brexit Is A Good Thing

Is the British people's vote for Brexit a good thing or a bad thing?  How do you tell?  It's easy!  Just look at the list of personages and pooh-bahs who have gone into full meltdown.  And then look at the ridiculous statements they make to try to instill fear in everyone else and maybe get this thing reversed.  They've become completely unhinged!  And also consider the utter contempt in which the defeated opponents of Brexit hold the victorious supporters.  This losing side, sometimes known as the "elite," is the coalition of the "leaders," the academics, the journalists, the crony capitalists, and the government functionaries who believe that they and others like them are the experts and they should run the world with no accountability, and issue the orders to the productive people who pay the bills.  Most of the members of this coalition currently live off some kind of government salary or grant or handout, and the rest of them expect to do so at some point.  Honestly, are these people you want to be aligned with?  Not me!  And I guess I was not the only one.

And if you still have any doubts, just remember that Switzerland is not a member of the EU.  So the future downside for Britain is that it might end up "suffering like Switzerland."  Scary!  (Switzerland is per capita the wealthiest country of over one million people in the world.  OK, some lists have Norway as the wealthiest country, although I think that was based on last year's price of oil.  Anyway, Norway is not a member of the EU either.)

Here's just a small roundup of links.  I love the headlines at the New York Times.  "Brexit Rattles the World's Postwar Order," and "In Vote, Hints of a Larger Unraveling."  Ye Gods, the World As We Know It is Coming Apart!  And then from the editorial:

Defying the warnings of every major economic and political institution in Britain, Europe and the United States, millions of voters across Britain concluded that a gamble on a dangerous unknown was better than staying with a present over which they felt they had lost control. It was a cry of anger and frustration from more than half the country against those who wield power, wealth and privilege, both in their own government and in Brussels. . . .  

In New York Times-world, it is not possible to come to a rational position in opposition to increasing unaccountable bureaucratic control; you can only get there via "anger" and "frustration."

At Bloomberg it's "Picking Through Brexit Rubble, Leaders Try To Plot The Future."  Sebastian Mallaby at the Washington Post, in a relatively sober assessment of what he calls this "awful vote," sees financial turmoil and recession and the ascendancy of the ghastly "Euroskeptics" and "populists":

There will be consequences for financial markets, both in Britain and abroad. Already, the British pound and the London stock market have been hammered, anticipating the recession that is likely to come. . . .  Already, Euroskeptics in Sweden, France and the Netherlands have demanded a copycat referendum. . . .  The fear that Europe’s cohesion is weakening could reignite economic turmoil in the euro zone. Government bonds in Spain and Italy look riskier now that the continent’s cohesion is in doubt.

At the Huffington Post, the game plan is to document that the Brexiteers are all a bunch of violent racists.

But absolutely the best is the primal fear of the climate establishment that the gravy train of funding could be in jeopardy.  Check out National Geographic or Scientific American.  National Geographic's headline is "Why Brexit Freaks Out So Many Scientists."  Excerpt:

The British public’s vote to leave the European Union has set off political and scientific shock waves that could roil Europe and the world for years to come.  The decision has dismayed scientists in the United Kingdom and across Europe, as it stands to disrupt scientific funding and the United Kingdom’s stature in the European and international research communities.  “It’s depressing, but the uncertainty doesn’t help,” says Philip Jones, research director of the University of East Anglia’s Climatic Research Unit in Norwich, England. “I just hope that science doesn’t get forgotten in all of this.”

Yes, that is the Phil Jones of Climategate.  Could the ascendancy of the Brexiteers mean the de-funding of the climate scamsters at the University of East Anglia?  One can only hope.

One can also not help noticing the close association of the Brexit movement with climate skepticism.  Somewhere along the line, the forces of the Left convinced themselves that "saving the planet" from the threat of energy usage was a value so important that it trumped human freedom, prosperity and democracy.  More than a few have now begun to notice.  You might enjoy this article by Christopher Monckton at The Europrobe:

It is no accident, therefore, that the bankers, the corporate profiteers, the Greens and the National Socialist Workers’ Party of Scotland – the corporatists and the communists together – made common totalitarian cause and heavily promoted the campaign to keep Britain in the EU, that paradise of vested interests and their poisonous lobbyists.  It is likewise no accident that precisely these same national and global vested interests heavily promote the campaign to subject Britain and the world to various unnecessary and damaging measures whose ostensible purpose is to control the climate but whose real ambition is to curb capitalism, fetter freedom, punish prosperity, limit liberty and deny democracy.

For the moment, the forces of freedom and prosperity have at least had their voices briefly heard in Britain.  But do not expect the totalitarians and vested interests to give up easily.  I anticipate a protracted campaign of obstruction and delay, as the grafters desperately fight and claw to hang onto every last grant and perk.  

Here in the U.S., the Brexit campaign shows a potential winning strategy for Trump.  I'm not sure he is informed enough to pick up on it.  In Britain, where "climate" regulations have approximately doubled the cost of energy, it should surprise no one that opposition to more such regulations (and to plans to raise the cost of energy by more like a factor of five or ten) suddenly is a majority position.  Over here, despite Barack Obama's best efforts to make the price of energy "skyrocket," he somehow got outmaneuvered by the frackers, and the price of energy instead declined.  There is not yet the same level of anger here over intentional efforts of the political class to impoverish the ordinary people.  But it's a piece of a broader anger that is building.

Manhattan Contrarian On Brexit: Leave!

Today is the day of the big vote in the UK on "Brexit" -- whether or not to leave the EU.  The polls show the referendum to be too close to call, although the supporters of "leave" seem recently to have  taken a slight lead.  

Of course, all the forces of The Great And The Good are arrayed on the side of "stay."  Proponents of "stay" include the leaders of both major political parties (Conservatives and Labour), nearly all of the press and of academia, as well as most leaders in business.  Really, doesn't that tell you all you need to know?  This is why we need contrarians!  You won't be surprised learn that the Manhattan Contrarian urges the British people to vote "leave."

To its great credit, the UK does still have at least a few independent thinkers among its leaders and politicians.  Among the Brits who have taken the side of "leave," I would recommend reading statements from Daniel Hannan (Member of the European Parliament in the Conservative Party, representing the South East England district)  and Boris Johnson (Mayor of London from 2008 to earlier this year, and now an MP in the Conservative Party from a West London district).  Among Americans who have weighed in on the subject, I recommend this from Joel Kotkin (a professor of demography at Chapman University).

Admittedly some of the arguments that have garnered much of the support for "leave" are in my view not the best arguments.  Such arguments include playing on British dislike of the euro project and playing on the fear of a wave of migrants.  These arguments are not the best arguments not because the UK would be wise to join the euro or to take in hundreds of thousands of migrants, but rather because the UK in fact did not join the euro (and does not have to to stay in the EU) and because the UK did not join the Schengen agreement (that's the agreement that makes it such that any migrant once admitted to any agreeing state thereafter has unrestricted access to all the others).

But here's the argument that counts:  The EU has become fundamentally an anti-democratic project, what goes under the name of "progressive" in the United States, for turning over more and more of governance to an unelected, unaccountable class of "experts" in a distant capital who will then supposedly run things so much better than the stupid hoi polloi can run their own lives.  And it's not just that the existing Brussels bureaucrats are "progressive" in their outlook and direction.  It's that they are completely insulated and isolated from democratic processes.  With each passing day and year they seize to themselves more and more power; and there is no limiting principle to stop them or to say how far this can go.  Nobody knows who they are or how they get their jobs.  And there is no process by which they can be voted out when they overreach -- which they do more and more with every passing day.

Well, actually there is exactly one process by which anyone has the hope of getting out from under the thumb of these bureaucrats, and that is this vote on Brexit, available only in the UK and only right now.  Blow this one, UK voters, and it is highly likely that there will be no chance to say no to anything the EU does, or to reverse any EU decision no matter how bad, for the remainder of your lifetime and probably that of your children.

What the EU has come to is really a tragedy.  It all seemed to start out so well as the European Economic Community, a free trade bloc.  Let's remove all tariffs and trade restrictions between and among European states!  That will hugely increase trade and cause economic integration, growth, and prosperity.  And in fact that was a great idea, and basically worked as advertised.

But then the EU government started to metastasize.  The people in Brussels just had one brilliant idea after another of what they could accomplish for the public good if only given each time just a smidgeon more power.  Today, I'm certainly no expert on everything the EU is up to -- but then, neither is virtually anybody in Europe.  The nameless, faceless bureaucrats just crank out thousands of pages of regulations directing you what you can and can't do and gradually strangling creativity and enterprise and adventure in the name of supposed fairness and justice and the environment and eliminating all down side risk of life.  Here is a list from Kotkin of a few of the areas into which the EU bureaucracy has crept:

[The EU] bureaucracy [] . . . seeks to impose regulation on everything from the borders to the schools, planning, environment policy, and, perhaps most insulting of all, laws that control the production and distribution of such critical European products as alcohol and cheese. Climate change regulations imposed from Brussels also threaten to further weaken the middle class, even making car ownership too expensive for most drivers.

And of course the position of Brussels is that their regulations have "supremacy" over the law of any member country.  You won't be surprised to learn that the area of EU regulation that I find most offensive is the area of the environment and "climate change."  With unlimited ability to impose regulation in the name of "saving the planet," the EU bureaucracy is completely in a position to destroy much or most economic activity and thoroughly impoverish the people, without any ability of the people to push back.  And it goes without saying that the EU bureaucrats have completely bought into the anti-human carbon elimination campaign.  If there is anything that is going to stop them from multiplying the cost of energy in Europe by orders of magnitude, shutting down all electricity production that actually works, and making automobile ownership too expensive for all but themselves, I have no idea what that is.  Note that in the U.S. our EPA is up to the exact same thing; but in the U.S. the democratic election of a new President can get all the current EPA bureaucrats fired and replace with people who take the opposite direction.  There is no comparable process to get the EU bureaucracy to reverse or modify course.

On the other side, the side of "stay," the arguments are not trivial, but to me ultimately unpersuasive.  The main one is, once we exit, we are outside the EU and therefore subject to the EU external tariff.  That has the potential to severely damage many of our businesses and industries that currently make their livings selling to EU citizens, not the least of which is the UK's crown jewel, namely the London financial sector.  If you think about this argument, you realize why all the existing poo-bahs are for "stay": if lots of businesses and careers get disrupted, then those currently at the top of the economic heap are the most at risk.

Boris Johnson at the link above summarizes this argument as "the campaign of fear."  And I think he is right.  The extent of business disruption from exit is unknown and may be nothing.  The EU could impose its external tariff on the UK, but then again, it may well not.  Doing so would be just as disruptive for EU businesses as for UK businesses (although perhaps more widely disbursed in the EU).  Moreover, Switzerland is not a member of the EU, but is in on the free trade agreement. What's so hard about the UK doing that?

The pervasive economic stagnation in today's EU members is not entirely the fault of the EU bureaucracy; certainly the governments of the member states bear much of the responsibility for their own overspending and overregulation.  But the EU bureaucracy is responsible for a substantial part, and that part is growing unchecked.  The fundamental point for the UK is, if you want to preserve any prospect of future growth, dynamism, and human freedom, you've got to get out of this trap now while you have the chance.  Go for it! 

Let 421-a Die!

If you notice fewer posts than usual here this week, it's because I'm off on a trip, to Russia of all places.  On finding out that I'm from New York, some of my travel companions have immediately asked, why is it so corrupt, and is there anything to be done about it?  My answer is, our politicians are no more corrupt than those anywhere else, but our unique situation is our particularly large collection of government programs of handouts and crony capitalist giveaways.  New York has gone well beyond other states in seeking to use the levers of government supposedly to make the world more fair and just.  Instead of achieving fairness and justice, the handouts and giveaways get manipulated by the pols' friends and hangers-on to make themselves rich, while poverty never goes down and perfect fairness somehow always eludes us.  Meanwhile, once in place, the handouts and giveaways are fiercely defended by the alliance of the politicians who give them and their cronies who get them, and thus the giveaways are exceedingly difficult to eliminate, even as they never solve the problem they were supposed to solve, and even as they breed a steadily increasing level of corruption.   

One of the best examples of the genre has been in the news lately, and for the highly unusual reason that this major giveaway program recently expired, and then was unexpectedly not renewed in the recently-concluded session of the New York State legislature.   The program in question is a type of real estate tax abatement, and goes by the name "421-a."  Even if you live in New York, you may well not have heard of 421-a.  That's because, as a big crony-capitalist giveaway, it's arcane and complex, and it's only worth the time to figure it out if you're an insider getting rich off it.  From the perspective of the insiders -- pols and cronies alike -- the less the public knows about it the better.  To the public, the pols say something like, "we're fighting to get affordable housing built."  Who could be against that?  But perhaps you might think to ask, why, despite 421-a, housing in New York is so expensive, while meanwhile they have lots of affordable housing in places like Houston and Las Vegas and Orlando without having any comparable program of tax giveaways to real estate developers.

It started in New York with the idea that leaving the real estate market to operate on its own without government meddling would lead to unfair results for many tenants, who would be gouged by greedy landlords.  So New York City adopted the program known as "rent control" shortly after World War II (a detailed history can be found here).  As originally set up, that program basically allowed tenants to remain for life in their apartments with minimal yearly rent increases; however, new construction after 1947 was specifically exempt from the controls.  Thus, new construction was not severely hampered by the program, and continued at a reasonable pace through the 50s and 60s.  In the 60s some units were even removed from the controls.  However, the late 60s and early 70s were a period of high inflation, and rents in the unregulated sector of the housing market began to soar.  In a series of steps from about 1968 to 1974, New York City imposed a new program called "rent stabilization" on all the units in buildings 6 units and larger that had previously been specifically exempted or removed from controls.  In other words, New York double-crossed a big group of real estate investors who had thought that they were exempt from the restrictions.  Contemporaneous with this double-cross, new housing construction in New York City promptly fell off a cliff.  According to data at Habitat NYC here, New York City building permits fell from about 34,000 units in 1972 to about 4,000 in 1975, and then remained at a seriously depressed level of around 10,000 per year or less into the 80s.

But not to worry.  In 1971 New York also enacted 421-a as a way to bribe real estate developers to build new housing in the face of the otherwise overwhelming disincentive of the rent regulations.  The program has near infinite complexities (details available here), but in summary, depending on when and where in the city you build, you can get a complete exemption from real estate taxes on any increased value of the property that results from development for 10 or 15 years, and then a phase-in of the increased real estate taxes over several more years after that.

So is 421-a a cost-effective way of providing so-called "affordable housing" to New Yorkers?  Of course not.  To answer the question, what you want to know is the cost per unit to the taxpayers of "affordable housing" constructed; and of course, they make it absolutely as hard as possible for you to figure that out.  But when you put in some effort, you find that this program is exactly the opposite of a cost-effective way to provide housing -- it's an unmitigated disaster, at least for the taxpayers and for the intended beneficiaries (people looking for reasonably-priced housing).  A Manhattan Institute study in 2015 found that in its 44 years of operation up until that point 421-a had provided subsidies to some 150,000 housing units (only 37,000 of which were deemed "affordable"), but that as of that year the program was costing the City some $1.1 billion annually in foregone real estate taxes.  How much does that come to per "affordable" unit created?  Recognize that most of the units developed under the program are at the highest end of the market and would have been built anyway without the program, and that for the small number of "affordable" units the annual tax subsidy has to be paid not once, but ten or fifteen times.  A 2015 study by the Community Service Society here put the cost per "affordable" apartment at over $1 million!   -- a number that is about in line with my own back-of-the-envelope estimates.  From the CSS report:

421-a is responsible for losses of more than $1 billion annually in foregone revenue to the city-- more than the combined rents of the half a million tenants living in New York City Housing Authority buildings – while producing well under 14 cents of affordable housing investment for every dollar of tax subsidies. Of the tax revenue forgone through 421-a, a majority of it is being used to subsidize buildings that would have been developed without the tax exemptions.   “As wasteful public subsidies go, 421-a has no equal,” said David R. Jones, President and CEO of the Community Service Society.

But although this program is a disaster for the taxpayers and of very limited value to the intended beneficiaries, the story is not the same for politicians, land owners, and developers.  Because the tax abatement makes a higher percentage of revenues from a development go to the developer's bottom line, it has driven land prices higher and made many owners wealthy.  Those currently in the process of trying to develop property have likely bought in at the inflated prices, and would take a substantial loss if the tax exemption were eliminated.  Thus both land owners and developers have a high incentive to do what they can -- including contributing generously to campaigns -- to get the legislators to continue the program.  The program has been structured to come up regularly for renewal, thereby providing repeated occasions for politicians to exact tribute.          

The program recently came up for renewal in June 2015.  Then something unusual happened: labor unions (the other principal group of major contributors to New York politicians) attempted to use the occasion to extract some incremental handouts for themselves, particularly a so-called "prevailing wage" requirement for any developments benefiting from the 421-a program.  It seems that the labor negotiators then seriously overplayed their hand (asking for minimum wages of as high as $50/hour), and then negotiations stalled.  The program got only a six-month renewal from June 2015 to January 2016.  When negotiations continued to languish, the program expired.  That set off a lobbying frenzy seeking to have the program renewed during the 2016 legislative session; but that session has now ended without any revival.

Naturally the real estate industry is up in arms at having its gravy train at least temporarily derailed.  So what does the head of the Real Estate Board of New York (main real estate lobby) have to say?  From the Real Deal, January 15:

“New York is a city of renters and one that continues to grow,” Banks said in a statement. “Without a program like 421-a, one can’t build multi-family rental housing with a significant below-market, or affordable, component on a scale necessary to address the City’s needs.  We are committed to working with stakeholders to fashion a program that will produce the affordable housing throughout New York City that is so desperately needed, ensures construction workers are treated fairly and creates job opportunities for City residents.”  

To put it another way, they are trying to scare the public with the idea that no housing can or will ever again emerge without vast tax subsidies.  Nonsense.  What is really likely to happen if 421-a doesn't get renewed is that developers with projects in the pipeline will take a hit; but elimination of the tax handouts over time will lower land values and thus enable housing production at lower price points without subsidies.  In other words, New York can become more like all the other cities that somehow have lots of housing built by the private sector without subsidies.  But meanwhile the industry throws around plenty of fake figures.  For example, according to real estate publication the Real Deal, in 2015 through May more than 20,000 housing units were approved for construction, while in January to May 2016 (with 421-a expired) it was only 2700 -- less than 15% as many.  Does that prove that 421-a is the only reason that most units get built?  Of course not.  All that proves is that in 2015 developers were rushing to get projects started before the handout expired, while in 2016 developers were waiting for the program to be renewed before proceeding.  Many of them may well keep waiting until they get the word that the program is dead, dead, dead and not coming back.  The best result would be for that word to be delivered forcefully, and soon.

But of course that's not happening.  In the real estate industry, hope springs eternal.  The legislature is up for election this fall, and the real estate lobbyists are hard at work to get their favorite tax break renewed.  Political contribution season is beginning.  I still think it will be a miracle for 421-a to die permanently, but hey, I'm an optimist.

So we started out to create a world of "fair" prices for tenants through a rent control system.  Eighty years on in that game, and an increasingly elderly collection of long-term tenants get some benefits from that program, at the expense even to them of never being able to move.  Almost everyone new entering the market as a tenant has to overpay.  Meanwhile a tax subsidy program that sought to modify some of the disincentives of rent regulation has bred pervasive corruption.  We end up with a system less "fair" than if the government had never meddled at all, but with lots more corruption.  Well, at least for once we have a chance to get rid of some little piece of the problem. 

How Are Those Climate Catastrophe Predictions Working Out?

Probably the most famous of all the climate alarmists, and one of the creators of the climate alarm genre, is a guy named James Hansen.  Naturally, he long had a comfortably-funded government perch from which to create and disseminate his predictions of catastrophe.  For some 32 years (1981 - 2013) Hansen headed the branch of NASA called GISS (Goddard Institute for Space Studies) that is incongruously located in Manhattan (at Columbia University), and that somehow has come to be one of the repositories of world temperature data within the U.S. government.  Although he retired from GISS in 2013, Hansen still has some kind of appointment at Columbia, and still regularly makes apocalyptic pronouncements of impending climate doom.

Hansen first leapt into the public consciousness in the late 1980s with testimony before Congress predicting rapid increase in global temperatures resulting from the atmospheric greenhouse effect, in turn supposedly stemming from increased use of fossil fuels by mankind.  The most-remembered of his Congressional appearances occurred in late June 1988 at a hearing orchestrated by then Colorado Senator Tim Wirth, on what happened to be a day where the temperature in Washington rose to over 100 degrees Fahrenheit.  But the Washington Post helpfully reminds us in a feature article on June 11 that Hansen's 1988 testimony was not his first venture before Congress.  A prior round of Hansen testimony -- and of predictions of climate doom -- occurred during two days of hearings on June 10 and 11, 1986.  The host of these prior hearings was the Senate Committee on the Environment and Public Works, chaired by Senator John Chafee of Rhode Island.  We have now reached the 30th anniversary of those 1986 hearings.  Should we check in on how Hansen's predictions have fared?

The tenor of that Washington Post article can be summarized as "How right Hansen was!"  The headline is "30 years ago scientists warned Congress on global warming.  What they said sounds eerily familiar."  Then they quote Hansen's fellow climate doomsayer Michael Oppenheimer as follows:

“This hearing helped bring the concern together, and essentially painted a picture that things are kind of spinning out of control, that science is trying to tell us something, that the world seems to be changing even faster than our scientific understanding of the problem, and worst of all, our political leaders are way behind the eight ball,” said Michael Oppenheimer, a Princeton climate scientist who testified that day, and argued that action was warranted on climate change even though not everything was known about its consequences.   

But here's the funny thing about the article:  read it all the way through, and you will find that they studiously avoid stating what Hansen's actual quantitative predictions of temperature rise were.  Did he make a prediction in the 1986 hearings of how much the temperature would rise and by when?  You won't find the answer to that question in the Post article, although there is this bit of a negative pregnant:

Granted, in some cases the future temperature projections made in the 1986 hearings — based on assumptions about the rate of increase in greenhouse gas emissions and a high sensitivity of the climate to them — suggested temperatures might rise even more, or even faster, than scientists now believe they will.   

It seems that they don't want us to know.  Are you curious as to why?  Well, lucky for us, the New York Times published an article on June 11, 1986, reporting on the Chafee hearings, and that article tells us Hansen's quantitative predictions.  Ready?

Average global temperatures would rise by one-half a degree to one degree Fahrenheit from 1990 to 2000 if current trends are unchanged, according to Dr. Hansen's findings. Dr. Hansen said the global temperature would rise by another 2 to 4 degrees in the following decade.

This prediction gives a temperature increase range of 2.5 - 5 deg F (1.4 - 2.8 deg C) in the period from 1990 to 2010.  And now we've gone yet six more years, to 2016.  On Hansen's midpoint projection, we should have close to 3 deg C of warming by now -- right?

The actual data through May 2016 are now known.  Go to the UAH satellite data here, and here's what you'll find.  In November 1990 the UAH "global lower troposphere temperature anomaly" hit 0.25 deg C.  Twenty years later, for which date Hansen made a specific quantitative prediction that global temperature would have increased by at least 1.4 deg C and up to 2.8 deg C, the UAH global lower troposphere temperature anomaly was -- drumroll !!!!!! -- 0.17 deg C.  That's right, for the specific period covered by Hansen's testimony, the temperature not only did not follow the magnitude of his alarmist prediction, it actually went the opposite direction --  down, not up.  But, you say, how about bringing that up closer to the present?  The next five years beyond Hansen's prediction take us to November 2015.  Although Hansen's 1986 testimony contained no specific prediction for 2015, human greenhouse gas emissions have only increased.  If his prediction for 2010 had any validity, then temperature post-2010 should be going up by around 1 deg C every five years.  The UAH global lower troposphere anomaly for November 2015 was 0.33 deg C.  Whoopee!  It was up from November 1990 by 0.08 deg C!  On a straight-line extrapolation, Hansen's mid-point prediction for 2015 would be close to a full 3 deg C.  That means that he was off by a factor of, say, around 40.

But, you ask, hasn't there been a big spike in global temperatures in the first half of 2016?  Actually, there has been a substantial spike, although the term "big" is relative.  The spike has indeed been big relative to past spikes in the 37-year satellite temperature record; but it has been quite small relative to Hansen's alarmist predictions.  In February 2016 the UAH global lower troposphere temperature anomaly hit an all-time record of 0.83 deg C.  (The prior record was 0.74 deg C in April 1998.)  The 0.83 was only 0.57 deg C above November 1990 -- a far cry from Hansen's (extrapolated) prediction of 3 deg C or so.  And then after February the anomaly immediately started a sharp decline.  By May it was back to 0.55 deg C; and indications are that there will be a further substantial decline during June.  Will it shortly go back below the 0.25 deg C of 1990?  That's anybody's guess, but my bet is yes.

And, as one looks at the data, it only gets worse for Hansen's prediction of warming driven by greenhouse gases in the atmosphere.  The 1998 temperature spike was associated with a strong El Nino (i.e., unusually warm ocean surface temperatures in the tropical Pacific).  The  early-2016 temperature spike was also associated with a strong El Nino.  Nobody has come up with any plausible explanation of a mechanism by which atmospheric greenhouse gas effects can cause El Ninos.  The decline in temperatures over the most recent several months has further been associated with the dissipation of the 2015-16 El Nino.  In other words, there is every reason to think that such warming as there has been might have been caused by something entirely different from greenhouse gases:  If "global warming" is driven principally by atmospheric greenhouse gases, then why do the big spikes only occur when there is a big El Nino, and even more importantly, why do they promptly go away as soon as an El Nino dissipates? 

The invaluable Tony Heller weighs in with a comparison of Hansen's 1986 predictions to actual results in a "30th anniversary" post here:  

Thirty years ago, James Hansen made some spectacularly poor global warming predictions before Congress. . . .  Hansen predicted two degrees global warming by 2006. . . .  He was off by a factor of ten. . . .   Earth warmed about 0.2 degrees from June 1986 to June 2006.

I would only remark that Heller is extremely generous to Hansen in concluding that he was only off by a factor or ten.  Exactly how far off Hansen was depends on your exact start and end months for the 20-year measuring period.  As shown above, based on the New York Times paraphrase of Hansen's testimony and a November 1990 to November 2010 20-year measuring period, Hansen's error was effectively infinite (wrong sign).  Whatever.  Different start and end months can slightly change the precise result, but cannot change Hansen's fundamental problem of an error of, plus or minus, at least an order of magnitude.

If you are still somehow wondering if Hansen and the Washington Post are playing straight with you, consider this.  After acknowledging (as quoted above) that the 1986 predictions might have suggested that temperatures would "rise even more" than they in fact have, the Post gives Hansen a chance to explain.  Here is what he comes up with:

By email, Hansen clarified that we now know the world is closer to one scenario he presented in 1986 — called Scenario B — than to Scenario A, which assumed a much more rapid rate of greenhouse gas growth, and accordingly, much faster warming.

So what's he talking about with "Scenario A" and "Scenario B"?  While those terms do not appear in press descriptions of his 1986 testimony, they do appear in descriptions of his 1988 testimony, and in a 1988 article authored by him and others that backed up that testimony.  Here is an excerpt from the abstract of the 1988 article:

Scenario A assumes continued exponential trace gas growth, scenario B assumes a reduced linear linear growth of trace gases. . . .

So, since about 1988, have we had a "continued exponential trace gas growth" or a "reduced linear growth of trace gases"?  Well, perhaps we can look to this abstract of an article by James Hansen from 2013 in a journal called Environmental Research Letters:

Annual fossil fuel CO2 emissions have shot up in the past decade at about 3% yr-1, double the rate of the prior three decades (figure 1). The growth rate falls above the range of the IPCC (2001) 'Marker' scenarios, although emissions are still within the entire range considered by the IPCC SRES (2000). The surge in emissions is due to increased coal use (blue curve in figure 1), which now accounts for more than 40% of fossil fuel CO2 emissions. 

Three percent per year increase through 2013:  Is that "continued exponential trace gas growth" or "reduced linear growth of trace gases"?  How dumb does this guy think we are?  And how dumb does the Washington Post think we are?