From the comments: follow on effects of liability rules?

Far be it from me to to tell anyone how to think, or what a word belonging to everyone really means. But I’m going to quickly indulge in a No True Scotsman-ism. Libertarianism means being skeptical of power. (I recently saw a great line on libertarians that needs sharing: “…every libertarian agrees on two things: that there’s only one libertarian and it’s them.”)

So I’m optimistic to see reductions in the amount of power government agents can exercise. I’m particularly optimistic to see changes that don’t take the form of “we’re going to manage that bit of power over there with a new bit of power over here” (i.e. regulation). A very short term version of such a change happened when Buffalo’s police union announced they wouldn’t cover the legal fees of their riot squad.

My enthusiasm was followed by the right question in the comments: “If this obtains, what is the likely effect upon the lives and property of Buffalo dwellers?”

In principle, we could dig into this question empirically, but not until we’ve got decent data with variation in the liability rules governing police behaviors. In the mean time…

Let’s break the question down: What are the average effects and how will those effects differ between different parts of Buffalo? What will be the effects on violent crime? What will be the effects on property crime? And how will those effects affect property values?

The most obvious and immediate change will be a reduction in police use of force. As we’ve seen, at least some of that force is used criminally. This change in the rules means reducing the likelihood of another Gugino incident. Which means a reduced likelihood of pulling resources away from productive uses to cover all the various costs involved in such incidents–the medical care and suffering, the resources surrounding arresting the perpetrators and keeping them safe should they end up incarcerated, the legal fees, etc. All else equal (i.e. ignoring secondary effects), this is equivalent to raising the cost of breaking windows–bad for the glazier, but more than offset to window owners.

Of course, the real question is about the impact of reducing the non-criminal use of force by police. The Buffalo experiment looks to be short-term and restricted to the riot squad, so we won’t be able to draw any conclusions from this (except, of course, that it confirms my priors and you’re looking at things the wrong way if you disagree with me. </s>)

The more interesting question is how extending this liability issue–i.e. curtailing qualified immunity–would affect the long run equilibrium? That outcome would eventually be capitalized into the prices of real estate. Safer neighborhoods will have higher property values.

Here’s my prediction: property values will increase in poor and non-white neighborhoods relative to wealthier and whiter neighborhoods.

Some caveats are in order:

  • I suspect that in most American cities poor neighborhoods are under-served by the police, so reduced legitimate police force will have minimal impact.
  • I also suspect (hopefully someone will share some helpful resources in the comments) that illegitimate police force is mostly concentrated in poor neighborhoods.
  • Wealthy neighborhoods might see some increased crime from reduced legitimate police force, but I’m doubtful. I think more likely the impact will be more like the effects of price discrimination–why pay more if the alternative isn’t terrible? To the extent poor neighborhoods get less terrible, the relative draw of rich neighborhoods will decreases.
  • There are any number of other changes coming down the pipeline that will make it difficult to disentangle the effects of qualified immunity holding all else equal.
  • To the extent we see a general improvement in the quality of policing (more ‘serve & protect’ and less cracking skulls) we should see an increase in property values across the board.
  • White flight is likely to happen which will bias results towards my conclusions. I want my hypothesis to be interpreted holding white flight constant.
  • The effects will go beyond just real estate price. I would expect something like this: for every $1 price reduction in rich neighborhoods, there will be <$1 price increase in poor neighborhoods, but the gap will be made up in other quality-of-life changes such as reduced chance of incarceration for victimless crimes, fewer hours of work missed, fewer injuries at the hands of police, etc.
  • I hope that these quality of life changes will make empirical analysis even more difficult as other follow on effects extend the time horizon of people in poor neighborhoods–e.g. if fewer people are sent to jail, that could lead to fewer young men getting involved in crime leading to entrepreneurs being more willing to invest in their communities.

My predictions are absolutely shaded by my ideological biases. And there’s no getting around how complicated these changes are (hopefully) going to be. But I feel confident predicting an implicit shift of wealth from the paranoid wealthy to the disenfranchised.

Is there anyone here who disagrees enough to help me clarify my thinking by putting money on it?

A Millennial’s New Perspective on Home Ownership

The last few years I’ve loudly protested that home ownership is overrated; it’s a bad investment plus lots of responsibility. And yet, this summer my fiance and I bought a 100 year old house on the south shore of Long Island.

Yes, I have lost my mind.

I basically stand by my earlier position, but with greater nuance. Owning a home is a complicated undertaking. But it’s given me a greater appreciation for the nuance involved in managing real estate.

Home ownership is a great big Gordian knot of inter-dependencies. It’s massive set of knowledge problems wrapped in externality problems.There’s a massive role for local knowledge which means policy makers’ attention should be less focused on things like home ownership rates, and more on guiding the right people into the right places to take advantage of that local knowledge.

With local knowledge comes local politics. I don’t know anything about local politics, but expect more posts about what’s going on in my town hall over the next few decades.

So what have I learned in this first month of home ownership?

  • There’s something to be said about pride in ownership

It’s still a real trip to turn on my lights in my kitchen so I can do my laundry in my laundry machines. I didn’t think I’d enjoy it this much. The endowment effect is real. One effect has been to increase my interest in contributing to local public goods via civic engagement and other routes.

I haven’t been to a town hall meeting yet, but I plan on going to one tomorrow. I suspect it will be awful. But I’m walking distance, so I’ll be a little bit drunk.

  • The real estate market has some serious frictions

This might be obvious, but it’s interesting. There are artificial and natural obstacles to the efficient use of real estate. Transaction costs are significant and property rights issues are hairy.

Buying a house is a complicated transaction and going through the process has really made clear to me how difficult it is to commodify land. Each piece of land has a unique location and history. Information asymmetries are substantial. The neighborhood you’re buying into is utterly out of your control. Put simply: Amazon won’t be selling real estate any time soon.

Part of the reason I’m happy with buying a house is that our rent had been increasing about $100/month/year. Land lords absolutely take advantage of real estate frictions to charge as much as they can. The alternative (which I chose) is to lock-in to a specific property.

  • The required knowledge to operate a home is significant and difficult to evaluate.

It takes a lot of knowledge to manage a house. If I were to take a wild guess (at this non-quantifiable variable), I’d say that between 5% and 50% of a homeowner’s brain is necessary to operate a house. Even if you bring in experts to do everything, evaluating those experts is a lot of work.

There are repairs and upgrades to make, and my formal education prepared me for exactly none of those projects. On the other hand, I’ve got the Internet. Without YouTube and Reddit I’d be a half dozen unlucky mistakes away from homelessness.

On the other other hand, I’ve learned a ton of stuff I’ve got no use for. Like how to grow asparagus (which it turns out it isn’t worth doing except out of boredom).

You can’t evaluate knowledge until it’s too late. And there’s more to learn than you ever will, so you have to make mistakes. It’s true of home ownership and it’s true of life more generally.

  • Gardening is a real trip.

In History of Economic Thought professor Gonzalez shared a story about two economists meeting in Switzerland during WWII. On showing his vegetable garden to the visiting economist, the visitor said “that’s not a very efficient way to grow food,” to which the gardener said, “yes, but it’s a very efficient way to grow utility.”

I’ve wanted to garden for some time, but the market for gardens is thin. So now I’m starting with almost no useful experience. My public stance has been that lawns are boring and dumb. But figuring out how to manage a little ecosystem ain’t easy. I now get why someone would just put in a lawn and be done with it.

At my old apartment complex the entire ecosystem was made of: humans, trees, lawns, cockroaches. I suspect the cockroaches did so well because all their competition was poisoned away. As an emergent order guy, I’m not really into that. But I get it now. In the same way the king wants everyone living in neat little taxable rows my life would be easier if I could just slash and burn all the complexity out of my yard.

Tl;dr: My biggest surprise as a new home owner is just how big a cognitive load owning a house is. You hear homeowners talk about how much work it can be, but I think it’s rare to hear someone talk about how much know-how is required.

Given the capacity to generate externalities, I’m a bit surprised that there isn’t more public policy devoted to issues of home ownership* (beyond subsidizing finance and increasing barriers to entry). I supposed I’ll learn a lot more about these issues as I learn about local politics.

*That isn’t to say I think it’s a good idea to get the government involved in trying to tell people how to go about the business of daily life. I think homeowners are (basically) doing fine left to their own devices.