Sumner’s Second Law

In his most recent Substack post economist Scott Sumner affirms a point I’ve been making here:

Put simply, societies become progressively richer by producing lots of stuff that rich people like—things that are “unaffordable” to average people. Places that understand this (Switzerland, Singapore, UAE, etc.), do much better than places that obsess with producing lots of stuff for poor people. If you don’t want to gentrify slums, then you’ll end up with lots of slums.

and especially:

America has roughly 8 times as many jobs as Canada because we have roughly 8 times as many people. And that’s true even if 5% of our workforce is unemployed. Bring in 10 million more workers from overseas, and we’ll end up with roughly 10 million more jobs and still have 5% unemployment. Similarly, even if 10% of homes are empty or owned by foreign investors, if you build another 10 million homes, you’ll have roughly 10 million more homes occupied by American residents. Gimmicks like rent control and 50-year mortgages don’t solve the problem, you need more housing output.

Many cities require developers to set aside a certain percentage of new housing units for “low income” buyers or renters. These regulations are effectively a tax on new construction and reduce the output of new homes. Because output equals abundance equals affordability, housing affordability mandates effectively make housing less affordable.

The “law” forms the title of his post: “Output is abundance is affordability”. “Output” means more stuff. More houses. More cars. Not charging more for the same number of houses, cars, etc. That latter is the weakness of trying to transition to a service economy. You don’t become richer as a society that way but you do end up with shortages of stuff like houses that can’t be imported, particularly if regulations limit the pace at which the stuff, e.g. houses, can be produced.

Shorter: we need more output.