BROOKLYN — I took lots of economics courses in college, learning all about supply and demand and M1 and M2. But somehow I never encountered the economic principle that is most commonly encountered in the real world — the confrontation of “Oldies vs. Newbies.”
Here’s how it goes. A group of people stumbles into some valuable resource. They don’t own it — that’s the important thing — but somehow they stake a claim that gives them some marginal advantage in arguing possession. Then they work together to create a set of rules that prevents everyone else from acquiring the resource in the same way they did.
Newbies are admitted only at a measured rate. Newcomers pay a higher rate of admission because — well, just because they weren’t there first. Over the years, they can gradually move up the ladder, however, and become Oldies as well. Eventually they will end up defending their privileges just as fiercely as the other Oldies and the cycle continues.
Suburban zoning is a prime example. When a new suburban area opens up, there is often a freewheeling, wild west feeling. Roads and sewers aren’t developed, local farms are still in business (often regarded as a nuisance for their animal noises and offal smells), raw nature abounds. Newcomers often refer to themselves as pioneers.
Then other people start to show up. One day a distraught neighbor arrives at the door. “Do you know our beautiful field next door?” she gasps. “It’s actually Green Acres II. They’re starting construction next week. We’ve got to go down to the planning board and stop them.”
It is at this moment that environmental and zoning laws suddenly make sense. Before you know it, the Green Acres I Civic Association is clamoring before the town board, complaining of overcrowding, traffic, the loss of farmland, the destruction of nature, and all the other things that have changed since they moved in. A no-growth ordinance and two-acre lots are the only solution. Those smelly old farms — now sanitized by new ordinances — are ripe for “agricultural preservation zones.”
This racket has no downside. Suburban towns have found they can zone out everything but two-acre lots with no penalty. As “estate homes” are built and the community becomes an enclave, the value of old homes goes up as well. The only problem is property taxes. Without apartments or industry, such communities have a tough time supporting their schools. That’s why you’ll usually find such enclaves arguing that property taxes are unfair and that schools should be funded on a statewide level.
Rent control is the same old game of Oldies vs. Newbies. Oh, I know, rent control is supposed to protect the poor but nobody who has lived in New York for more than a few years believes that. The driving force behind rent control is that it protects old-time residents at the expense of newcomers. Anyone with a rent-stabilized apartment in New York City, for example, has probably had it for at least a decade or inherited it from some friend or relative. If you’re a New Yorker with a genuine rent-controlled apartment, based on the original 1947 ordinance, you’ve had your place since at least 1972. That’s why rent-controlled tenants tend to be old. This creates the mistaken impression that rent regulations were designed to protect the elderly. Actually they protect the elderly and any of their descendants who manage to inherit a rent-controlled lease.
The people at the wrong end of the stick, once again, are Newbies — anyone just arriving in New York City or (god forbid!) trying to move from one apartment to another. Newcomers are shown $2000 studio apartments and get the impression that “housing costs are in New York are astronomical.” Actually, the city’s median monthly rent is $740, close to the national average. What Newbies don’t see is the old-timer next door paying $700 for a better apartment. (“In our building, the general rule is the bigger apartment the smaller the rent,” one tenant told New York a few years ago.)
So all those dewy-eyed graduates of Vassar and Wisconsin end up paying $800 to sleep on someone’s couch. After a few years, however, their luck will change. They’ll eventually inherit a lease or find a stabilized apartment near market value. Then the system will work in their favor, with their rent gradually fall out of date. By the time they’re 35, they’ll have their own “great deal” while someone next door is paying triple their rent for an identical apartment.
Oldies-versus-Newbies works in almost every circumstance. Cities and towns have long played the same game with property tax assessments. Residential properties are taxed by to their assessed value, which is supposed to reflect the market value. In a mildly inflationary economy, however, assessments are always falling out of date. Assessors can’t be everywhere at once, so they simplify the job by updating assessments only when the property changes hands.
Once again, Oldies trump Newbies. When a newcomer buys a house, the assessment goes directly to market value and property taxes are high. Meanwhile, Old-Timers who have been in their homes for two decades are paying taxes twenty years out of date. “Welcome Stranger!” is the ironic title given to this system. Only after a decade or so do Newbies catch on, at which point they are becoming Oldies themselves. And so the system continues.
Computerized assessments have made it difficult to maintain this fiction, but municipalities have found other ways to revive it. California solved the problem once and for all in 1979 with Proposition 13. While most people remember Prop 13 as a revolt against property taxes, the most significant outcome turned out to be a sub-clause which said that homes could be re-assessed only when the owner moved. This was “Welcome Stranger” institutionalized. Warren Buffett raised a huge ruckus last August when he advised Arnold Schwarzenegger that Golden State property taxes have become wildly inequitable and that everybody ought to pay at the same rate. Buffett may understand retained earnings and convertible debentures but he sure doesn’t know anything about Oldies vs. Newbies. He was practically run out of the state.
There are dozens of other examples — tariffs, USDA crop allocations, taxi medallions — but you get the idea. Economists have invented terms to describe it — “rent seeking” and “distributional coalitions” — but none really captures the visceral passions of the enterprise.
Come to think of it, we do have a word for it. It’s called “politics.”
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