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Here are policy positions that I have seen the same person maintain:

  1. The housing market is depressed. The plummeting house prices led to a market crash and then the continued low prices keep the economy stagnating. “We” ought to stimulate the market and cause house prices to rise.
  2. Houses are positional goods. What is a “good house” really depends on what your house looks like as compared to everyone else’s. Furthermore, the reason many people spend money on houses is to buy their way into a “good” school district. Since only 10% of the people can live in the top 10% of the school districts, we see lots of money “wasted” on getting into the school district with no change in the distribution of who ends up in the good schools. Thus, we should depress the housing market by putting a steep tax on the consumption of houses.

Those are of course awkward positions to hold. And I’ve written many times on the inherent problems with (2). But let’s focus on two economic reasons why we have a problem here. Now, to be fair, a reason why someone may believe in (2) is that they “worry” that people do not save as much as they’d like, and that the race to consume positional goods ends up forcing us to save less than we really want.

Except there are two problems with the point in #2.

  1. There is no “social cost” to the pursuit of more housing as a positional good. Sure, perhaps one family spends “too much” to get into a house in a good school district. Remember the concern in point #1 above – don’t people live in those houses now. Who gets to reap the rewards from the higher house prices? No one? Of course not. Every dollar more I bid up the price of a house is a dollar more in the pocket of a family that no longer wants to live there. And perhaps now their savings are higher than they otherwise would be.
  2. But the argument for positionality causing low savings fails on its own terms. If folks who worry about arms races in spending for houses in school districts believe that it is human nature for these races to continue unabated, then it must be the case that current generations caught in a positional arms race are going to be benefitting when future generations also succumb to those positional arms races. This is problematic for the behavioralist “tax the richers” for two reasons. First, it is yet another reason why their current support for social security seems awkward. Social security can only remain solvent as a pay as you go system based on exactly the same mechanism. But there is an even deeper difficulty: if future generations continue to bid the price of houses up, then the people in current generations will be reaping the gains from higher house prices in the future. This time, rather than saving money in a savings account, it is embedded in the extra increase in the value of this home over and above what cost they would have otherwise had to incur from living in a non-positional house. And since capital markets are famous for figuring out ways to help people treat their houses as ATM machines, it would seem to me to cause no serious disruption in the ability of these families to take the vacations and have the other meaningful experiences that the behavioralists claim that positional arms races prevent them from having.

So these two observations are over and above the more typical objections we can raise when it comes to progressive consumption taxes as a “solution” to the “problem” of positional arms races. Remember, folks had to produce other goods and services to get the goods in the first place, leaving society better off, and also remember that if we do not allow folks to gain relative position in the housing market, they’ll find another. And then of course there’s the 56 gigaton elephant in the room: the only reason positional arms races in housing can occur is because of coercive governmental education that forces all people to attend schools based on their geography. And for evidence that the behaviorist revolution is just more ammo for statists, it is not lost on me that this is one of the areas where their taxation schemes are most prevalent: tax people for competing like crazy to get into good school districts, and this is a fix for the problem the state created in the first place. Classic.

One Response to “Subsidize It, Tax It, Subsidize It, Tax It, Sub…”

  1. Harry says:

    Brilliant, Mike, at least to me; there are different angles to a familiar subject. Thanks for waking up at five AM and thinking in the shower about different angles, and getting to work to put this down.

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