The Risks of “Affordability”

Fareed Zakaria’s latest Washington Post column makes a good companion piece to my recent posts on government services. The column is, in essence, a lament about the fiscal behavior of New York City’s new mayor. Here’s a snippet:

Zohran Mamdani ran on a promise to make New York City affordable. This week, he unveiled a budget that is, in a word, unaffordable.

New York has been fiscally profligate for so long that the headline number — $127 billion — produces little shock. But for perspective, these are similar to the annual expenditures of a midsize nation (with all the expenses a country requires) — like Greece or Thailand — devoted to governing one city.

New York City’s budget has ballooned in recent years. Mike Bloomberg’s last budget, adopted for fiscal 2014, totaled about $70 billion. In little more than a decade, the budget has nearly doubled, growing faster than inflation and faster than the city’s economic growth.

He’s taking note of a serious reality: no matter how fast inflation or economic growth rise, human wants and needs can rise faster. He continues by taking note of New York’s spending per capita (30% higher than Los Angeles; double Houston’s) and how little benefit New Yorkers actually derive from all of the spending. Here’s the bottom line:

New Yorkers pay tax rates comparable to those in European countries that provide, in return, universal health care, free college education and amazing infrastructure.

Mr. Zakaria’s column highlights a risk for Democrats. By concentrating on “affordability” and defining it as “free stuff” Democrats risk digging a hole from which it will be difficult or impossible to emerge. My preference would be to run on “affordability” and define it as “more primary and secondary production”—more housing supply, more energy production, fewer regulatory choke points. The underlying question is can a low-trust, highly fragmented polity run high-spending universal systems without massive leakage, fraud, and administrative friction?

Mr. Zakaria’s insights might benefit from considering how much of New York’s budget is structural (pensions, healthcare, etc.), how much is discretionary, how much is waste, fraud, and abuse, and how much is the marginal benefit per dollar spent.

We are in a new world, considerably different from the one of just a few years ago. High progressivity makes revenue highly elastic. If 5% of the tax base relocates, revenue might drop 15–20%. That’s destabilizing in a way broad-based taxation isn’t. In modern cities, the question is not whether voters will approve high spending. The question is whether the people funding it will remain and with today’s highly mobile 1% that is a serious risk.