The Supply and Demand Fraud

October 1, 2015 at 11:49 am  •  Posted in Geography, Real Estate by  •  7 Comments

“There you go again.” – Ronald Reagan, 1980.

The conservative political columnist Thomas Sowell is back at it. He must have spent all of 15 minutes rearranging a few paragraphs from his previous post criticizing protection of Open Space, a concept he considers to be an example of The High Cost of Liberalism.

Is it plagiarism if you copy the same stuff you wrote a year ago and republish for syndication? No? Maybe it should be.

In his newest column on the topic he continues his geographically illiterate approach to solving the affordable housing problem in the San Francisco Bay Area. It amazes me how economists cling to naive neoclassical theories when they so quickly fall apart in a specific geographical context. Sure, housing supply and demand works the way Sowell argues if you’re inside the bubble of an isotropic plane. Lots of theoretical principles work perfectly in such settings. But, when you’re talking about housing in a real place, a densely populated peninsula on the Pacific Ring of Fire with a uniquely complex physical environment and one of the most dynamic regional economies on the planet, simple supply and demand graphs don’t work. Not at all.

But, I don’t want to be equally guilty of regurgitating a previous post. So, here’s my full rebuttal.

Geography has got to step up it’s game so we can more fully participate in these conversations. How many catastrophic mistakes are we going to allow before we begin to seriously question the applicability of naive economic theory to urban planning and other location-specific public policy decisions?




  1. Andy holman / October 2, 2015 at 10:16 am / Reply

    Way to go pointing out this guy’s lack of credibility. The Donald would call him a loser.
    Not long ago he blamed liberals for the demand of housing on coastal cities. I know I would rather live in Kansas over say San Francisco. Isn’t there a song “I left my heart in Topeka”

  2. bobbyv / November 21, 2015 at 11:01 am / Reply

    this story seems to support sowell’s position:

    • Justin / November 21, 2015 at 11:34 am / Reply

      Hey Bobby,
      The notion of developing land West of Palo Alto is the idea I oppose. Development of affordable housing within existing city limits is another matter all together. My guess is this has more to do with the wealthy elite in Palo Alto not wanting a lower socioeconomic class of people in their backyard. Not nice. And might support Sowell’s notions about the tactics of ultra-wealthy liberals. But, his solution to the problem illustrates a lack of appreciation for critical geographic variables and their role in urban planning. His 2-dimensional Supply-Demand thesis fails to take the spatial dimension into account.
      Thanks for reading!

      • bobbyv / November 21, 2015 at 11:48 am / Reply

        i don’t think he would argue that geography has nothing to do with it – economics takes everything into account. but i think it’s definitely a problem caused by primarily by gov.

        • Justin / November 21, 2015 at 11:57 am / Reply

          I don’t see evidence of most economists taking everything into account. There are exceptions of course but in my experience most economists ignore geography, especially physical geography, almost completely. Local government surely plays a role but the Pacific Ocean plays a far more important role in determining the value of housing in SF.

          • bobbyv / November 21, 2015 at 12:09 pm /

            maybe not most, but surely don boudreaux and sowell. perhaps you should better familiarize yourself with the austrian school – everything is taken into account to determine value: happiness, geography,color,… it really is simple supply vs demand – restrict supply of anything via geography, regulation, etc., and the price goes up.

          • Justin / November 21, 2015 at 12:20 pm /

            In that case it should be easy to explain housing prices in Metro LA. Nearly unrestricted building and plenty of space available. And yet, prices are exorbitant with proximity to the Ocean accounting for more variability in price per sqft than any other factor.

            I am a fan of the Austrian School, not that I’m an expert. I would like to learn more. But I do know geography well. And I know that economists, generally, do not know how to handle spatial variables properly. They also tend to gloss over spatial scale.

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