Wednesday, June 3, 2020

Anti-Poverty Is The State Not Intentionally Placing Road Blocks To Upward Mobility

No one that is psychologically and physically fit should be bereft of an income and a home unless the State has placed roadblocks to earning an income and finding a roof over one's head. Road blocks take various guises: (1) minimum wage laws that adversely affect the least skilled; (2) zoning laws that discriminate against the low income earner by preventing property owners from building rental units the low income earner can afford; and (3) central bank low interest rates policies that (a) sabotage large capital outlays because the price of such capital is below the capital outlay's cost, which in today's environment the price is ludicrously lower than the capital outlay's cost; and (b) wipes out CD earning due to the near non-existent rate of interest being offered.

In a free market employers and renters seek out the greatest profit they can obtain, and by virtue of this primal condition will, respectively, (1) clear the market of excess labor; and (2) clear the market that has an under supply of rental units.

In the case of renters and under supply, renters will discriminate against higher income renters in favor of lower income renters by subdividing rental units, thereby clearing the rental shortage market. The landlord wins by earning more money because there are more units available for rent, while the low income tenant wins because he/she can afford a place to live where he/she chooses, even if the location is the upper income area of a city.

In the 1890s Harlem was a White middle/upper middle class location, until Black migration came to New York City, and because a free market for rental units existed, Blacks outbid those upper middle class Whites, because Blacks were willing to reside in smaller units than prevailing at the time; the landlords made more money per unit, even though Black tenants payed much less for their smaller unit than the previous White occupants. The rest is the rich and vibrant history of Black Harlem, and a powerful testament to the color blindness of the free market.

The national patch quilt of zoning laws, (1) causes people to go homeless because they can't afford the artificially high rents; and (2) prevents the poor from outbidding those with higher incomes.

Zoning restrictions enshrine the 'education segregation' of poor children from obtaining the same excellent quality education received by middle/upper middle class children, due to, "wealthy neighborhoods around the US ban[ning] rentals, multifamily housing, and smaller homes through regulations like zoning. This excludes lower-income families by outlawing housing they could afford."

The Profit Motive In-Action

Let’s say under existing zoning laws the average rental price for an apartment in a low middle class area is $1,500. At $1,500 per month, the low-income Smith and Jones families are unable to afford the rent, but could afford to pay $1000 a month. With the repeal of discriminatory zoning laws, the landlord decides she wants to increase her profits by renting to the Smith and Jones families. She subdivides all her apartments by half, and charges $1000 per month for each smaller unit. Now the Smith and Jones families are able to afford homes in the affluent neighborhood, with excellent schools for their children to attend, while the landlord makes $250 profit per new subdivided unit. Profit spreads for landlords will be even higher for single, or double occupancy, low income tenants because units can be further subdivided by three or four, depending on the occupancy number.

Let’s take the case of a single occupancy. The landlord subdivides the $1,500 unit by four at $750 per unit, giving the landlord a profit of $375 per new subdivided unit. In the case of a double occupancy, the landlord subdivides the $1,500 unit by three at $800 per unit, giving the landlord a profit of $300 per new subdivided unit.

The Function of Profits; Profits for People

The critical function of profits is to inform the economy where precisely to direct the scarce factors of production of labor, capital and resources, those three categories having literally trillions of permutations. The purpose for profit is to ensure that the factors of production are not only correctly matched, but ensures that only the most productive avenues for the factors of production are realized, the greater the profit, the more urgently needed, therefore productive, is the resulting consumption good or service.

We live in a world of scarcity, where millions of economic projects could be mounted, but which of those economic projects is the most productive, the most urgently needed? There's no way to tell without profit, profit being the economy's watchdog for the correct allocation of labor, capital and resources. Without profit entrepreneurs would be blind, deploying labor, capital and resources towards myriad wasteful business endeavors.