The tough positions an economist takes
Opinion
Here are three statements for your consideration. 1) The minimum wage should be set at $0 per hour; 2) Landlords should be allowed to raise rents by any amount; and 3) The costs of expropriating Lemay Forest are higher than most imagine.
Saying these things on a first date will guarantee a tart refusal for a second date. That is why economists have difficulty procreating; they cannot get that second date. Let us double down and take each statement in turn.
Most view minimum wages as part of society's social safety net and a key tool in fighting poverty. When provinces decide to raise the rate, advocacy groups invariably argue that the proposed increase fails to meet families' basic needs.
MIKAELA MACKENZIE / WINNIPEG FREE PRESS
Lemay Forest.
For many years, conventional economic wisdom held that minimum wages had several adverse effects. By making workers more expensive, employers have an incentive to invest in technology that replaces labour. Minimum wages have little benefit for the unemployed, especially those needing a first job to start their resumes.
David Card and Alan Krueger conducted a natural experiment in 1994 that compared employment levels of young workers in two states, one of which had increased its minimum wage while the other had not. Their findings upset the conventional wisdom as they found that employment levels did not decline because of the minimum wage increase. This paper not only upset standard theory but also won Card the Nobel prize (Krueger had died in the interim, and Nobels only go to the living.)
The story does not end there. Subsequent research sought to fix limitations to the Card/Krueger study by extending the measurement of effects beyond the original 11 months, broadening the impacts to all industries in a region, and using official payroll data instead of surveys of fast-food managers, which have biases. The more comprehensive study conducted in Seattle restored the conventional wisdom of the adverse effects of minimum wage and showed it triggered more poverty.
Investment in technology and resource-led growth, supported by an educated workforce, cures poverty. Another important finding is that property rights and the rule of law promote growth and reduce poverty. Finally, Adam Smith, often (and wrongly associated with pure laissez-faire, advocated for investments in key public services as essential for a functioning economy.
Now, consider rent control. It seems intuitive that to cap rents, one needs a regulation limiting the power of property owners. But this is like controlling boiling pots by adding lids — the more you press down, the worse the problem.
Eliminating rent control, increasing housing supply by relaxing regulations, managing public debt to reduce pressure on interest rates, ensuring the availability of land, and creating a fiscal structure to service land are the time-tested ways to moderate housing prices.
This brings us to Lemay Forest. On the one hand, we have the developer, who is easy for most to dismiss. On the other hand, we have a small group of greenspace advocates who point to the existence of a cemetery, abundant wildlife, and the spiritual significance of the forest. But on the third hand — and there is always a hidden third hand — we have a large amorphous group comprising potential homeowners and the taxpayer.
Consider this third and its hidden costs. First, the Manitoba taxpayer bears the costs of compensating the developer. The law requires this, but it creates a disincentive for future development.
The developer had proposed 2,500 assisted-living housing units. The City of Winnipeg and Municipal Board rejected this proposal but noted that the development of 800 units might be feasible. As boomers age, the demand for this type of housing will increase in the next few years.
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This development would have relieved pressure on personal care homes. It also would have added to the overall housing supply, as seniors downsize, yielding housing for younger families. The cost of creating another park will increase housing prices in the future.
Finally, the housing development would have generated future tax revenue in perpetuity. The feel-good creation of a park will have enduring costs for Winnipeg.
Of course, this decision to create a park instead of housing will not produce a noticeable increase in housing prices. However, when political expediency becomes the norm, the cumulative effect emerges, and we suffer death by a thousand shaving nicks.
That second date? After dousing ice water on curing poverty by raising minimum wages, creating affordable housing through abolishing rent controls, and dissing parks over housing, it is fair to wonder how economists get even the first date.
Gregory Mason is an associate professor of economics at the University of Manitoba.
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