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Lecture

2019 James Q. Wilson Lecture: The Entrenched vs. The Newcomers

Edward L. Glaeser Harvard University
Wed, Sep 4, 2019 New York, N.Y.

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2019 James Q. Wilson Lecture: The Entrenched vs. The Newcomers

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Lecture

2019 James Q. Wilson Lecture: The Entrenched vs. The Newcomers

Edward L. Glaeser Harvard University New York, N.Y. 06:00pm—07:30pm
Wednesday September 4
Wednesday September 4 2019
PAST EVENT Wednesday September 4 2019

Americans love to think of their cities as incubators of opportunity. While this has often been true, there are increasing signs that successful city-dwellers are making it harder for newcomers to follow their example. In housing and labor markets, insiders appear to be winning in terms of wealth accumulation, advancement, and political advantage. Flawed land-use regulations discourage new construction and inflate costs, while minimum-wage laws insulate existing workforces from competition and hamper the economic and geographic mobility of newcomers, particularly young adults and migrants.

The proliferation of unfair laws and regulations is walling off opportunity in America’s greatest cities. In this year’s James Q. Wilson Lecture, MI Senior Fellow Edward Glaeser will address the conflict between entrenched interests and newcomers in its economic, political, geographic, and generational dimensions. The question for policymakers is whether they enhance the gains that flourish from the proximity and openness that cities offer, or double-down on the advantages secured by exclusion and anti-competitive behavior.

Edward Glaeser is the Fred and Eleanor Glimp Professor of Economics at Harvard University, where he has taught since 1992, a senior fellow at the Manhattan Institute, and a contributing editor of City Journal. He has also served as director of the Taubman Center for State and Local Government and as director of the Rappaport Institute for Greater Boston. His work has focused on the determinants of urban growth and on the role of cities as centers of idea transmission. He holds a B.A. from Princeton University and a Ph.D. from the University of Chicago.

Sponsored, with admiration, by a former student of James Q. Wilson.

Event Transcript

Reihan Salam: Good evening, and welcome to the 2019 James Q. Wilson Lecture. Every year for 15 years, James Q. Wilson delivered an enormously influential lecture for the Manhattan Institute. He was a public intellectual without peer. And today, who better to honor his legacy than Edward Glaeser? Ed is the godfather of urban economics. He has transformed the study of the market dynamics of the world's great cities from an intellectual backwater to one of the most vibrant fields in the social sciences. All the while inspiring a growing number of proteges and practitioners around the country and the world. Everything you see around you today in the glittering, towering, often maddening cities we call home, has at some point or another been quantified and chronicled across this more than 600 written articles, and nearly 100,000 citations.

Ed has been a friend of the Manhattan Institute and mine for many years now. He serves at Harvard as their Fred and Eleanor Glimp Professor of Economics, and here at the Manhattan Institute as our senior fellow. His work is both stimulating and brilliantly clarifying. Look no further than our recent panel with Ed at South by Southwest showing how artificial intelligence and computer vision can turn Google Street Views' roving eyes into a real time picture of urban change. But we're here with Ed tonight because, at the very moment of triumph for cities, something is amiss in housing, jobs and entrepreneurship.

Insiders appear to be favored at the expense of outsiders. And who are these outsiders and newcomers? The young, the immigrant, the new business and the new hire. The future of our cities and indeed our country, depends on how we open up these places of opportunity for all people and not preserve our cities in regulatory amber. As president of the Manhattan Institute, this is what I and our MI team think about every day, and we will do just that tonight with Ed. And so, without further ado, Ed Glaeser.

Edward Glaeser: I can't tell you how much I look forward to this lecture every year. This for me is coming home and I view MI as my policy-related home, and I'm really delighted to have a chance to talk to you. I wish everything that I was going to say was just more upbeat than it currently is, but as always, I think there's always hope in a city. I think that for thousands of years, cities have been working miracles as they enabled people to learn from one another, to start new businesses, to create new policies, to create new art forms, and the age of miracles is not gone. It just needs better public policies. And it needs the type of policies and the type of leadership that MI can give it. So let me start... well, let me start just to try and prove the timeliness.

These were three headlines from today or yesterday that Reihan sent me. So this just reminds us of this demon that we thought we had killed off in the '70s or '80s outside of New York. Like the evil of rent control, which is hard to think of a policy that's more shutting your door against newcomers who would come in. And yet are there California is proving their complete indifference to good policy making yet again, signing on a statewide deal on rent control. I cannot think of anything that makes the point that we are at a moment in which we have created an ongoing set of rules that make it impossible for newcomers to come in and to find space.

And just to make it sort of... make this thing even larger when we look forward. When you think about policies like universal basic income where many of the policies that are being pushed forward by democratic candidates for the presidency, what they are offering the young is like a little soup soft cash. A little amount of money that says, "We know that you're never going to have a proper seat at the table. We know you're never going to be part of creating something when they come in, so we're just going to give you a check and let you not worry about it at." That is just a terrible vision for that generation. And that's a terrible vision for the future of America.

So, let me start where I was last year, and we have a series of highly disturbing polling data from younger Americans, from millennials. So 49.6% of younger Americans would prefer living in a socialist country. They're not necessarily clear what they mean by a socialist country here, but nonetheless, it's hard to view that as being positive. Same Harris Poll in 2019 finds that 73.2% want universal healthcare, 76.1% favor tuition free colleges, 50% of 18 to 29 year olds favor larger government as opposed to 42% who disagree. And yet, despite all of this seeming love for expanding the power of the state, only 34% say they trust their elected officials. You think they might actually have some recognition that these larger states actually have to be run by elected officials, but that doesn't seem to have worked.
So only 34% say that they trust business leaders, and that's actually where the largest generational gap is between the young and the old. Now, when you face these numbers, is the right view that the young actually have a well articulated, well thought out demand for a socialist system, or is it that they just want something different? They just sense that something is wrong and they want some reshuffle on the deck. And I think there is at least some fraction of this 73% or that 49.6%, who just think the system seems stacked against them and want something different. And I think the key point that we need to make is that what they need is a system that is more free, not less free.We want a system that empowers them, that doesn't pay them off with a check and tells them to go away.

So the argument of this lecture is that America is getting old as a country. It's been a couple centuries now, and as a country ages, it acquires powerful interests that privilege their members relative to outsiders. This process favors the old or the young, but also longer term residents over new migrants. People have rent controlled apartments now rather than people who would like to rent an apartment sometime in the future, establish companies over entrepreneur's, existing workers over new hires. The young understood that they're being sold out, shut out, and they want to reshuffle the deck.

So socialism is just not a new shuffle to them and just not a well articulated plan, and we need to offer a better reshuffle. And that's I think what we have to grow for and move towards a world, and I think MI could not be better positioned to take the intellectual lead on this.

We need to move towards a world in which it is understood that the right, that the friends of freedom, are the ones who have new ideas that will actually benefit the young. Okay. So I'm taking as the spiritual guide on this actually Mancur Olson, whose work I read in graduate school, and I think I underappreciated at the time. And in fact this argument about how societies create special interests, create regulations, is his argument. And it was the argument that he put in grand form about understanding the decline of nations as coming there. Over time they develop these rules, which is diving the entrepreneurship, the new innovation that actually makes them great to begin with.

So that's Mancur, and I'm just going to read you a couple of lines from his classic book on this. Stable societies with unchanged boundaries tend to accumulate more collusions and organizations for collective action over time. On balance, special interest organizations inclusions reduce efficiency and aggregate income in the societies in which they operate and make political life more divisive. Distributional coalition slow down a society's capacity to adopt new technologies and to reallocate resources and respond to changing conditions and thereby reduce the rate of economic growth. Does this perhaps sound like any teachers unions to you? I don't know. That's it what I was reading.

The accumulation of distributional coalitions. Again, if you want to put in some form of union or whatever group you want for that cumbersome phrase of Mancur's, increases the complexity of regulation, the role of government and the complexity of understandings and changes the direction of social evolution. Simply, this view is that a stable society sows the seeds of its own demise. And without some form of radical change to break open the barriers that make it increasingly difficult to move to start a new business, that we will look forward to a society that will constantly be looking over our shoulder and thinking that it's best days are behind it.

Okay. So Olsen's example. So his first example was post-war Britain. Remember he's writing in the early '80s before the revolutionary changes that Thatcher made, became obvious. So Great Britain, the major nation with the longest immunity from dictatorship invasion, revolution has had this century a lower rate of growth and other large developed democracies. Britain has precisely the powerful network of special interest organizations. By what she mean, both labor unions and aristocratic bastions of privilege. Professional organizations. The term ungovernability was used when the Heath government fell as it attempted to assert the authority of the government at the time of the miners' strike.

So Britain in the '70s, remember the winter of discontent, which it's as an image of, seemed like it was a country that despite being the most dynamic place on the planet in the late 18th century, was a place in which its age was long gone. Now, what he didn't understand is the nature of the English unwritten constitution, is that Margaret Thatcher was unchecked in her ability in a different way than a US president would be, to actually create radical change, and so they did manage the changes. Awesome. Second example was Tokugawa, Japan, which remember for centuries was isolated from the world under the control of the Shogun. Before Admiral Perry's gunboats appeared in 1854, the Japanese were virtually closed off from the international market, protected markets enjoying a period of stability become cartelized.
The were any number of powerful za, guilds and the shogunate or the daimyo often strengthen them by selling them monopoly rights. Japanese guilds fixed prices are like rent control for you, restricted production and control entry in essentially the same cartelistic organization elsewhere. Now, this is not his example, but it's mine. So I let us book on this. I think 1970s New York feels an awful lot like this as well. America's oldest, great city, it creates an enormous amount of entrenched groups. Both groups that are protecting tenants from possible rent increases, but also protecting public sector unions. Just remember how Mike Quill just toasted John Lindsay when he actually wanted to do something tough in the 1960s, and he feels a lot like he facing off against the British labor unions, increasing web of civic organizations which block-change. Not all of that change was good, but in fact these local organizations were increasingly making it difficult to change.

And of course, in this case, New York changes around, but the change starts when in fact the local autonomy is taken away. It starts... the Municipal Assistance Corporation starts when in fact local elected officials lose their ability to run the city. Further examples from Olson and elsewhere, like the collapse of the Roman Republic is preceded by hardening class divisions, think about the Gracchi, expansion of the grain dole, amassing military and political power for alliances like the triumvirate. Again, this organization's going on too long and it's quite too many of these coalitions, they're making it very difficult to innovate.

Ancien regime France is covered with rules and privileges that empower the aristocracy of both the robe and the sword. And of course, there's an amazing fact that no matter what change happens in France, the notaries always become more powerful. And I don't know why that is, why that's a rule of French history, but it is. Military change, political change, and even technological change such as the rise of Silicon Valley can disrupt the collusions. And Olson claims that the healthy growth of Japan, Germany, and Korea post-war are due to the destruction of the preexisting interest groups that have made it difficult to develop.

Okay. Now my one communication with Mancur was in 1992. I wrote a paper showing across America's metropolitan areas that places with lots of little businesses, places with lots of startups, grew much more than places with a few large companies. And this is a modern version of that fact. You can see employment growth 1977 to 2010 on average establishment size across metropolitan area. And what you can see here is that places with lots of little firms grow much more quickly than places that are dominated by a few large employers. So Mancur saw this paper when it came out and wrote us a letter saying how great he thought it was and how it proved all this theories to be right, which was lovely to hear.

Now when I read this, I said to myself, "All right, that's an interesting hypothesis. Maybe it's relevant for England, but we're Americans." We are always have a new frontier, there's always something we can do new in the Sunbelt, we can have new new places where we aren't suffering from all these rules, we have checks and balances that make it possible to innovate, and yet over the past 30 years, this country seems to have followed exactly the roadmap that Olson's predicted. It feels over and over again and place after place. They're making it difficult to build in Texas for goodness sakes. I never thought that would come back.

So examples of this are anti-development coalitions to protect homeowners, which means that the young look around themselves and they see, "I can't ever hope to afford to buy my parent's neighborhood. This housing market is completely stacked against me." And if you're lucky to get an apartment, maybe they're okay, but they look and they see that there's no apartments to rent either because rent control has made it unwise to build new rental housing. Occupational licensing and business regulations stymie start-ups and mobility across space. Together these help explain a country that is becoming increasingly sclerotic across geographies.
Job regulations, minimum wages, protect insiders, often unionized, while outsiders either don't work or become contractors. One not implausible view of our federal government is we have an old age pension system that is armed. That's at least one view of what our national government is. And I think the young look around them and they see a system that is rigged against them in a thousand little ways. So let me give you some sort of examples about this. So this is the long history of the associations that block building. We have the safe Penn Station crowd in New York in the 1960s, which leads into this large scale historic preservation building.

And just to give my usual caveat on that, I'm the son of an architectural historian. I do in fact believe that many of New York's architectural treasures are worth saving. I just don't think that every glaze brick building on the upper East side is a historical treasure. Okay. And these associations would use the language of preservation essentially just shut down building and to freeze their neighborhood as they were. Meaning of course that Greenwich Village, which was affordable when Jane Jacobs lived in it in the 1950s, now becomes a place where townhouses start at $7 million and you have to be a hedge fund manager or an NYU professor to live there. The California equivalent. This is Clark Kerr's wife and this is the save the bay foundation. So in fact, the irony here is that from a carbon emissions point of view, by far the lowest carbon emissions place in the world to build... place in the US to build, is coastal California.

And in fact, the climate alone makes it incredibly positive to build if you wanted to lower carbon emissions. And yet California environmentalist have done an enormous amount to make it impossible to build there. And of course when you don't build there, it's not, at least in the old days, it's not as if the building goes away, it just goes somewhere else. It goes in Oklahoma, it goes in Nevada, it goes in Texas. So oddly the environmental consequences of California environmentalist is at least arguably deeply negative. But one of these organizations have come out to essentially freeze their community, to give themselves the experience of living in what California felt like in 1965, 30 years later.
But the difference, the impact of that, of course, is that Berkeley isn't a place where you can come and buy a house anymore if you're a starting... someone who's starting their life. This has only become more variant. This is the anger at Airbnb, this is the anger at Uber. These are massive startups. These are startups which... Uber is the one startup I know that Silicon Valley has produced that employs less skilled Americans, that actually deals with America's joblessness problem. Probably most people in this room have used Uber at some point in time. It may deserve to go under because it can't compete, but it certainly deserves a shot to compete and so does Airbnb, and yet the community rises up and tries to block it because it's not exactly what they want, because they feel empowered to say no to any form of change.

This is the world that we come to. And of course, the tragedy is that regulations accrete and are very rarely sunsetted. So what you're looking at here is just a fraction of communities with wetlands, septic, subdivision or cluster provisions in Massachusetts from 1975 onward. And the striking thing is that all of these numbers only go up. You never have communities rolling things back. The regulations get on the book and they stick there forever saying no to a developer who wants to build in a certain way. This is the nature of these rules and they just make it harder and harder to force change. This is of course a... this is a figure that shows the relationship between building between 2000 and 2013, and affordability.

So affordability is measured as the gap between housing price and the marginal physical cost of construction. I should say that I started doing work of this nature at Manhattan Institute 15 years ago. And what this shows you is the places that build aren't expensive, and the places that are expensive are places that don't build. There is no repealing the laws of supply and demand. And yet we have made it more difficult to build over and over again. And I really thought 10 years ago, that there would never come a world in which I would actually have to worry about land use restrictions in Texas or land use restrictions in Atlanta. And yet, last year I was in Atlanta, this year I was in Texas, these things are on the agenda, Austin is regulating and it's a genuine fear.

We're losing those safety valves where people could go and actually be free of this web of regulations. And of course the young have have paid the price. So what's you're looking at here is the net worth and housing in 1983 and 2013 by age. And I want to maybe focus on let's say the 70th percentile of 35 to 44 year olds. And this is in modern dollars. So the 75th percentile, meaning that 25% have more housing wealth, 75% have less housing wealth. In 1983, that person had in modern dollars $120,000 of housing wealth put away. Today, that person has $58,000. So housing wealth for the young has gone radically down while housing wealth for the old has gone up.

There's been an intergenerational transfer by shutting down new construction. That means if you had a home, you bought a home before the wave of building disappeared, then you did well. But for the young, they're sitting there picking up the crumbs, trying to get at the edges. But the right answer for this is not universal basic income. The right answer for this is freedom. The right answer for this is to allow people to use their property in the way that they want to use it. The groups that limit new building, the organization of neighborhoods organizations, the organization of civic agencies that are skilled primarily at saying no, also gives us an $18 billion big dig. The big dig is the trial of making it impossible to disturb anyone.

And when Fred Salvucci took on during the Dukaki's administration business of sinking the central artery and building a new connection to the airport, he was convinced that he had to do it in a way that didn't move, didn't dislocate a single person because he was upset that his mother, I think had to move for a previous project. Now, it's not as if that goal isn't in some level laudable, but it's an awfully high price to pay for that goal. And if the world is one in which we have to spend $18 billion to do anything good for American infrastructure, that's a world in which we're not going to build a whole lot of infrastructure. It's a world in which America is going to be a static place instead of a dynamic place.
The rise of occupational licensing. So this comes from the work of Kleiner and it's updated by the National Center for State and Local Governments, and it's shows the percentage of the workforce that had an occupational license in the 1950s was 4%. For much of the last 10 years it's been over 20%. So America has gone from a place in which basically anyone can take on most jobs, to a world in which vast numbers of occupations require a license, and that license is typically state specific. So you can't just show up in a particular state and think you want to engage in being an optician. So optician is a... in this equation, not the guy who actually checks your eyes, he's the guy who tells you whether or not those frames work well for you. And may I say they do in fact look quite quite well on you.

But that that skill is not one in which we actually think that we have a compelling public interest to actually protect people from people who are bad at telling you which shape of eye glasses you need, and yet a large number of states in the country now in fact do require opticians to have state specific licenses. I found this striking. So this comes from the World Bank's Doing Business report. And we do all right. This is a country on how easy it is to do business is of course a massive international data set, which attempts to measure how easy it is to do business in the US and elsewhere.
And some things we're really great at. We're third in the country on getting credit. In fact, if you remember the great recession and all those macros, it's maybe were a little too easy to get credit in, but we're number three in resolving insolvency. So that's a related scale. We do reasonably well enforcing contracts. We're 16th in the world, 26th in the world of dealing with construction permits. I'm not sure how we managed to do that well on that one, but where are we globally on starting a new business? We're 53rd. We're way lower than other things that our system would make do, and that's showing you how America has moved from a place in which anyone could lay out a shingle and start a business, to a world in which we make it increasingly difficult to build.

Now obviously that's spatially dependent. New York is particularly terrible at this, but all throughout America and increasing number of places, is not an easy thing to be an entrepreneur. And that is at least one possible explanation of why this has happened. So this shows the number of jobs which have been created by establishments less than one year old, starting from 1994 to 2015. And this is an astonishing decrease. In the 1990s, there were between four and 5 million jobs created every year by new establishments. Over the last 10 years, it's never gotten above 3 million. So we've lost a massive amount of employment growth due to American new establishment creation. And that's something that we should all be worried about. The decline of American dynamism, a decline of entrepreneurial innovation is something that should be absolutely terrifying to us.

And I think it's something that the young see. They don't feel like they're in a place in which there's constantly new hope of a new employer is going to provide them with an exciting new job and in a field they think to themselves. Instead, they are looking at a world in which they... the best they can hope for is universal basic income. I think these increasing regulatory barriers and of course the limitations on housing, help to explain this phenomenon. So for 40 years prior to 1992, American inter-county migration never dropped below 6% a year. Which means that 6% of American households moved across county lines every year. That number has not been above 4% for any number of the past 12 years. So we've had essentially a one-third decrease in the amount of migration on the US over the past 15 years.
A huge change between a country which was always on the move, to a country that's fixed. At least for me, when I think about America's history, I think about a world in which we've always had different opportunities. But when farmers wanted to leave New England to go to the richer soil of the Ohio River Valley, there was no one who said they couldn't put up their balloon frame house there. Or when they wanted to move to tenements in 1890 in Manhattan, there was no one who said you couldn't build the tenement. Or if you wanted to move from Oklahoma to California during the new deal, there was no one saying no to living in almost group quarters in California. But now, the new gold rush is in Silicon Valley. And good luck building an affordable home in Silicon Valley, good luck moving there.

This helps explain a series of other facts. So, no longer migrants, no longer move to high-wage areas, particularly unskilled migrants. So throughout most of American history, you move from places that had low wages to places that have high wages. That's stopped. And that's due to the work of Denny Show, again, Peter Gunong. The change in the growth and the share of college degrees is positively correlated with the initial skills. So places that start with a skill advantage only become more skilled. And income convergence across space. So the phenomenon which poor places in America have gotten richer, that is either stalled or vanished entirely. So I'll just show you two facts with this.

So this is median income in 1980 and subsequent median income. This is essentially flat. Whereas the fact that my colleague established was for 140 years during this... of American history, incomes converged sharply. Poor places grew more quickly than rich places in terms of income. The flip of this is that there is a just a complete fixed nature of what parts of America are jobless. So here I'm looking at the share of prime age men who are not working in 1980 and relating this to the share of prime age men who are not working in 2010 across what I call public use micro sample areas in the US. This relationship is extraordinarily tight. For those of you who are statistical on this, the R squared is over 80%, and the coefficient is more than one meaning it's like an explosive process.

So every bit you went up, you had more of an increase. Associated with this, I think there's also the fact that we have this rise of living wage laws throughout the US. So we haven't yet seen fully a massive increase in the minimum wage everywhere, but city after city, is putting these fairly draconian laws on how low the wages can be. If you're not going to get a job because it's impossible to pay a wage below the living wage in an area, why would you move there? And that's yet another potential barrier to mobility. And just in case, I've given you this before, but just in case you forget, minimum wages really do matter. They really do shut the young out of jobs.

And this is Jeff Clemens work, so he's looking specifically at younger workers and what the fraction is employed, and these are states that were previously below the federal minimum wage, these are the states that were not below the minimum wage, and you can see previously the employment rate was higher in the states that had a lower minimum wage and that disappears once those gaps are closed by the increase in the federal minimum wage. Of course we don't just have rules on employment that mandate wages, we also have a web of rules about benefit. And those things, we can see there the share of benefits that are... the share of wages that are paid in the forms of benefits, those are sort of an unseen form of regulation that makes it more difficult to hire people as well.

And instead of celebrating every entrepreneur who hires a younger, less skilled American, we're saying you have to do more. We're saying you actually have to increase the cost of employment, and this is one of the ways we do it. And this is one of the reasons because part time workers often are freed from these regulations that we've seen a move to a part time employment economy. And that's what you're seeing here is the rise of the amount of employment that's in part time workers supposedly for economic reasons. So, instead of having a longer term relationship with the employer that would require you to pay benefits, you're actually seeing people move in. And when young people see that they're only going to get a part time job, it again is part of the sense that the system is stacked against them.This shows you across

cohorts, the joblessness rate for men. So this is people born 1940, '50, '60, '70 and born in 1980. This is the share that we're not working. For most of their adult lives, almost one in five of the cohort born in 1980 have been jobless. That is the impact of rules that make it difficult to hire them. Is that in fact, they don't see a world in which 95% of them are actually going to be employed. They see a world in which 80% of them are going to be employed and many of them who are employed are going to be in and not working, not so great job. They see a world in which... one of the largest lobbying organization in the US is the ARP. 38 million members and a lockbox that guarantees that the money is not going to them, the money is going to somewhere else.And they feel that when they pay in for social security, they don't

believe that they're going to get any part of that back. They yet again believe that the system is stacked against them. Medicaid of course is a huge part of the federal budget, the third largest mandatory spending program. And again, that's part of the sense that the federal government doesn't exist for them, it exists to take care of older people. It exists to take care of of insider's, it exists to take care care of anyone else other than them. This is from the work of Josh Rauh, this shows the relationship between state pension liabilities and own revenues. So, in the bottom of this, Wyoming only has pension revenues. There are pension liabilities that are three times their annual revenues. Alaska, which is the top is close to 30. In the middle you have Illinois and Ohio. Their pension liabilities are six times their annual revenue. So this is just what they owe to their older workers. This is an astonishing example, in which the state has directed its funds to its older entrenched workers, not to new people starting out. And I think every teacher who works in Illinois has got to realize that they're being paid a pittance where's the retirees are facing very different experience. I think many of them also believe this is the sort of thing that goes around. This is about dream hoarding, something that I've been accused of myself.

So formal legal favoritism towards insiders, companies informal ways in which insiders work the system. And the young complain about this as well. I think it's something that we should take much less seriously, but when you think about the things that bother them, it's a sense in which the insiders have figured out how to work the system. Not all of this is bad. Much of what they call dream hoarding, I call taking care of my children or investing in education and I think most of us as parents actually should do more of that, not less of that. So, just to be clear where I stand on this, but I think we do need to worry that our private institutions are also, particularly they're receiving federal grants for various things, they're actually doing a good job of taking care of the needs of the young as well.

So, I was intrigued by Austin when I first read him in the 1980s. I think this mass of rules and housing and employment in the movement towards taking care of pension retirees rather than new workers, it just makes it feel more relevant than ever. His basic model, the interest group growth, leads to regulation which leads to limited opportunity, seems more relevant than ever and it can become a self-reinforcing downward spiral if young people see this and they respond not by saying what we want is the opportunity to be great, but what we want is a handout. That response is one that actually makes the system worse, makes the system less productive.

And as we look at it at a current political view where we have a battle between which feels like late 19th century Germany redox between a bellicose nationalism and a nascent socialism, this looks bad for the friends of freedom too, but I think the goal here is to make sure that we have a robust new freedom agenda that offers young people a sense in which America continues to be a place of opportunity and cities continue to be places where miracles happen. I think we actually need three movements, not one. And I believe this quite strongly. We need a political movement that is actually about winning elections. And that political movement has to take place in the current political environment, and as such much of it may not do fantastically well with people who are 22. It may be too far away from their art, but we still need to win elections and we still need to have better policies today.

We also need an intellectual movement. And of course, I've chosen Milton Friedman as my body of that. We need to have a case that is freed from the need to win elections, but that makes the case to the young that in fact freedom is the best ticket for them. The big government is not the answer, but rather an empowering environment is. And third, I think we also need a moral move of various kinds. It is important that young people learn that sense of satisfaction comes from doing not from having, and that in fact, one of the things that's wrong with socialism is not just that it's bad economics, but it's bad for the soul as well. And the problem is that people with PhDs in economics are not actually the right leaders of moral crusades. So, I'm going to skip on from that, but let me say that I believe that it is least as important as everything else that goes on.

The intellectual case I think is straight forward. Overmighty states are engines for empowering insiders. Markets are not. Markets are about making things open for any entrepreneur. The Soviet Union's Nomeklatura was extreme example of insiders being taken care of by a large social state, but this is what socialist states do. To talk Phil's description of America in the 19th century shows when an open world occurs when you actually don't have regulations that stop new people from coming in. In some sense the political agenda and the ideological agenda come together in the case for less regulation. I'm going to skip over those since I'm out of time. But I want to make five concrete points that are more policy points and then I'm going to end with this.

So first of all, I have been on one level, so I've been talking about housing restrictions for about 18 years. One of the early events was actually held in this room. On one level, it's disturbing the fact that the wave of housing regulations have just gone up, on the other level, there isn't movement. There's an EMV turn movement, which is an amazing thing. It's like, when you see a dog playing chess, you don't ask how it can do against Bobby Fischer. You have a young movement of people who are actually fighting for yes in my backyard, fighting against regulations, and that is fantastic. That is just an absolutely fantastic thing, and my policy proposal to support them is, much of these battles are happening in state legislatures.

So I think anything that we can give the state activist to make their arguments stronger, and one of them is to actually tie federal highway funding to an environment that actually makes it possible to build. There's actually a logic to this. Why would you spend money on infrastructure in a place that's static, in a place that's fixed? I actually don't even think it makes sense to necessarily do this, but I want the people to be scared in the legislature. I want someone to be able to stand up in the California State legislature and say, "Oh boy, if we don't allow more permitting, they're going to cut our highway funds." That's the... it's the same strategy I take with scaring my kids. You raise threats that don't actually happen.

Idea number two. Any new regulation has to be exposed to cost benefit analysis. We don't cost benefit analysis, any rules that we put on local government and yet we've got tools and that's the guy with the green lampshade over there, and also why not have sunset clauses on most regulations? Why not actually require a positive need to repass the rule rather than it just persists forever? If it persists forever, we know it's going to create, but if it ends after five years or 10 years, we know that at least it's going to be thought of again and maybe we can require cost benefit analysis then.

Idea number three. I understand the anger over educational debt. I fully understand many... Look, trust me, I understand as much as anyone in this room the failures of American higher education. I've lived it more than most of you have for the last 30 years of my life. But the right answer is not to write off every student loan, the right answer is not to work to a world in which it's tuition free, but it is right given how involved the government is with education to push towards more marketable skills. It is right to in fact require education or institutions that get federal support to do a little bit of focus on whether or not people are actually going to be able to pay back the loans that they've been given.

Idea number four. This is my map of the geography of joblessness in the US. This is the Eastern Heartland of the US where joblessness is most extreme. So raise the retirement age for receiving social security. This is just about federal policy. And then one of the ways to encourage employment of the young is to reduce the payroll tax for the young. This was actually a fairly... this was the one of the parts of the Obama response to the recession that I actually really liked was to make it easier for employers to actually hire people who were young, people who were lower wage and to give them more encouragement for it. We want something that actually encourages people, particularly in Eastern Heartland, to come up with new forms of employment for less skilled Americans. And when you think about what automation is going to do, I am confident that in New York city there will be entrepreneurs who will figure out how to find service sector jobs for anyone who is creative and wants to work in as reasonably good at smiling with other people.

I am not at all sure what happens in West Virginia. And I can think of nothing else other than encouraging employers to find their own entrepreneurial solutions for this. And reducing the payroll taxes is just a really natural way to do that. And finally, fighting against, in union contracts, particularly for public sector unions, fighting against the public sector rules that privilege the old over the young, and like my students Bolotnyy and Emanuel have shown, privilege men over women. When you have pension rules that say that whoever can work the most overtime in the last three years of jobs goes home with Bonanza, that's going to privilege men who can basically, and I'm speaking personally on this, who can basically ignore other family obligations to just rack up their hours, whereas women who are in their 50s often have real family obligations and aren't able to do this.

So these are rules, these are contracts that are not just ages to meaning discriminating against the young but also sexist as well, at least in effect if not in intent. So, these are just a set of ideas. But the larger point is that the future comes from people who at one point in time are outsiders. The future comes from young people who didn't start with a job, it comes from new businesses that don't exist now. We have to recognize that this country and the city needs to be a place where outsiders can come and make it greater. And we need to understand that the forces that protect insiders have grown stronger over time and that the young are watching and know it. And that if we don't provide a solution that's actually good, others will provide a solution that isn't. Okay. Thank you very much.

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Urban PolicyHousingRegulation
EconomicsEmploymentRegulations
A manhattan institute series

Wilson Lectures

For 15 years, James Q. Wilson, who passed away in March 2012, delivered an enormously popular annual lecture for the Manhattan Institute. The impressive variety of his topics—the criminal-justice system, the roots of terrorism, the role of the media in shaping public opinion, and the nature of democracy, to name just a few—reflected his wide-ranging intellect, and the size of the audiences that attended testified to a long and admiring relationship between Professor Wilson and the Manhattan Institute.

Wilson, a former professor at Harvard University and UCLA, wrote many books, among them The Moral Sense and The Marriage Problem. His public service included the chairmanship of the White House Task Force on Crime in 1966 and the National Advisory Commission on Drug Abuse Prevention from 1972 to 1973. A member of the American Academy of Arts and Sciences, Wilson received the nation's highest civilian award, the Presidential Medal of Freedom, in July 2003.

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