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 videoessayists who've gained popularity in recent years It sprung up largely as a response to thesea of alt-right content on YouTube, but has developed into its own space over time. The 'bigthree' 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 casesBreadtube is largely focused on things like gender, LGBTQ rights, media, Ben Shapiro takedowns, andthe series of existential crises that we find ourselves embroiled in. All noble causes butlargely not economics. In fact, there was a thread about this on the Breadtube subreddit nottoo long ago. .
I would like this channel to help fill in the gap in economics content and in thisshort series I want to comment directly on the few times where major Breadtubers have discussedeconomics 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 cardin debates and I don't see it this way To me saying “you don't understand economics” is just likesaying “you don't understand sociology” or “you don't understand history”. Both of which you could sayto me If you really wanted to hurt my feelings We all have blind spots and I'm hopingI can add something to our understanding And economics is important: it is, rightlyor 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 economicsneeds to be better to challenge the status quo So…the example I'm gonna use today comes fromone of Olly Thorne at Philosophy Tube's videos about the housing market. He argues that weneed to abolish the housing market altogether in order to secure housing for everyone I knowthis 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 myvideo 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 andwhen they don't I'm going to present quite a fewdifferent 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 videoengaging 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 hasnever quite managed to defeat housing crisis is because…they're actually one and thesame character I must confess, guys, that this video will not be as fun as Olly's Butthis 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 generaland even in this one she gives a solid account of why loosening planning restrictionsisn't a solution to the housing crisis she's an exception, so we'll excuse herfrom the general charge of bad economics For now Returning to Olly, his central caseseems to hinge around the following comparison suggesting that key features of the housing marketlogically imply key features of the housing crisis What does housing market actually do?Well, hedistributes homes to people who can afford them He encourages developers to develop moreHe lends money to people so they can get on the property ladder Hang on…those are allthe exact corollaries of the villains powers! .
Distributing homes only to people who can affordthem is just the other side of the coin of housing crisis' power to raise rents and increase houseprices! Encouraging developers to develop more is what led to the birth of gentrification, oneof the series' darkest secondary evil doers and lending money to buyers was the basis of thevillain's plot in the 2008 storyline crisis ofinfinite subprime mortgages! I'm just not convincedthat 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'tmake sense. For example, in his Chernobyl video last year, Olly restated part of his argumentin even stronger terms. Thatcher's criterion for responsibility was owning property andthe problem there is that is a thing that is mathematically impossible for everyone to do atthe same time. You cannot have a housing market and no homeless people because if everybody hassecure housing, you cannot sell them housing. .
Okay, just hear me out. What if…everybody owneda 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 othermarkets? 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 everyonecan afford an apple Nobody speaks about the 'apple crisis' – well okay that's a bad example but youget my point It's still going to be profitable for firms to sell to people even if everyonecan buy But apples and houses obviously differ in important ways and thinking about this couldhelp 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 feedbackmechanisms' Advocates of capitalism will generally argue that the profit motive incentivises firmsto 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 readilyavailable substitutes like oranges or bananas, they can be moved around and stored easily, and theyhave pretty clear characteristics for what makes them 'good' or 'bad' You know, 'are these apples bad? Yesor no?' Is a question one might ask This means that capitalism works, at least for consumers, as theycan 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 legallyand logistically complicated so most people can't navigate the transaction themselves and they needan intermediary – an estate agent There's alreadya problem here, because you're reliant on them forthe information about potential homes If you think the estate agents did a bad job of findingyou a home, you won't go to another one nextweek In fact, by the time you move again you'veprobably 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 evendone a bad job in the first place Houses are kind of complicated to evaluate – there are loadsof things about a house that you have to balance How spacious it is, the location, the number ofbedrooms, the quality of the bathroom and kitchen, .
Whether the neighbors ask you to go dogging withthem There's a huge difference between looking around a house and living in it, and every housewill ultimately have some unforeseen disadvantages You can't know if you've picked the best onebecause you won't get an opportunity to compare living in it to living in others that were onthe market at the same time These complications all mean that you can be misled about boththe 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 reputationsas nice couples with West Country accents, while estate agents have reputations as dodgyshucksters? It's awfully smallI'd say it's awfully cozy .
That's dilapidatedRustic! That house is onfire!Motivated seller! So we've got that market feedback mechanisms don't work very well forhousing as compared to apples, but you're probably thinking there's a bit more to it than that, solet's move on to the second point in our table To understand this one better let's take avisit to Rightmove and take a look at two houses One is a three bedroom house with three floors andit looks pretty nice to be honest it's got all the trimmings and a garden. It's safe to say that thiscould comfortably house a family. The other is a one bedroom flat and it's clearly well below thestandard 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 isin 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 itslocation Economists sometimes think of this as the 'land' the housing is built on – as opposedto the structure itself – and in my experience this is not a distinction which is obvious tomost people. To be honest it doesn't sound very ground breaking – haha, get it – actually itjust sounds kind of boring and technocratic but it has some pretty radical implications. Mostof the rise and volatility in house prices over the past few decades has actually been drivenby land. Everyone needs a house, and you simply .
Have no choice – the location of a given house isbasically unique. Landowners therefore always have some kind of monopoly power, and there can alsobe unique features of the buildings themselves which increase this. When you know that land is amonopoly you can start to see some new solutions Land taxes, much beloved of the followersof the 19th Century economist Henry George, are one way to take away the excess money fromthe landowners and give it back to the community Land taxes would also increase the cost ofhoarding lots of space, a point to which wewill return shortly And price controls, such ason rent, may prevent them from exploiting their position Returning to Olly's video – rememberthat we are trying to link the points on the right with the points on the left So how does landrelate to issues like affordability, homelessness, and gentrification? .
When the supply of somethingis fixed, it's easier for the price to be bid up, especially if inequality is high and rich peoplewant it You may be familiar with the name Calvin Klein, but did you know that he owns three entirefloors of a tower in a prime location in Manhattan? Did you know that rich people have startedinstalling enormous swimming pools in thesemulti-story apartments? In 'Economics for the Restof Us' Moshe Adler argues that increased inequality has bid up the limited space available inManhattan, with the average price per square foot increasing from 324 to 767 dollars between 1995and 2004. There is also more general evidence that people with higher incomes buy up more andmore space, rather than being content with what they've got. If rich people really liked applesfirms would probably just produce more, or produce special luxury apples .
Maybe rebranding them withsome [ __ ] label to make it seem like they were something else, I don't know but that can't bethe 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 andproducing 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 havenoticed 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, whichmakes it good insurance for financial institutions .
Houses are also relatively costly so even inthe 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 extendcredit 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 andwait for the price to rise, it might actually be more profitable to hoard than to build and sellhousing. Prices rise higher, the effective supply remains low, and both of these things contribute tothe housing crisis But here's the best thing about this: one problem with taxes is that they oftenincrease prices and you might be worried that the land tax I mentioned earlier would just makehousing less affordable. But according to Murray, .
Charging developers land taxes would make it moreexpensive to postpone building, and encourage them to bring forward development. This is because theyknow they're going to get charged on land whether they build or not, so they need to bring moneyin as soon as possible in order to pay the tax Murray looks at a case in Queensland, Australiawhere 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 taxessound too technocratic, just remember that they were proposed in the Communist Manifesto, the mostleft-wing thing ever to exist So to return to our table one final time we can see that the housingmarket 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 partlybecause of its status as a financial investment We can also see some ideas fall out ofthis like taxes on landowners and the rich and strict regulation of owners and middlemen, plusthe money raised from this could be used to help solve the problem directly, for example by buildingsocial housing or giving houses to homeless people an approach that's been shown to workin some places But one question remains: do we, as Olly and Mexie claim, need to abolishthe housing market – and what would that mean? Later on in his video Olly gives his mainproposal: that landlords should have their property forcibly acquisitioned; that people should not beallowed 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 itstrikes me as kind of simplistic and this leadsto some errors. Let's start with the big one: thereis no reason to believe that a market in housing inevitably results in a crisis in housing Youknow, housing crises are a bit of an Anglo-Saxon thing – at least among the rich countries – there areplaces where houses are affordable even though they aren't fully socialist and we can learnfrom them but we need to be a bit more systematic. There are serious questions to ask about howhousing 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 whosays so? Who will fund these decisions? Who will own what bits of the housing and land, and what rightsdo they have? I want to offer partial answers to these questions with three main proposals. .
I'mgoing to draw heavily from the book 'Rethinking the Economics of Land and Housing', which has anumber of suggestions in it, ranging from reformist to socialist. I'm going to warn you this final bitwill be a little denser than the rest of my video, but honestly I don't know how else to talk aboutpolicy Now: I get that the length and format of Olly's video meant that not everything couldbe explored in depth, something that he and Mexie discussed in the stream after the video. In thisstream they do float some interesting ideas but they still don't say enough about how we get fromour system to a socialist one, and they also miss what I view as the key distinctions we need tomake: between housing, land, and finance For instance, Olly uses 'landlord' to mean owners of propertiesrather than land itself There's nothing wrong with this in itself, as it's the common usage, butin this case it matters for his proposal to take .
Their property without paying them – in his view, they've already received compensation via the rentthey've paid in the past And if it's already canonthat 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 forthat forced buyout would be all the rent that's already been paid over the whole time the serieshas been running Who would the big losers be? Rich landlords, banks who got people into debt, and people who are using property to laundermoney Data on this are hard to come by but somedata from the US suggests that many landlords use their properties just to make a living andactually have similar incomes to their tenants. You can believe the social role of landlordsis a bad thing .
While still acknowledging some people depend on it. It's just like peoplewho work in the fossil fuel industry sure, they're part of an exploitative system butit doesn't mean they are individually rich, and any transition needs to acknowledge the disruption totheir lives. If we're looking to move towards forms of collective ownership that don't rely on thestate 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 affordablehousing in response to the needs of the community Now this is the room with electricity, but ithas too much electricity so I don't know, youmight want to wear a hat Over the long term I'dlike to see these grow but right now they're just too small to make a dent in the land market inricher areas and cities .
My second proposal would therefore be for the government itself to startbuying and leasing land In South Korea there's a government-owned entity called the Korean LandCorporation and it buys, sells and develops on land Creating similar entities that have the power ofcompulsory purchase – and that's with compensation- would allow them to put land to good use, andwould 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 actualhomes For the third and final proposal, peoplecould also retake control of finance and the case of the British bank Northern Rock gives ussome hints as to how Northern Rock used to be what's called a 'building society' – actually it usedto be several different building societies – .
These organisations were owned by members to pool theirmoney and help them finance building their homes They would sometimes even dissolve automaticallyafter all their members had done so The wave of deregulation starting in the 1980s turned manybuilding societies into modern banks which meant that they were free to do terrible, terriblethings with their money. Northern Rock famously went bust in 2007 after overextending itself andhad to be bailed out by the Government Then in 2015 Northern Rock had its assets bought up byUS investment fund Cerberus Capital Management Cerberus? Even capitalists themselves can see howmuch of a joke this all is Financial institutions that are owned by their members like buildingsocieties are known as mutualist Countries with more mutualist financial institutions such asGermany, 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 estatebubbles So…if the government and local authorities control the land and various community-ownedorganizations finance and build the housing, likely further supported by the government, doesthis count as abolishing the housing market? My answer is honestly: who cares? It's already aradical first step towards overcoming the housing crisis, and if it turned out the remaining marketmechanisms were leading to problems, then over time we could experiment with moving towards other waysof allocating housing, some of which Olly and Mexie discussed But more than anything I'm hoping thisvideo gave some solid economic foundations for what's wrong with the current system and how wemight change it .
Next time I will discuss the issue of state ownership versus private ownership inmore detail with reference to a slightly different, though strangely linked case. Well guys, thanks forlistening all the way through. Don't forget to like, subscribe, and also hit the bell for notifications. Because apparently that's an extra thing you have to do now which makes sense. Why would sayingyou like a channel and want to see more of its content mean you'd be alerted to said content? Youhave to tell YouTube that separately, obviously