I mean I'm not an economic theorist and, honestly, I don't really understand how the economy works
'Breadtube' is a loose collection of video essayists who've gained popularity in recent years
It sprung up largely as a response to the sea of alt-right content on YouTube, but has
developed into its own space over time. The 'big three' Breadtubers are generally considered to
be Contrapoints, Philosophy Tube, and hbomberguy
You can add other big channels like Shaun, Big Joel, Innuendo Studios, Vaush
but in all cases Breadtube is largely focused on things like gender, LGBTQ rights, media, Ben Shapiro takedowns,
and the series of existential crises that we find ourselves embroiled in. All noble causes but largely not economics.
In fact, there was a thread about this on the Breadtube subreddit not too long ago.
I would like this channel to help fill in the gap in economics content and in this short series I want to comment directly on the
few times where major Breadtubers have discussed economics because I think there are some, erm, issues.
But I don't want to come off as pedantic
If you 'internet', you've probably heard some people use "you don't understand economics" as a trump card in debates and I don't see it this way
To me saying "you don't understand economics" is just like saying "you don't understand sociology"
or "you don't understand history". Both of which you could say to me
If you really wanted to hurt my feelings
We all have blind spots and I'm hoping I can add something to our understanding
And economics is important: it is, rightly or wrongly, the language of policy. Economists also have direct political influence.
The media continually talk about the economy, even during a pandemic
Our understanding of economics needs to be better to challenge the status quo
So...the example I'm gonna use today comes from one of Olly Thorne at Philosophy Tube's videos about the housing market.
He argues that we need to abolish the housing market altogether in order to secure housing for everyone
I know this video is from a couple of years ago but I see no indication that Olly has changed his thinking
Actually, he repeated a core argument of the video less than a year ago, as we'll see
And although my video is focused on the housing market, hopefully it will give us some more general ways of thinking
about when capitalism and markets seem to work and when they don't
I'm going to present quite a few different arguments and proposals and you might disagree with some of them
which is a good thing. I'm not trying to preach to people; I'm trying to give you the tools to make up your own mind
so...let's take a little look at the video in question
In his typical style, Olly makes his video engaging by putting things in a comic book context
What if our hero 'housing market' and our villain 'housing crisis' are actually one and the same?
The reason I think that housing market has never quite managed to defeat housing crisis
is because...they're actually one and the same character
I must confess, guys, that this video will not be as fun as Olly's
But this does have the advantage of being correct
And I'll just take this moment to give an honorable shout out to Mexie
She has some pretty good videos about economics in general and even in this one she gives a solid account
of why loosening planning restrictions isn't a solution to the housing crisis
she's an exception, so we'll excuse her from the general charge of bad economics
For now
Returning to Olly, his central case seems to hinge around the following comparison
suggesting that key features of the housing market logically imply key features of the housing crisis
What does housing market actually do?Well, he distributes homes to people who can afford them
He encourages developers to develop more He lends money to people so they can get on the property ladder
Hang on...those are all the exact corollaries of the villains powers!
Distributing homes only to people who can afford them is just the other side of the coin of housing crisis' power to raise rents and increase house prices!
Encouraging developers to develop more is what led to the birth of gentrification, one of the series' darkest secondary evil doers
and lending money to buyers was the basis of the villain's plot in the 2008 storyline crisis of infinite subprime mortgages!
I'm just not convinced that the left-hand side of this follows from the right-hand side, and we need to do a lot more to make the case that the housing market doesn't work
otherwise we'll end up saying things that don't make sense. For example, in his Chernobyl video
last year, Olly restated part of his argument in even stronger terms.
Thatcher's criterion for responsibility was owning property and the problem there is that is a thing that
is mathematically impossible for everyone to do at the same time. You cannot have a housing market and
no homeless people because if everybody has secure housing, you cannot sell them housing.
Okay, just hear me out. What if...everybody owned a house but some people still wanted to move?
For like, jobs or family or a change of scenery?
What do you think about that, huh? Speechless
Could we not equally apply his reasoning to other markets?
Why does 'distributing things to people who can afford them' mean that some will be excluded?
It could be that everyone can afford something. For example, in rich countries basically everyone can afford an apple
Nobody speaks about the 'apple crisis' - well okay that's a bad example but you get my point
It's still going to be profitable for firms to sell to people even if everyone can buy
But apples and houses obviously differ in important ways and thinking about this could help us understand
why the housing market fails while the apple market, for the most part, doesn't
Okay so the first thing about apples is that they have what we might call 'good market feedback mechanisms'
Advocates of capitalism will generally argue that the profit motive incentivises firms to produce good products
because if it's not good enough consumers will just 'vote with their feet' and take their business elsewhere
Apples are bought and sold quite regularly, there are readily available substitutes like oranges or bananas, they can be moved around and stored easily,
and they have pretty clear characteristics for what makes them 'good' or 'bad'
You know, 'are these apples bad? Yes or no?' Is a question one might ask
This means that capitalism works, at least for consumers, as they can change where they buy apples and firms can respond to these choices
Contrast this with houses. Unless you're a celebrity, buying a house probably isn't something you do very often
It's legally and logistically complicated so most people can't navigate the transaction themselves and they need an intermediary - an estate agent
There's already a problem here, because you're reliant on them for the information about potential homes
If you think the estate agents did a bad job of finding you a home, you won't go to another one next week
In fact, by the time you move again you've probably forgotten the name of the estate agents
What are you, some kind of real estate agent?
No, he's a realtor! There is a difference somehow!
It's also difficult to know if they've even done a bad job in the first place
Houses are kind of complicated to evaluate - there are loads of things about a house that you have to balance
How spacious it is, the location, the number of bedrooms, the quality of the bathroom and kitchen,
whether the neighbors ask you to go dogging with them
There's a huge difference between looking around a house and living in it, and every house will ultimately have some unforeseen disadvantages
You can't know if you've picked the best one because you won't get an opportunity to compare
living in it to living in others that were on the market at the same time
These complications all mean that you can be misled about both the state of the market and individual homes
So you're much more reliant on trust, norms, and, when those fail, government regulations
I mean, why do you think grocers have reputations as nice couples with West Country accents,
while estate agents have reputations as dodgy shucksters?
It's awfully small I'd say it's awfully cozy
That's dilapidated Rustic!
That house is on fire! Motivated seller!
So we've got that market feedback mechanisms don't work very well for housing as compared to apples,
but you're probably thinking there's a bit more to it than that, so let's move on to the second point in our table
To understand this one better let's take a visit to Rightmove and take a look at two houses
One is a three bedroom house with three floors and it looks pretty nice to be honest it's got all the
trimmings and a garden. It's safe to say that this could comfortably house a family.
The other is a one bedroom flat and it's clearly well below the standard of the house
Now let's play a game...how much do you think each of these costs?
That's right, they're the same price. But what I haven't told you is where they are...
...the bigger, nicer house is in Coventry whereas the flat is in London
That's how bad London is for house prices, and it wasn't even one of the expensive areas
A lot of the value of housing derives from its location
Economists sometimes think of this as the 'land' the housing is built on - as opposed to the structure itself -
and in my experience this is not a distinction which is obvious to most people.
To be honest it doesn't sound very ground breaking - haha, get it - actually it just sounds kind of boring and technocratic
but it has some pretty radical implications. Most of the rise and volatility in house prices over
the past few decades has actually been driven by land. Everyone needs a house, and you simply
have no choice - the location of a given house is basically unique. Landowners therefore always have
some kind of monopoly power, and there can also be unique features of the buildings themselves
which increase this. When you know that land is a monopoly you can start to see some new solutions
Land taxes, much beloved of the followers of the 19th Century economist Henry George,
are one way to take away the excess money from the landowners and give it back to the community
Land taxes would also increase the cost of hoarding lots of space, a point to which we will return shortly
And price controls, such as on rent, may prevent them from exploiting their position
Returning to Olly's video - remember that we are trying to link the points on the right with the points on the left
So how does land relate to issues like affordability, homelessness, and gentrification?
When the supply of something is fixed, it's easier for the price to be bid up, especially if inequality is high and rich people want it
You may be familiar with the name Calvin Klein, but did you know that he owns three entire floors of a tower in a prime location in Manhattan?
Did you know that rich people have started installing enormous swimming pools in these multi-story apartments?
In 'Economics for the Rest of Us' Moshe Adler argues that increased inequality
has bid up the limited space available in Manhattan, with the average price per square
foot increasing from 324 to 767 dollars between 1995 and 2004.
There is also more general evidence that people with higher incomes buy up more and more space,
rather than being content with what they've got.
If rich people really liked apples firms would probably just produce more, or produce special luxury apples
maybe rebranding them with some [ __ ] label to make it seem like they were something else, I don't know
but that can't be the case for housing because the amount of space - especially in the most desirable areas - is limited
So the price gets bit up out of the reach of poor people, fueling inequality even further and producing gentrification and homelessness
Okay, so now we're getting somewhere. We can add to our table that housing is mostly actually
land or location, whereas apples..um aren't land or location?
Yes, that'll do
Let's move on to the final point in our table
Something you might have noticed about housing or land is that people don't buy it just to use it; it's a financial investment
This is for a few reasons. Unlike apples housing is not perishable and land is permanent, which makes it good insurance for financial institutions
Houses are also relatively costly so even in the old days they could store a lot of value
and there has been a political goal of home ownership which has inflated prices
since the 1980s, with banks willing to extend credit as long as house prices keep rising
Economist Cameron Murray has detailed how housing-as-an-investment creates perverse incentives
Because developers can sit on existing land and wait for the price to rise, it might actually be
more profitable to hoard than to build and sell housing. Prices rise higher, the effective supply
remains low, and both of these things contribute to the housing crisis
But here's the best thing about this: one problem with taxes is that they often increase prices and you might be worried that
the land tax I mentioned earlier would just make housing less affordable. But according to Murray,
charging developers land taxes would make it more expensive to postpone building, and encourage them
to bring forward development. This is because they know they're going to get charged on land whether
they build or not, so they need to bring money in as soon as possible in order to pay the tax
Murray looks at a case in Queensland, Australia where a charge very similar to a land tax was
increased and finds it had no effect on the price - but increased the amount of housing available
And if you're a leftist who feels like land taxes sound too technocratic, just remember that they
were proposed in the Communist Manifesto, the most left-wing thing ever to exist
So to return to our table one final time we can see that the housing market doesn't work partly because housing is
a good with poor market feedback mechanisms; partly because it's intertwined with land and
location, creating monopoly elements; and partly because of its status as a financial investment
We can also see some ideas fall out of this like taxes on landowners and the rich
and strict regulation of owners and middlemen, plus the money raised from this could be used to help
solve the problem directly, for example by building social housing or giving houses to homeless people
an approach that's been shown to work in some places
But one question remains: do we, as Olly and Mexie claim, need to abolish the housing market - and what would that mean?
Later on in his video Olly gives his main proposal: that landlords should have their property
forcibly acquisitioned; that people should not be allowed to profit from home ownership; and that
control of housing should be devolved to communes. I don't disagree entirely with the principles
behind these ideas or even the end goal, but it strikes me as kind of simplistic and this leads to some errors.
Let's start with the big one: there is no reason to believe that a market in housing inevitably results in a crisis in housing
You know, housing crises are a bit of an Anglo-Saxon thing - at least among the rich countries -
there are places where houses are affordable even though they aren't fully socialist and we can learn from them
but we need to be a bit more systematic. There are serious questions to ask about how housing would work outside the current system,
questions like: who will decide to build housing? Where will they get the materials and labour from?
What kind of housing would be prioritised and who says so? Who will fund these decisions?
Who will own what bits of the housing and land, and what rights do they have?
I want to offer partial answers to these questions with three main proposals.
I'm going to draw heavily from the book 'Rethinking the Economics of Land and Housing', which has a number of suggestions in it, ranging from reformist to socialist.
I'm going to warn you this final bit will be a little denser than the rest of my video,
but honestly I don't know how else to talk about policy
Now: I get that the length and format of Olly's video meant that not everything could be explored in depth,
something that he and Mexie discussed in the stream after the video. In this stream they do float some interesting ideas but
they still don't say enough about how we get from our system to a socialist one, and they also miss
what I view as the key distinctions we need to make: between housing, land, and finance
For instance, Olly uses 'landlord' to mean owners of properties rather than land itself
There's nothing wrong with this in itself, as it's the common usage, but in this case it matters for his proposal to take
their property without paying them - in his view, they've already received compensation via the rent they've paid in the past
And if it's already canon that people can have their property expropriated for a new mall
it's surely not that much of a leap to say they could be expropriated so people could actually live in them
Only this time the money for that forced buyout would be all the rent that's
already been paid over the whole time the series has been running
Who would the big losers be? Rich landlords, banks who got people into debt,
and people who are using property to launder money
Data on this are hard to come by but some data from the US suggests that many landlords use their properties just to make a living
and actually have similar incomes to their tenants. You can believe the social role of landlords is a bad thing
while still acknowledging some people depend on it. It's just like people who work in the fossil fuel industry
sure, they're part of an exploitative system but it doesn't mean they are individually rich, and any
transition needs to acknowledge the disruption to their lives.
If we're looking to move towards forms of collective ownership that don't rely on the state
then my first proposal would be more local initiatives like Community Land Trusts in the UK
where members democratically own the organization which itself owns land and develops affordable housing in response to the needs of the community
Now this is the room with electricity, but it has too much electricity so I don't know, you might want to wear a hat
Over the long term I'd like to see these grow but right now they're just too small
to make a dent in the land market in richer areas and cities
My second proposal would therefore be for the government itself to start buying and leasing land
In South Korea there's a government-owned entity called the Korean Land Corporation and it buys, sells and develops on land
Creating similar entities that have the power of compulsory purchase - and that's with compensation -
would allow them to put land to good use, and would put pressure on the landowners who weren't.
This could have similar benefits to a land tax, including reducing speculation and raising revenue,
but it would not penalize the ownership, construction, and maintenance of the actual homes
For the third and final proposal, people could also retake control of finance
and the case of the British bank Northern Rock gives us some hints as to how
Northern Rock used to be what's called a 'building society' - actually it used to be several different building societies -
these organisations were owned by members to pool their money and help them finance building their homes
They would sometimes even dissolve automatically after all their members had done so
The wave of deregulation starting in the 1980s turned many building societies into modern banks
which meant that they were free to do terrible, terrible things with their money. Northern Rock famously
went bust in 2007 after overextending itself and had to be bailed out by the Government
Then in 2015 Northern Rock had its assets bought up by US investment fund Cerberus Capital Management
Cerberus? Even capitalists themselves can see how much of a joke this all is
Financial institutions that are owned by their members like building societies are known as mutualist
Countries with more mutualist financial institutions such as Germany, Austria, and Switzerland are notable
for their low debt levels and functioning housing sectors, as well as the fact that the lending which
does take place isn't into speculative real estate bubbles
So...if the government and local authorities control the land and various community-owned organizations finance and build the housing,
likely further supported by the government, does this count as abolishing the housing market?
My answer is honestly: who cares? It's already a radical first step towards overcoming the housing
crisis, and if it turned out the remaining market mechanisms were leading to problems, then over time
we could experiment with moving towards other ways of allocating housing, some of which Olly and Mexie discussed
But more than anything I'm hoping this video gave some solid economic foundations
for what's wrong with the current system and how we might change it
Next time I will discuss the issue of state ownership versus private ownership in more detail
with reference to a slightly different, though strangely linked case.
Well guys, thanks for listening all the way through. Don't forget to like,
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