By Kevin D. Williamson
Tuesday, October 16, 2018
New York City mayor Bill de Blasio has long been an
admirer of the Sandinistas, the revolutionary political movement that overthrew
the government of Nicaragua and brought to that unhappy country its Marxist
ideal of justice, which turned out to be rather heavy on mass executions. But
Mayor de Blasio’s roving eye seems to have settled for the moment on Venezuela.
Mayor de Blasio proposes to expropriate the property of
New York City’s commercial landlords. Of course, he wouldn’t put it quite like
that, just as Senator Warren wouldn’t use the same blunt honest language to
describe her daft proposal to put corporate boards under political discipline.
(To be fair, Senator Warren is only 1/1024th a Leninist.) But that’s what his
proposal amounts to: Commercial landlords would no longer have the power to set
their own rents, to evict undesirable tenants, to determine deposit amounts,
etc. The property would remain formally titled to them, but they would in
effect lose control of it.
This is an example of what Robert Higgs calls “regime
uncertainty,” which does not describe the rise and fall of governments but
rather the security of property rights. Mayor de Blasio and other Democrats
would argue that they are not depriving landlords of their property rights,
only subjecting them to regulation in the public interest. But the changes
proposed represent a fundamental shift in the nature of those property rights,
away from property owners and toward political actors — the prior regime of
property rights ceases to exist. A landlord who cannot set his own rent may
still own his property on paper, as does a corporation that cannot determine
for itself the composition of its board, but ownership no longer means what it
did.
Regime uncertainty means that investors are unable to
make long-term plans for their property, because the nature of rights to that
property is not securely established. Often, this has the perverse effect of
raising prices that regulation had been meant to lower or to stabilize: If an
investment involves a higher degree of risk, then investors will demand higher
returns to put their money behind it.
New York City, of all places, should understand this,
given the catastrophic and categorical failure of its residential rent-control
regime, which ended up subsidizing the housing of celebrities and politically
connected multimillionaires. As a Vanity
Fair contributor by the name of Donald Trump put it in a 1987 essay:
Consider one building on Central
Park West at Seventy-third Street — magnificently designed, with huge
apartments, wonderful detailing, a beautiful double-height marble lobby, and,
of course, gorgeous views. Mia Farrow has ten rooms overlooking the park,
paying about $2,000 a month for an apartment that could rent for upwards of
$10,000 a month on the open market. Carly Simon lives in the same building and
pays about $2,200 a month for her ten rooms with the same view. Across town,
Alistair Cooke pays roughly $1,100 for his eight-room apartment on Fifth
Avenue, and William Shawn, former editor of The
New Yorker, lives in an eight-room apartment in the same building and pays
about $1,000 a month. William vanden Heuvel, a very prominent attorney who
served as ambassador to the United Nations under Jimmy Carter, pays less than
$650 a month for his six-room apartment in a terrific building on East
Seventy-second Street.
(Ambassador vanden Heuvel is the father of Nation editor Katrina vanden Heuvel, who
seethes with revolutionary zeal in the Hamptons.)
Many of those celebrities eventually were shamed into
giving up their subsidies — or they just moved on, as people do — but the
underlying dynamic never changes. Oddly enough, neither does the progressive
response: Every few years, some far-thinking politician will propose tax
credits or some other form of subsidy to encourage manufacturing jobs, or
alternative energy, or whatever it is the politicians think needs encouraging,
and, then, a few years later, they will complain that these subsidies are going
to actual businesses — businesses they hate
— instead of the magical nice rainbow businesses of their mentally diminished
imaginations. Manufacturing credits go to Starbucks and oil companies,
green-energy incentives redound to the benefit of Tesla or General Electric,
credit subsidies sold as guarantors of good blue-collar jobs go to Koch
Industries. Think of Elon Musk as the Carly Simon of green-weenie schmundo.
(For the record, Musk is a vocal critic of the federal
electric-vehicle incentive program.)
Mayor de Blasio and others of his ilk — Senators Warren
and Sanders prominent among them — are simply hostile to the idea of property
rights as classically understood. What they would prefer is a regime of
pseudo-rights that is subject to constant political intervention. One of the
benefits of strong property rights is that private property creates centers of
power outside politics and outside the state. Mayor de Blasio and Senator
Warren are étatists, who are hostile
to all centers of power outside their control: corporations that conduct their
business as they think best, holders of substantial private wealth who pursue
their own political interests, private associations that raise money to
participate in the political process and influence policy, etc. As the étatists would have it, power is a
one-way street: Politicians have essentially unlimited power over the private
economy (and over private life in general) but private actors are to have no
power over the state other than that afforded to them — on the politicians’ own
terms — at the voting booth. But there is more to liberty than having a vote.
Policies substantially similar to those proposed by Mayor
de Blasio have been pursued to disaster elsewhere, most recently and notably in
the case of Venezuela. The chavista
regime thought that food prices were too high, so it set about controlling
them; soon enough, there was simply no food for sale, and ordinary needful
things such as toilet paper simply disappeared from the store shelves as
producers declined to produce at the artificially low prices demanded by
politicians. Mayor de Blasio has done the chavistas one better by pursuing this
agenda at a particularly stupid time: Manhattan is experiencing a minor crisis
of retail vacancies. Over the summer,
retail vacancies in the West Village climbed above 11 percent — and they hit 20
percent in other parts of Manhattan. It’s a great time to be shopping for a
storefront in New York City.
On the other side of the country, California voters are
considering Proposition 10, which would give cities expansive new powers to
control rents — not only on apartment buildings but also on private homes.
Question: If you cannot decide to rent your house out for a price agreeable
both to you and to your tenant — but instead are obliged to ask the permission of,
say, the geniuses who govern San Bernardino — in what sense do you own your
home? Much of California, especially the Bay Area, is suffering from a severe
shortage in residential real estate, especially in affordable rental housing.
Why would any sane investor put a few hundred million into a new development
there if he cannot even determine for himself what rent he will accept?
Landlords do not have the power to unilaterally set rent.
Neither do tenants. What both have — and this is the genius of the free market,
and the beauty of it, and the justice of it — is the right of exit, which is to say, the right to say
“No.” All parties come to the transaction with exactly the same power: the
power to walk away. And if you think that the size and position of big
corporations gives them extra special power in those relationships, ask
yourself why it is that Walmart and McDonald’s cannot unilaterally raise prices
without losing money. The seller wants x,
and the buyer thinks x is too high;
he proposes y instead. Maybe the
seller likes y, maybe he doesn’t, but
they negotiate something between them until they arrive at a price that both
are willing to accept — or they don’t.
The deal that doesn’t happen — the sale that isn’t made — is the little death
that gives the free and cooperative institutions their evolutionary character.
No politician had to put a price cap on New Coke or Clairol Touch of Yogurt
Shampoo — consumers did that for them. Floyd Mayweather doesn’t make Floyd
Mayweather money because some politician says that it must be so. New York City
real estate is what it is, and it is worth what it is worth on the rental
market — and no law can change that underlying economy reality. It can only get
in the way of cooperative relationships between buyers and sellers, owners and
renters.
There are many things that New York’s municipal and state
powers could be doing to make life easier on commercial renters in the city.
For instance, having one of the highest tax burdens in the nation surely is
something felt more acutely by the little guy than it is by David Solomon’s
gang, even if the latter pays a lot more in absolute taxes. (A functional
subway system would be an excellent addition to the city as well.) Schools that
are more functional and less corrupt might at least make them feel like those
taxes are spent to good purpose. But putting the big ugly snout of politics
between landlords and renters is going to end badly for everybody — as it has
in the past.
Politicians are always and everywhere vulnerable to magical
thinking. Somebody makes a complaint, “The rent’s too damn high!” And
politicians respond by passing a law saying that the rent can’t be so damn high
— as though this would magically change the nature of the market, the inventory
of available real estate, the budgets and desire of other would-be renters,
etc. — as though there would be no consequences.
But there are consequences to this kind of totalitarian
thinking. You can see them in Caracas.
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