Deregulation, Voodoo, and Krugman
By Bryan Caplan
Many of my friends wistfully contrast the great neoliberal Krugman of the 90s with the leftist ideologue Krugman of today. But both Krugmans are alive and well in 2016. A stark case:
In “Notes on Brexit” (June 12, 2016), Krugman scoffs at the pro-growth power of deregulation:
Pay no attention to claims that Britain, freed from EU rules, could achieve spectacular growth via deregulation. You say to-mah-to, I say voodoo, and it’s no better than the US version.
In “Cities for Everyone” (April 4, 2016) however, Krugman sings an utterly different tune:
Our big cities, even New York, could comfortably hold quite a few more families than they do. The reason they don’t is that rules and regulations block construction. Limits on building height, in particular, prevent us from making more use of the most efficient public transit system yet invented – the elevator.
Now, I’m not calling for an end to urban zoning…
But building policies in our major cities, especially on the coasts, are almost surely too restrictive. And that restrictiveness brings major economic costs. At a national level, workers are on average moving, not to regions that offer higher wages, but to low-wage areas that also have cheap housing. That makes America as a whole poorer than it would be if workers moved freely to their most productive locations, with some estimates of the lost income running as high as 10 percent.
I expect that Paul will protest, “Leaving the EU won’t deregulate British housing.” That’s probably right. But then Paul shouldn’t dismiss deregulation in general as “voodoo.” Instead, he should declare, “Some deregulation has enormous growth potential, but Britain can pursue this deregulation just as well within the EU as without.”
So why not say that, Paul? You could even blame the Republicans while you do it: “Republicans are great fans of deregulation as a slogan, but when specific deregulation promises enormous economic gains – especially for the poor – Republicans lack the attention span and follow-through to make deregulation a reality. Even when they’re right, they’re wrong.”