The Warmth of Collectivism

Speaker 1

Welcome back to Happy Hour Econ. Where a comedian and an economist walk into a bar. I'm Lou Perez, the comedian. Phil. I want to wish all of you a Happy New Year and I want to wish you, a Happy New Year. When do we stop wishing each other a Happy New Year? Is there a day on the calendar where it's like, okay, we're not doing this anymore? the economy.

Speaker 2

Well, happy new year as well.

Speaker 2

Yeah, I'm hoping it's by the end of January, although it might technically just reset again in 2027 and 2028. Keeps going. I hope you had a nice start to the new year. I had a really nice start. have two kids, five year old and a four year old, and it's been really cold where I live. We've hit 20 degrees some nights with the wind chill. You you just don't want to be outside. And the other night, my wife and I are in our bed and in crawl these two little, these two little guys and we all cuddle under the blankets. And, you know, for the first time, I really just started to understand and appreciate the warmth. of collectivism. For those of you who have no idea what I'm talking about, in New York City, Mayor Zoran Mondani gave a speech. We will replace the frigidity of rugged individualism with the warmth of collectivism. Apparently a lot of people were upset with that. Phil, why would they be upset with that? You know, it sounds so great. There

Speaker 2

What you think of the track record of collectivism, I mean, the gulags of the Soviet Union were not exactly a warm place. These are work camps in Siberia. I think another thing that came out after that speech was made, that line where he's talking about, yeah, replace rugged individualism with the warmth of collectivism. I several memes going around. They're pictures of North and South Korea from the satellite. And South Korea, of course, is vibrant, has electricity, lights everywhere. North Korea. This perfectly collective estate has like one light over Pyongyang, which is like Kim Jong-un's palace, and the whole rest of the country is plunged into darkness. Not exactly a warm place. that there's something about even the words that are used, the frigidity of rugged individualism. I'm not a speechwriter, but you know, obviously there was a lot of thought that went into this, you know, this, this frigidity, this, this coldness, you know, as opposed to, you know, the warmth of collectivism. And it seems like a lot of the language around collectivism, least now, it seems like people are kind of wanting to be children, you know, or want to be treated like not adults. And this really comes to the core of Marxist ideology. know, Karl Marx himself rejects individualism throughout his writings and really offers a vision of a collective society where a person's interests are defined by their membership in a group or a class. Classical Marxism is class theory. And the notion here is that we can use the supposed scientific study of class interest to discern the will and the purposes of that particular class. The proletariats are defined by their membership in that class, not by their individual interests. And this translates over into supposedly democratic theory, although I'd argue that this is an abuse of language because there's nothing democratic about it the way they apply it. The notion when you hear a Marxist or a socialist talking about working on behalf of democracy, what they're really saying is we

Speaker 2

the socialist elites have divined the interest of you, member of a class, collectively, and we're going to be acting on behalf of that class and doing things to coddle it and supposedly take care of it, but it's really just an exercise in power. It's not you individually voting on what you want society to look like. It's us purporting to act on behalf of your class interests. And I can't help but notice that all the people who are pushing for collectivism are people I don't want to have anything to do with. Well, they're usually people that, don't really have much in the way of accomplishment in their own life. know, people that spent careers as college students, then graduate students, and then some went on to become like poetry professors, things like that, but never really did anything in the private sector. They're professional activists. And again, this is something that has been the case since Karl Marx himself. The guy was like the classical couch surfer from history. Never really held the job, but had a lot of opinion. about how other people should live their lives, and he viewed himself as the supposed intellectual superior that was going to tell us all how we were going to live our lives.

Speaker 1

And it seems like something that's so anti New York, New York City. mean, there's the idea, you know, New York, if you can make it here, you can make it anywhere. Yeah. Where people come from all over the place. You know, it's the most diverse place on the planet. I'm from Queens, New York originally, which literally has, I mean, everybody from every single walk of life. And you have all these people coming with this idea of the American dream where you get to be an individual. the financial capital of the world.

Speaker 1

You get to pursue your dreams. You get to work towards your own goals. So it just seems so alien to even be having this conversation or to hear, you know, the mayor of my former city, you know, talking like this. Yeah, yeah, it's a strange turn in American politics because the socialist tradition has never really been rooted here in the United States. We've always seen this as something kind of foreign. It was Moscow as the Soviet Union. And America had always been historically associated with capitalism as the free market, the free enterprise system. So when you look at the demands of collectivists, it seems like they want every single thing to be provided for them, whether it's housing, transport, basic income. I the only thing that seems to be missing is the blankie. Yeah. Or maybe that's on the next docket. Well, know, the old Marxist line is, to each according to his needs, from each according to his ability. Effectively, in the Marxist society, the government becomes something like a paternalistic entity, but it's also a really bad parent, it's an abusive parent that beats its children. It purports to provide all the necessities of life, but, you know, if you try challenging it or you disagree with something that it's trying to do, it's off to the gulag. Or you are suddenly a target of a roving band of Marxist goons as we're seeing in Venezuela right now. This is just the history of this type of thinking. It's deeply rooted in an iron fist of violence backing up what presents itself as like this paternalistic, caretaking society.

Speaker 1

I do find it weird that a lot of the supporters of collectivism always kind of preaching against this idea of assimilation or assimilation into American culture. But it's like, but wait a minute, if you want to collectivize, then obviously there has to be some assimilation into that, whatever the hell you think that is. Well, they detest aspects of American culture because they see it as irreparably bourgeois. They see it as exploitative. It's out of the classical liberal individualist tradition that was deeply intertwined with the American founding, but also intertwined with the American economy. And they see this as like ill-gotten wealth, and they're there to collectively fix it. But again, it's this whole mindset, the notion that the collective exists, but the individual members of it don't really understand or know their place in the collective. They need the Marxist intellectual to tell them that. In fact, you know, they go deep into some of these theories. They assert that Americans that are just perfectly happy with their lives living under a free and prosperous capitalist society have been lured into a false consciousness. by abundance and material wealth, and therefore they don't really know their own interests. They don't know their place in the class-based society, and therefore you need Marxists to come along and tell them that, and maybe even impose it at gunpoint. One of the speakers was famed politician Bernie Sanders who was talking about city sponsored grocery stores. Good nutrition keeps us healthy, helps prevent chronic illnesses. In the long run, city sponsored grocery stores will save society money. What does that say to other business owners out there if you are then going to have to compete?

Speaker 1

with a state-owned business. It's a way to drive people out of the market. There's this weird obsession in the socialist world with grocery stores. And you think about it, when they take visitors to Kim Jong-un's North Korea, what does he always do? He parades them through this manufactured grocery store that's supposed to show the abundance of North Korean society. And meanwhile, a block over, people are starving in the streets and eating sawdust and stuff. But this is, it played out in the Soviet Union as well. The propaganda agents of the Moscow government in the 50s that always parade Western visitors in front of the one grocery store that seemed to be functional. But what's really going on behind the scenes is just a proliferation of scarcity because the government mismanages these things. It obviates the price signal that's necessary to tell people what consumers actually want, to tell producers what to actually bring to their store shelves to make a functional transaction. And the reality that took place in the Soviet era and in the Eastern Bloc was not a state of abundance where there's these perfectly operating government grocery stores coming in and fulfilling people's needs. It was actually rationing by bread lines, rationing by standing there waiting and hoping that your butcher shop got it shipment of whatever it was offering that week, probably stale old rotten meat. And, you know, if you got your ration, you We're supposedly set to make do with it, but that was it. You take the price mechanism.

Speaker 2

out of groceries and something else still has to ration the scarce resources and it becomes standing in line or it becomes you have a crony relationship with the bureaucrat that's in charge of the government-run store and he's like handing you things out the back door before the customers are allowed in. But it's really not a good functional way to offer goods and products to society. So it's like a manufactured problem, this notion that there are no grocery stores in parts of New York. I still want to see that part of New York that doesn't have grocery stores. It seems like there's a bodega on every single street corner if you're walking around in the city. And yet, there seems to be this strange fixation on them as if they're going to come in and socialist planning is going to organize a basic functional need of society that no one's really asking for. Yeah, and I might be one of the few people out there who actually thinks that running a successful business, especially running a successful supermarket or grocery store is actually really hard. It's actually really tough. mean, you know, just walk into a supermarket and you look at the thousands upon thousands of product that you have there. Some of it can sit on the the shelves for a little while. most of it, the stuff that you probably want to be eating, the produce, you got to get that out of there or it's going to go bad. How do you know what to carry, how much to carry? And then when it comes to pricing, it's like, how would a city sponsored grocery store determine how much they're going to charge for the same products, right? I would guess it'd be the same products that they're carrying in all the other supermarkets. they're responding to signals sent by what consumers want. You place your order as a manager of a grocery store for this next delivery of fruits and vegetables, of produce, based on what you've been selling over the previous week and the previous month. Those signals from your customers are telling you what they want, what they desire to eat, and what they desire to purchase. And you have to actually make an educated guess based on that past track record that the patterns are going to continue.

Speaker 2

future week and you have to do it with a great deal of precision often on very, very slim margins. And to think that this can be handled by a government bureaucrat, it's like taking the store manager out of the equation and replacing him with the person at the DMV. It just isn't a practical solution to that type of a problem to hand this over to a government bureaucracy. You're just making a recipe for a dysfunctional store that doesn't really meet the needs of consumers. And I also wonder, you know, sort of how it changes the behavior of shoppers. You know, for example, if I have like, you know, a city run, you know, government store on the corner and I'm like, man, they sell their raspberries for a lot cheaper. Can I go and buy all the raspberries? And then kind of like, I don't know, what's the street value of these raspberries going to be, you know? If you're lucky enough to arrive in line when the raspberry shipment has gotten there, then you can get all the raspberries at the cheaper price, but what does that mean for the next person in line after you? There's no more raspberries left. And this is the basic lesson we've always seen in history when there's socialization of grocery stores. The price mechanism breaks down. as a means to ration the goods that are on the shelves, what takes its place is standing in line, being the first person there when you know the shipment's going to arrive, or maybe the backdoor payment to the director of the grocery store, the bureaucrat that's running the place. Because scarce goods are still scarce, and if they are intentionally suppressed at their price by some government edict, they're still going to be rationed in some sort of mechanism other than price.

Speaker 2

And usually that's waiting in line. And in recent years, something that has basically become what otherwise would have been a crime is basically being kind of like a slap on the wrist or I don't know, maybe it's not even a slap on the wrist, you get a little rub on the wrist and that's shoplifting. So I do wonder in a city that's kind of like turned a blind eye to a lot of shoplifting, like how do you handle someone who's shoplifting at the government store? It's just creating a whole host of problems that are not anticipated by the socialist worldview. This idea that we can easily centrally plan everything without foreseeing common everyday problems that emerge that the private sector has already taken care of. know, if you're a private grocery store, you hire a security guard. You take measures to control shoplifting on your shelf. Most private firms internalize that cost. You make it a government grocery store. Well, you created a policing problem. And that policing problem is either you have to station an officer at each of these new venues that you're operating internally. And that increases costs. Or you let the crime slide in its like this devolution into some of the problems we've seen in major cities over the last few years when they've essentially legalized shoplifting and stopped prosecuting petty crime. Shoplifting suddenly spikes through the roof. and you have, you start having to put the basic products on the shelf behind security screens and cages. You everyone's walked into a Walgreens or a CVS to get shaving cream or a laundry detergent or just basic goods that used to be out there on the main aisle in a major city. And now you have to push a button and wait for an attendant to come along and unlock the screen in order to get that good because it's a shoplifting problem.

Speaker 2

the way that the government has mismanaged it. Yeah, and don't think enough people talk about just the psychological impact stuff like that has. When you walk into a store and I see so much stuff behind Lock and Key, I really don't want to be in that store. What means I'm going to go home and I'm going to click a couple buttons on a computer and then Amazon will deliver it instead. And then the store loses its customer base and leaves the system. I've seen quite a few people say like somehow it's greed or know Malfeasance or malice or or something on the part of the corporation that they're doing this How Dear Walgreens try to preserve its product from theft. It's just a bizarre mentality. And what's being missed there, economists will call this a transaction cost. It's a transaction cost that has been imposed on the consumer, the regular shopper that walks into Walgreens or CBS or any of these chains. Now you have to push a button to wait for the one store attendant to come around who's trying to serve 12 different customers by locking and unlocking these

Speaker 2

pages just to get to the product. Because shoplifting has been legalized in a lot of these major cities, it means that the consumers themselves are bearing the cost in their time and their inconvenience and the trouble they have to go through just to get a basic item that, you know, five or ten years ago you could have walked in, gotten off the shelf and taken to the cash room. One of the items on the new mayor's list involves rent control. Phil, can you define it for us? Yeah, so rent control is, again, it's another economic concept. It's effectively a price ceiling. What it says is that the government is going to come in and mandate and fix a maximum amount of rent that can be charged each month on your apartment or your condo or your dwelling space. And as a result, the market mechanism for rationing dwelling spaces is now capped by that In New York City, know examples of people who are paying like 80 bucks a month, $80 a month to live in New York City. They locked in their rates in 1978 and that's what they're paying still. So it's a classic example of a bureaucratically managed price control. You've imposed the ceiling on...

Speaker 2

dwelling spaces, but at the same time, these dwelling spaces are all owned by somebody else. And that's where it really creates kind of the problem because the landlord, the owner of the building, is now stuck with a large set of his or her inventory that can no longer function in a marketplace because it's subject to these bureaucratic rules that have been locked in, including people that have gamed the system, taking advantage of that $80 rent they paid in 1978 that's still in place. Or today, they actually have no new mechanism or incentive to improve upon the building because the city's going to come in and say, know, any new apartments you put into circulation, we're going to rent control them as well. You know, what do you do as a landlord? You back away from that. the gaming of the system is such a great way to put it because you have the gaming being done by individuals. And when it comes in New York City, you have rent control and rent stabilized, right? So rent control, if you get one of those apartments, your ghost will not go to heaven because you have a rent control department. So your spirit is gonna stay in that house and you are going to haunt that house forever. I there have been so many instances, especially in New York City of celebrities. movie stars having rent controlled apartments. You people who are able to afford mansions, the elite who themselves are kind of taking advantage of the system. It's one of the effects of rent control is it takes viable property out of circulation, out of the marketplace for real estate, out of the marketplace for options to lease from. So essentially you put this cap in on maximum rent prices, well that has two effects on it. You still have to ration the number of apartments that are available through some mechanism and if it's not the price, something else is going to step in and ration it for you. Well, you've artificially put

Speaker 2

the monthly rental price of an apartment below its market clearing rate, well, there's going to be an overabundance of people seeking those apartments and not enough apartments that are offered at that artificially suppressed rate. So suddenly you have a housing shortage effectively. Because of rent controlled apartments, you have a housing shortage. And the other effect is if you're not allowing the housing supply to increase because you aren't allowing building, there's NIMBYism, there's all sorts of regulatory codes that inhibit new construction. And then on top of that, if anyone that gets into the new construction building knows that there's this threat that they're going to be put under a rent control regime in the future, what's their incentive to enter into that market? So it's a self-perpetuating, exacerbating problem. The fact that you have this price control in place, it actually means that no one wants to enter into the market to supply more apartments, and there are too many people seeking apartments because the price is held the art of And I've been seeing inside these apartments rent control the rent stabilized apartments where flooring is chipped and tiles are all out of whack and you know there are know holes in the ceiling and stuff Well, think about it. If I'm a landlord and I am trying to attract a customer base in an open market, there are multiple margins I can compete on. One is offering the best price, try to entice people in there by good rental rates and discounts. But another thing is to upgrade the facilities, make sure it has nice amenities in the building, maybe has a fitness center or a swimming pool, or it's been recently renovated, has new paint on the wall, new carpet, new flooring, new tiles.

Speaker 2

the building in a nice condition because I'm competing with other landlords to try to draw people to my facility. But if I can no longer operate on the price mechanism margin, that also means it changes the different margins that I can compete on. And one of the things that a rent-controlled apartment landlord may do is start to defer basic maintenance if they know they cannot make money on that building. They know that they have tenants that are forever locked in at the 1978 rate of $80 a month, why would you go in there and repaint the apartment or fix the tiles or change out the light fixtures? Because clearly, you're always going have someone wanting to rent at $80 a month because it's been so vastly and artificially suppressed. There's really no mechanism there to entice the landlords to try to upkeep and improve their building because they're going to get customers no matter what. There's such a shortage. There is something to like past few years, especially since the, we allowed to say the word C-O-V-I-D? I don't want us to get dinged for it. But since those years, since the bad years, since 2020, we had all of these rent freezes. And what I always find interesting is that when people are calling for rent freezes, they're never calling for freezes on say property taxes or insurance. Right, right. So you're going to freeze the rent at these levels. So there's only so much that the landlord can take in. But yet all of these other charges are going to be going

Speaker 2

The burdens are still there. Yeah, yeah, the landlord has to pay a full tax bill. The landlord has to meet code specifications for upkeeping their building, has to face the full burdens of ownership, but isn't able to do anything on the customer side because they're locked in at the ceiling. And Milton Friedman used to point this out. He always made the analogy. You could take pictures and put them side by side of a rent-controlled city, apartment buildings, side by side with apartment buildings in a war zone, in a city that had been bombed out after World War II or in conflict areas today. And sometimes they're actually kind of indistinguishable because what the rent control process eventually does is it just causes the landlords to pull out of the city. They'll abandon the buildings entirely. If they're no longer able to meet basic maintenance needs because their income is capped by the ceiling, well, it's no longer economical to even offer buildings up for rent. So what do you do? You abandon it. You leave the city. You sell the property at a loss. And next thing you have is it's like burnt out apartment blocks in Detroit, which could also be burnt out, bombed out apartment blocks in a war zone. that was, Friedman was always saying, put them side by side. You can no longer tell the difference. The quickest way to ruin a city, to subject it to blight, is to put in rent control and drive out economic productivity from the sector that is providing health.

Speaker 1

I've seen quite a few critics say landlords, knew what they were getting into. They were taking a risk and it's like, well, let's talk about risk. Okay. There are risks that you take into account like, if I happen to have a tenant who refuses to pay rent for such a whatever period of time, here are my recourses that I have. I could do evictions, et cetera. Most people who get into real estate don't think like, yeah, just one day the mayor or the government is going to say, no collecting rent. Yeah, evictions are no longer allowed. That's exactly it. It's now like an honor system or something that your rent has to be paid and you have no recourse if someone violates their contract. that's what makes things so scary and kind of up in the air is that you would think that what would generally be like the norms of doing business are kind of being thrown out the window, it seems like. There's the warmth of collectivism for you. We're going to collectively tell businesses that they can no longer operate as businesses and they essentially have to follow the rules dictated to them by City Hall.

Speaker 1

New York City has a new tenant director and she has quite a history of tweets that have all been smartly erased, or at least she deleted her account, but people have the screenshots. And there was one tweet that I came across that I was really just kind of amazed by just how honest she was being. And it has to do with rent control, in which she said, quote, pass really strong rent control is a more effective way to shrink the value of real estate. than reducing rezoning applications, which have a mixed result vis-a-vis property values. And I was like, wow, back in December of 2021, this person who is now in the government is really saying what so many people have been saying, like, yeah, rent control hurts the value of your property. Yeah, it's intentional destruction. And here's one of the things, it's like a rare moment of honesty from the Marxist contingent. They're so fundamentally anti-capitalist, they're actually about degrowth and destroying wealth. And that includes sticking it to the landlords just because they're landlords, they're part of the bourgeois, they're part of the bad guys that need to be driven out. And it's not like recognizing that, housing is a need and landlords are actually providing a service to society. It's asserting that we just want to destroy wealth for the sake of destroying wealth. And there was a word that you brought up the word blight B-L-I-G-H-T. I don't know why I had to spell that out.

Speaker 2

It's kind of dreary dismal term but yes it's urban blight. has you know often been used in cases of eminent domain in cases where the government has said we're going to step in because this is a blighted community this is a blighted building or whatever and we're going to take it over and what we have here now seems like you know I'm almost I'm like am I becoming a conspiracy theorist where it's like these new changes to you know rent control etc are going to lead to blight you know and they're going to then, you know, kind of offer up the opportunity for the state to come in and say, okay, we're going to take that now. This is the maddening thing of it all is because we've seen this happen to other cities before. We've seen elements of it in New York City before in the 1970s and 1980s. It's a repeat of the errors of the past under the guise of just flowery, fluffy language from people that really don't seem to know what they're talking about other than that they distrust and hate capitalism. They want to tear it down. I guess in a weird way, it kind of brings us to the end. You know, one of the lessons that I've seen this whole rent control push with this the warmth of collectivism and the frigidity of rugged individualism It's given us proof that Ayn Rand villains are real

Speaker 2

And they're actually running some of our cities. What we thought of as like these bad caricatures of evil government actors that are just bent on destruction of prosperity. We're actually seeing people espouse that. So in some ways the clowns are in control, unfortunately, and this is a pattern that's happened in other cities before. It never ends well. And the question is, you know, just when do we recognize that this error of destructiveness of government involvement economy is just a spiral downward toward urban light. Yeah, and think there's something to be said too about, you know, if you're an adult who basically wants all of your needs taken care of, you're effectively want to be treated like a baby. Well, babies sleep in cribs and cribs themselves are kind of, they're kind of cages. You're effectively saying like, this is how I want to be, to be treated. Look at the prisons, little prisons for babies.

Speaker 2

You're stuck forever in your rent-controlled apartment at $80 a month, but the heating doesn't work The tiles are falling apart and the paint's peeling warmth of collectivism. Thank you guys so much for joining us this week on Happy Hour Econ for your weekly shots of reality with your chaser of sad.