Tuesday, March 23, 2021

Luxury beliefs of YIMBYs and free markets

Yes In My Back Yard (YIMBY) is the belief that more housing density in your neighbourhood is good. But I argue that almost nobody who makes these arguments truly believes them. Mostly, it’s a case of Yes In Your Back Yard (YIYBY). I say that because even property developers who make a living building high-rise apartments hate it when these same types of apartments are built in their street. What about the politicians who impose massive density increases in the suburbs? They hate it when that policy arrives in their street. Sometimes YIMBYs will change their story when density comes to their neighbourhood to one about "missing middle density" or "urban design". Yet if their belief in the economics of more supply was genuine, it should trump these minor concerns.
Such hypocrisy also happens with immigration policy. Those who support turbo-charged immigration policies do so because they personally are insulated from the effects. But when those effects come to their own leafy town, they turn their beliefs 180 degrees to be against it. All those apparent benefits used to justify the belief exist only when others bear the cost.

These are classic examples of what Rob Henderson has called luxury beliefs. Things you don’t really believe, but use to signal group loyalty and status. Luxury beliefs are “ideas and opinions that confer status on the rich at very little cost, while the main price is paid by those less fortunate.” 

In economics, I think the efficiency of markets is a classic luxury belief. Even the most pro-free-market economist, like Milton Friedman, are out there speaking for status, rather than reflecting true beliefs. Friedman might even have himself fooled most of the time.

For example, when speaking to a group of Chicago economics colleagues, he “was bemoaning the fact that Chicago price theory was dying out.” One colleague responded “Milton, I thought you believed in markets. It sounds to me like price theory is losing.” At least according to Steven Levitt who said that “even Milton Friedman, in the end, didn’t really believe in markets when markets moved against him” (from 52.00 here).

In fact, markets are the last resort for resource allocation. As a society we really hate markets. We avoid them as much as possible by creating firms to bring market transactions within a hierarchy, and when we have markets, we regulate them heavy-handedly to ensure they function in a very un-market-like way. Only those expressing luxury beliefs who are insulated from the costs pretend otherwise.

I would even go so far as to say COVID policy has been fuelled by these luxury beliefs. Pro-lockdown politicians repeatedly violated their apparently strong beliefs when it came to their personal lives. Perhaps they were expressing status and loyalty with their lockdown comments, not their genuinely held beliefs.

The fact that people say things that contradict their actions is one reason why many economists are sceptical of survey responses. You can ask people “is it a good idea to build more dense housing in this neighbourhood” but then those who agree will end up spending thousands on lawyers defending the status quo situation in court. Their response was not genuine. It was a luxury belief. Better to ask survey questions that are more personal, like "it is a good idea to build high-density housing next door to your house?"

What can be done to weed out luxury beliefs?

One thing is to align decision-makers with the costs of policy change. Put them personally on the receiving end of the costs of the policy and you will see their true beliefs emerge. High immigration and housing density in the suburbs where politicians live needs to be a prerequisite for the same policy elsewhere. Alternatively, we could randomise the decision-makers through sortition—a type of random jury system to become a politician—ensuring that those who bear the costs of a policy are part of the political process. 


  1. It's as if people act in their in their own interests, like they were rational agents or something :)

    "align decision-makers with the costs of policy change"

    Free markets do just that. On a market, a private company will bear the costs and reap the benefits of its decisions.
    The political process on the other hand is a hotbed for corruption and misaligned incentives.

    (Yes, there's a problem of externalities, but it's much smaller than is usually assumed).

    Are you familiar with public choice theory?
    Note that all your examples involve government decision makers.
    What mechanisms do you suggest to make decision makers bear the cost?
    And why would these mechanisms work?

    1. Yes, I am explaining public choice in a different kind of way, but with the added dimension of a type of self-delusion (luxury beliefs).

  2. Hi,
    I having many kinds of knowledge from your blog..keep sharing ! if you want Top 10 auditors in bangalore Top 10 audit fims in bangalore click on it