PM Elect: Capitalism is a "blatant failure”

Capitalism is a "blatant failure" when it comes to housing the poor, says Prime Minister-Elect Jacinda Ardern. Her comment has been much reported. This is what the stories say she said:

"When you have a market economy, it all comes down to whether or not you acknowledge where the market has failed and where intervention is required. Has it failed our people in recent times? Yes. How can you claim you've been successful when you have growth roughly 3 percent, but you've got the worst homelessness in the developed world?"

Capitalism has failed? Really? Is Ms Ardern, or the reporter, aware that capitalism, the market economy, has been shackled here in recent years like a straw man in a sellotape cape?

How can you possibly claim capitalism has failed when the spread of even the growing amount of shackled capitalism around the world — what Ludwig Von Mises called “hampered markets” — have delivered more people out of poverty than at any time ever in history!

• In 1820, for example, only 60 million people lived lives free of extreme poverty. Today, more than 6.5 billion people do. That’s not from redistributing wealth, that’s from beeing free to grow it.
• Further: in 1990, 34.8% of people worldwide lived in extreme poverty. In 2015, this number declined by over 72%, to only 9.6%.
• And as the world is becoming richer, infant mortality is plummeting.
  
• And in the places, like Hong Kong, where economic freedom was able to flourish most (thank you Mr Cowperthwaite) … right after WWII, Hong Kong's per capita income was one third of that in Britain. Today, it's over 30 percent higher. And as late as 1960, lives in Hong Kong were four years shorter than those in Britain. Today, they're four years longer.

This should be the biggest story around — not this whimpering about failure. And it’s happened because freer markets have made the world a much better place. And who have been modern capitalism's chief beneficiaries? Answer: the poor. It is an irrefutable historical finding, says Deirdre McCloskey, who is one of many who researches these things.

Is Ms Ardern or those who have spread this report aware of any of this great and historically-uprecedented news?

Do they even care?

But, but ... what about high prices and homelessness here at home, you say? Hasn’t capitalism failed here? Well, how can you possibly claim the local housing market has failed when that market is at the intersection of possibly the three most heavily regulated sectors of life in New Zealand today - those three being land-use, banking and building.

Heavy regulation of all three is the product of both Labour and National Governments over the last many cramptonyears — as this blog among others has been pointing out for much of that time. (Read the archives if you have time. There’s plenty there.)

So, to make things very simple: 

Q: Why is there a housing crisis?
A: Because we’re adding houses less quickly than we are adding new buyers with newly-minted money.

It’s clear that housing prices have been responding to all the new monetary demand (induced in large part by the way governments have insisted new money comes into markets) so we know that part of the market is working well enough, i.e., the part that adjusts prices.

That part almost always works well, even when you wish it wouldn’t.

But why isn’t housing supply responding to this resounding price signal? Answer: becuase they grey ones haven’t allowed it to.

As Eric Crampton so cogently pointed out (and we understand at least one Labour Housing Spokesman took the lesson aboard at the time):

Auckland doesn’t have a barber crisis induced by the tens of thousands more people who need haircuts every month as compared to the same time last year.   

But it does have a housing crisis because the regulations on land-use and building have seriously constrained supply. Or to paraphrase it using Eric’s very simple summation:

Pro-density activists made it too hard to expand at the outskirts of town; Not In My Back Yard activists made it too hard to build apartment towers or terraced housing close to downtown. And pro-regulation politicians gave both these activists large amounts of power. And when a city can’t go out or up, prices can only go one way when monetary demand increases.

Capitalism hasn’t failed New Zealanders, Jacinda. Instead, those like you who’ve shackled it have.

You have three years to correct that, if you’d really like things here to progress.
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