[If house values continue to rise], Piketty (2014) will be right about the rise of capital in the twenty-first century. But the mechanism is quite distinct from the one proposed by Piketty (2014) (a better title would be Housing in the Twenty-First Century), and it has radically different policy implications. For instance, the literature studying markets with high housing costs finds that these costs are driven in large part by artificial
scarcity through land use regulation—see Glaeser, Gyourko and Saks (2005) and Quigley and Raphael (2005). A natural first step to combat the increasing role of housing wealth would be to reexamine these regulations and expand the housing supply.
Pointer from Tyler Cowen, who writes
Piketty’s mechanism of accumulation, as laid out in his book, is simply the wrong mechanism for understanding growing inequality, both theoretically and empirically.
That would appear to be the correct post-mortem on Piketty.
Land use regulation does generate a lot of artificial scarcity. But there is a more important factor, driving the variance in market prices in many places. Artificial knowledge use scarcities do their own part to generate a polarized marketplace. Primary services tend to align with international monetary flows which gravitate to certain markets to benefit from the additional revenues they generate, especially from taxation. A less expensive market such as Houston nonetheless has extra revenues from additional housing.
The problem? Citizens from other places are expected to travel to these areas for services needs, particularly healthcare: even though it would be more efficient all around for knowledge use to exist in multiple locations. However there is too little incentive in the present, for substantial services in locations with little access to international monetary flows.
How exactly would it be more efficient to provide healthcare by distributing it? Places like Houston are clusters of medical innovation, I don’t see how this can occur without some centralization.
I recently read an essay by a hedge fund manager who thought Piketty’s biggest problem is that he went the Hedgehog route with his data instead of the Fox route.
http://robertpaulwolff.blogspot.com/2014/06/guest-post-on-piketty-by-my-son.html
Seems about right to me.
His data seems very interesting and good enough to support some general conclusions about the state of the labor market, but it looks like he went off the track a little bit by reaching for a grand theory, which don’t seem to exist in the social sciences.
When individuals are looking at a specific surgery which should take care of the problem at hand, that’s when it often makes sense to make the trip to Houston. It’s not so simple in one’s last year of life (or chronic illness) – a time when repeat hospital stays can become necessary. That means numerous long trips from surrounding areas, and in some states the one way trip is often several hours. A lot of shuffling often takes place between hospitals (more ambulance trips) before the patient gets the “right” hospital. Often it would be better to keep a patient closer to home. Sometimes, the extra medical procedures which local nurses hope for, don’t always happen just because the ambulance back to Houston takes place. It would be better for local hospitals and other local centers to share important information digitally, instead of constantly shuffling fragile patients back and forth.
But there are cancer centers and other end of life type services closer to home. If you are traveling to Houston from a day away you are either completely in the sticks and there isn’t the population to support the services you need or you are getting such highly specialized care that the same thing applies.
If I need a kidney transplant and live in rural east Texas of course I have to travel to the city, but if I live more than 3-4 hours from Houston there is a closer transplant center. Of course if I need something more esoteric, there is no way Austin or Baton Rouge could support such a thing. Then you need the benefits of the cluster to have the treatment at all.
Do you honestly think MD Anderson could exist as the research and treatment institution it is if it was distributed across the whole central time zone, or the world?