The Fatal Conceit

By Stephan Burklin

“The curious task of economics,” alleged the Austrian professor Friedrich Hayek, “is to teach men how little they know about that which they imagine they can design.” Governments around the world agree; but if the Soviets themselves relented, why won’t Oregon admit its folly? Rejecting Hayek’s notion, state planning agencies from Portland to Medford have squandered hundreds of thousands of taxpayer dollars meddling in private industry. All the while, the economic truth is simple: trying to improve market efficiency with governmental directives is like trying to run your vegetable garden on double A batteries. It won’t work.

One such manifestation of a defective planning strategy is the Oregon Housing and Community Services Department’s “Vertical Housing Program.” Created nearly ten years ago, the program was designed to encourage mixed-use commercial/residential developments through a partial property tax exemption. Optimistic local and regional governments expected that a combination of low-income housing projects, multi-modal transportation solutions and enticing business tax abatements would trigger urban love-fests.

In contrast to such idealistic fantasies, however, the city of Milwaukie’s project, the “North Main Village,” stands sheepishly as an emblem of despair. In a heroic coordination effort, the city of Milwaukie took out loans to buy property and agreed to forgo property taxes. According to the Legislative Fiscal Office, the Oregon Housing and Community Services Department spent thousands of dollars to administer the program. Plus, Metro indulged Milwaukie with $450,000 in street renovations and $580,000 in transit-oriented development grant money to make sure that the project penciled out. Given these lavish investments, is the program paying dividends?

Commercially, the answer is a resounding “no.” The complex is architecturally intriguing, and the upper-level apartments are charming. But the 8,000 square feet of vacant retail space creates an unsightly juxtaposition, like an evening dress paired with muddy sneakers. Having burned through over one million dollars of taxpayer money, planners are now unable to get businesses to touch the project, generous tax exemptions notwithstanding. Why? Because businesses in the area recognize a lack of patrons, parking and profit. And the recession isn’t the culprit; the stores have been mostly vacant for years. Other Vertical Housing Program mixed-use projects in Central Point, Grants Pass, Medford and Eugene are in the same sinking boat.

From the residential standpoint, the project is equally lamentable. For although the apartments are fully occupied, the implausibility of commercial success is factored back into the price of rents, wasting additional taxpayer money. Can the Oregon Housing and Community Services Department justify Cascade Policy Institute, Oregon’s free market public policy research organization.

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Posted by at 06:00 | Posted in Measure 37 | 11 Comments |Email This Post Email This Post |Print This Post Print This Post
  • Rupert in Springfield

    If Hayeks purpose of economics statement – ” to teach men how little they know about that which they imagine they can design.” is true ( it is ) then this idea of subsidized low income housing mixed in with market rate housing causes another realization:

    “socialisms experiment is that a feeling of guilt in some will overcome the basic economics of all”

    The incessant idea of expecting people to work hard enough to pay market rates for a dwelling right next to someone who is subsidized is testament to this.

    The odd thing is that there are more than enough guilt ridden liberals in Portland to full occupy both the market rate dwellings as well as the store fronts. Why those liberals do not move in and thus salve their guilt is hard to understand, but at the same time totally expected.

    • David Appell

      Rupert wrote:
      > subsidized low income housing

      Rupert, do you mean like the massive tax credits given to mortgage holders in the US — the ability to deduct their interest payment? This is a subsidy worth about $150 billion/yr, made up by taxpayers who don’t or can’t buy a house.

      I wonder if “subsidized low income housing” costs American taxpayers $150B/yr. I doubt it.

      • Rupert in Springfield

        >Rupert, do you mean like the massive tax credits given to mortgage holders in the US — the ability to deduct their interest payment?

        No I don’t mean like that as there is no subsidizing of the mortgage deduction by my neighbor.

        You are assuming a zero sum game in regards to tax rates vs. revenue. That’s a false premise and a very elementary mistake, I am surprised you would make it.

        In regard to housing of the nature we are discussing, it is a zero sum game. The market rate payers are directly subsidizing the below market rate payers in order to make the housing project work economically.

    • John in Oregoe

      Only the most idiomatically challenged would expect us to accept that not taxing something is a subsidy.

      As in, the Government isnt taxing the oxygen that David breathes. Therefor the Government is subsidizing human life.

      Of course we all know that human life couldn’t exist without a Government a subsidy.

      But then we all know this article is about the Government planner experts that ram their particular version of nirvana down the throats of the people.

      I guess that the people didn’t rush in to grab a slice of that Government planed perfection must be a failure of the people.

  • David Appell

    > Only the most idiomatically challenged would expect us to accept that not taxing
    > something is a subsidy.

    Interest payments of other types of loans are not tax deductible, but mortgage interest payments are. That makes it a subsidy — something given back to the tax payer. Homeowners pay less than the market value of their mortgage.

    It’s made up by those who don’t want to own a house, or can’t afford one, or choose a lesser house or who otherwise don’t have a mortgage.

    • Rupert in Springfield

      >That makes it a subsidy — something given back to the tax payer.

      Again, you are making a really elementary mistake, that lowering tax rates results in lower revenue. That’s a completely false assumption. Its astonishing you are continuing to make it after it has been pointed out to you.

      The second false assumption you are making is that there is some amount of money that has to be accounted for by raising rates of those who cannot take advantage of a deduction. This is also not true as even if we took your initial premise, lower rates lead to lower revenue as true ( it isn’t ) there is no set amount of money that the government is entitled to take from the populace. In the case of the subsidized housing, there is a set amount of money it takes to maintain the building, pay for staff, etc. If someone is paying below the level it costs to build and maintain the property, then clearly that cost is made up by others. Again your analogy fails.

      The third false premise is clearly ilustrated in the above sentance. There is something that is not taxed. That does not constitute giving anything to the taxpayer. The taxpayer earned the money and the government simply took less of it. Nothing is given to the taxpayer as government did not generate or own the wealth involved, the tax payer did. This is totally different than subsidized housing in which someone builds and maintains a building and gives the subsidized tenant that portion of it between what the tenant pays, and the actual cost of the unit. The tenant is given something that they did not create nor own, the taxpayer with the mortgage deduction is given nothing as they created the wealth and owned it. Again your analogy fails.

  • David Appell

    > Again, you are making a really elementary mistake, that lowering tax
    > rates results in lower revenue.

    I have made no such assumption at all.

    I have said that, if government commitments are constant, then any taxes you are released from paying are monies that other people must make up, either through taxes or the federal debt.

    If you are given a break on your housing expenses because you can deduct the cost of your mortgage interest payments, and renters get no deductions on the cost of their housing expenses, then you are getting an unfair advantage on your housing expenses. Period.

    From the March 14, 2009 LA Times: “In the U.S., the home mortgage write-off is used by about 35% of taxpayers who itemize their deductions, generally a more affluent group. Roughly 90% of taxpayers who earn more than $100,000 itemize deductions, while about 18% of those earning less than $50,000 do so, according to the Tax Foundation, a nonpartisan educational group.”

    From the National Low Income Housing Coalition, 5/6/0: “In FY08, the MID cost the U.S. Treasury $67 billion. In 2007, 36 million taxpayers claimed the deduction. This is roughly 70% of all homeowners with a mortgage, but just 23% of all taxpayers.”

    • Rupert in Springfield

      You keep making the same mistake. Lower rates are not the same as lower revenues. It is simply a false assumption that a consequence of a tax deduction for mortgage interest results in lower revenue to the government. Why you keep making this same fundamental error is not clear, but the fact is, you are making it.

      >If you are given a break on your housing expenses because you can deduct the cost of your mortgage interest payments, and renters get no deductions on the cost of their housing expenses, then you are getting an unfair advantage on your housing expenses. Period.

      Whether that is fair or unfair is not the question. No one ever addressed that and it is not the subject of the discussion. It has no relevance here as there is no subsidy provided by the renter to the guy down the street getting a deduction for mortgage interest. If you think there is, then again, you are making a fundamental error that lower tax rates result in decreased revenue.

      >From the March 14, 2009 LA Times: “In the U.S., the home mortgage write-off is used by about 35% of taxpayers who itemize their deductions, generally a more affluent group. Roughly 90% of taxpayers who earn more than $100,000 itemize deductions, while about 18% of those earning less than $50,000 do so, according to the Tax Foundation, a nonpartisan educational group.”

      And this has relevance to what?

      >From the National Low Income Housing Coalition, 5/6/0: “In FY08, the MID cost the U.S. Treasury $67 billion. In 2007, 36 million taxpayers claimed the deduction. This is roughly 70% of all homeowners with a mortgage, but just 23% of all taxpayers.”

      The National Low Income Housing Coalition? You’re serious?

      Well, obviously their numbers aren’t very serious and in fact are clearly fraudulent as there has never been an instance of a tax deduction costing the US treasury a penny. Tax deductions cause a loss of potential revenue, not actual revenue.

      To classify a loss of potential revenue, which is what not taxing something is, as an actual loss is clearly ridiculous. What you are doing is taking it a step further. Trying to equate a loss of potential revenue as the same as an actual loss and then trying to equate that with a tangible subsidy, which is what subsidized housing is, is preposterous, for reasons I outlined in my previous post.

      In addition, you are again making a fundamental error in that you are assuming lower tax rates result in lower revenues. You are making a logical error in thinking lower revenues to the government, even if they were to occur, are something that has to be made up rather than the government simply doing with less, as is often what the taxpayer is asked to do.

      Unfortunately those flaws are not recoverable. Your argument that a tax cut represents a direct subsidy the same as subsidized housing will always be a false one given those flaws.

      I would suggest if you are upset that some get the home mortgage deduction and you don’t that you go buy a house.

      If you cannot afford to buy a house, then I would suggest you consider what your rent would be were the mortgage interest not deductable for the landlord.

  • David Appell

    > there is no set amount of money that the government is entitled to take from the populace.

    Of course there is no set amount of money that the government is *entitled* to take from the populace. Don’t be stupid.

    But there *is* a set amount of money that the government *does* take from the populace, whether in taxes or in debt.

    If some people (homeowners) are given a break on their housing expenditures — viz. their taxes are less than they would otherwise be in the absence of such a break — then logically that break must be made up by other monies, either taxes on other people or additions to the national debt (= taxes due to higher interest payments and expected payment from future generations).

    It’s so like the arrogant middle class to fail to recognize that they are, in fact, the largest beneficiaries of governmental assistance while resent the money used to help the poor. They’re so arrogant they won’t even admit when the government gives them a break.

    • Rupert in Springfield

      >Of course there is no set amount of money that the government is entitled to take from the populace. Don’t be stupid.

      Look, don’t make a stupid argument and then get angry when someone points out the stupidity of your position. You are the one who said money not taken in by one source had to be made up for by another, not me. That’s a totally stupid assertion, I was merely pointing it out.

      >But there is a set amount of money that the government does take from the populace, whether in taxes or in debt.

      No there isn’t.

      Where in the world did this idea pop into your head from? There is absolutely no set amount of revenue the government takes in from the people. Don’t believe me? Income revenue to the Federal Government is off by double digits from last year. That hardly represents a set amount of money they take in.

      >If some people (homeowners) are given a break on their housing expenditures — viz. their taxes are less than they would otherwise be in the absence of such a break — then logically that break must be made up by other monies, either taxes on other people or additions to the national debt

      NO!

      That in no way logically follows and to assume it logically follows shows a complete lack of understanding of the economics of taxes as well as the history of them.

      This has been pointed out to you ad nauseum and you still are making the same logical mistake. Lower tax rates do not equate to lower revenues. Why in the world you keep making this same logical mistake over and over is ridiculous.

      Why in the world you then go on to make the logical error that even if government took in less money from one source that it had to be made up by another is beyond me.

      You even said the concept that government was entitled to take in a set amount of money was a stupid one at the outset of this post,. Why you now are saying that is not the case is ridiculous.

      >It’s so like the arrogant middle class to fail to recognize that they are, in fact, the largest beneficiaries of governmental assistance while resent the money used to help the poor.

      Look, just because you are poor does not entitle you to blame others for your problems.

      A tax cut is not government assistance a direct subsidy is. You just have a fundamentally flawed construct in trying to equate the two. Why you persist in it I think is clearly rooted more in anger than in any actual logical understanding of the issue.

      Is it fare for the middle class to resent the money used to “help the poor” as you put it? Of course it is. It’s their money being taken at gunpoint. Do the middle class generally resent the Salvation Army etc.? Of course not, there the money is not taken at gunpoint and there it is genuinely used to help the poor, not line the pockets of government bureaucrats.

      >They’re so arrogant they won’t even admit when the government gives them a break.

      Keeping what you earn is government giving you a break? Not bloody likely

      As for arrogant, that is you David.

      You are the one who is arrogant.

      You think others should pay for your health care because you feel you should be free from the consequence of your decision to pursue writing.

      You think its no ones business when they ask what insurance precluding pre existing condition you have. Yet at the same time you still expect others to pay for it.

      You think others should pay for your housing as well, because getting a job that would actually enable you to do that is beneath you.

      You think its perfectly ok to denigrate others who are more responsible. I remember when you chewed out a poster here because you felt he was dull for not pursuing a dream instead working, as you assessed, in a cubical. You think you should be free of the consequences of your decisions, yet you denigrate others who not only act more responsibly, but from whom you expect to receive funds. There is nothing more arrogant than that.

      And on top of that, you feel others keeping what they earn is somehow taking from you, while your attempts to fleece others for your health care and housing is perfectly fine.

      That is pure unadulterated arrogance David, and I think you know it.

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