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Source link: http://archive.mises.org/13069/pittsburgh-laughs-last/

Pittsburgh Laughs Last

June 24, 2010 by

Forbes has listed Pittsburgh, Pennsylvania, at the top of its list of affordable cities in which to buy a home. And the publication notes in passing that the city “never experienced the dramatic run-up in prices that characterized the national housing bubble — so it was spared the subsequent bust.”

True, and there is a dramatic story here that reveals how impossible it is for legislation to ever win out over the price system. Politicians, regulators, bankers, unions, and the press can scream and yell, punch and kick, and sign all the laws they can print, but the market presses on to achieve its own results.

In this case, Pittsburgh is the winner. There is really no sign of recession in Pittsburgh. It is a beautiful, bustling city with surprisingly clean air, low unemployment, and happy people everywhere. There are construction projects on every corner, students pouring in and out of universities, technology companies starting and building, and new people moving in just to enjoy the amenities. Its low prices are not a bane but a key attraction.

There is no sign of the misery that was the same city starting from 1980s when the steel industry in the U.S. was in inexorable decline. The city was built by steel in both a physical and economic sense. Garet Garrett’s book The Cinder Buggy tells the story of how steel transformed the iron city and how, before that, this city had been the beneficiary of the 19th-century boom in commerce owing to its famed three rivers.

The source of Pittsburgh’s suffering in the last twenty-five years of the 20th century was not the macroeconomic business cycle but rather a dramatic shift in the global division of labor that had a profound local impact. It turned out that America, broadly speaking, was not a very viable competitor in the production and distribution of steel. Other nations, others firms located in other places, could do it more efficiently and effectively.

All these years later, this might seem like a forgone conclusion. Pittsburgh moved on and transformed itself. But at the time, it was not obvious at all. People said that without steel, there could be no Pittsburgh and without Pittsburgh there could be no vibrant economy in the United States. Pundits screamed and cried about the gutting of America’s industrial strength, and thousands of televisions special appeared about the plight of the workers in the industry.

The city itself went through a long period of wrenching transition in which housing prices and real-estate prices fell through the floor. Businesses shut down. Tax revenue plummeted. Its residents were scattered to the winds. Even the symbol of its skyline, which once seemed glorious, now looked like the very image of the last days. Not even the vaunted steel union could do anything about it.

It all seems like ancient history today. Steel is gone. The evidence its its past is everywhere — and indelible mark on the physical surroundings and the culture of the city — but there is no living reality. But what has taken its place has made up the difference. So while the rest of the country went through a real-estate boom and bust, Pittsburgh stayed on its long course forward to recovery, having been spared the ups and downs. The curse was a blessing after all.

The lesson here is that it is pointless to stand against the mighty winds of market change and scream stop. All the efforts to save the steel industry were useless and wasteful. The tariffs, the antidumping rules, and the subsidies failed to stop the inexorable trend.

But it was not the end of the world after all. The move of steel from home to abroad freed up the city’s magnificent resources for other uses, and recovery came in time, generated by the market.

It will be the same with real estate around the country. Prices will not be stopped. But then markets will adjust. The dawn will come.

{ 11 comments }

Nick Bradley June 24, 2010 at 9:30 am

It is not insignificant that Pittsburgh employs a land value tax — not as pure as it used to be — but real estate taxes on land are higher than on improvements. It used to be 6x higher, but its a bit lower now.

LVTs discourage real estate speculation, encourage efficient land use, and tie public services to property values.

Michael A. Clem June 24, 2010 at 10:49 am

LVTs discourage real estate speculation, encourage efficient land use, and tie public services to property values
An unimpeded market does all that. Zoning, taxes, etc, including an LVT are simply interference in the natural market process.

Nick Bradley June 24, 2010 at 11:10 am

Of course. But if you’re going to raise taxes, an LVT is the least market-distorting way of doing so. It sets up a feedback loop between land prices and public services as well:

Good Schools + Low Crime + Good Roads = increasing land values
Bad Schools + high Crime + Bad Roads = decreasing land values

newson June 24, 2010 at 11:51 pm
Nick Bradley June 25, 2010 at 8:30 am

As I said, of course there’s no such thing as a completely neutral tax, but some taxes are more neutral than others.

A uniform land value tax is the closest thing imaginable to a neutral tax.

Craig June 24, 2010 at 6:19 pm

On the other hand, Pittsburgh continues to hemorrhage population and the economy is a wealth consumer rather than a generator. It is a beautiful city, I’ll grant you that, but hardly an economic role model.

Bruce Koerber June 24, 2010 at 9:08 pm

The population does not appear to be very well educated about classical liberalism and so unless that changes the Pittsburgh area will see the same decline as other Statist places.

Salamanca34 June 24, 2010 at 9:18 pm

As a native Pittsburgher who left for another state I have to agree with Craig. I would add:

1) The population is older than anything in Florida. There are subsidized old folks homes everywhere, literally.
2) The government footprint is huge, at every level, city, county, and state. It grows and grows, and most people see no problem with it.
3) The city is about to go bust with its pension liabilities, which are in excess of a billion USD.
4) Local politicians are not quite Chicago-like, but they aspire to be. Pittsburgh’s perceived progress has occurred IN SPITE of every effort to cap it by the pols. There are impediments everywhere to commerce that can trace its roots to the meddling local government. They operate in a one party system (Dems only in Pittsburgh). The accidental boy mayor is unpopular, but overwhelmingly re-elected only because he is a Democrat. Good candidates have no chance, and last year’s mayoral election was a prime example of that.
5) The union power is extensive. Not only did this power help chase away all of the industry that was in Pittsburgh, it has kept a host of potential new manufacturers out of the city and the the suburbs.
6) The infrastructure is one of the most decrepit in all of the US. You can’t drive ten feet without hitting a pothole, and most of the bridges (more than any other city in the world except Venice, Italy) are unsound. The number that failed the testing after the Minneapolis incident was scary!
7) There is a tax for just about everything you can think of in Pittsburgh. Income ta, wage tax, beer tax, and my favorite, the “business privilege” tax. In other words, if you are privileged enough to own a business, you owe more. All of the new stadiums were built with taxpayer dollars. Taxes and rates go up every time a government run operation fails to generate revenue (mass transit, etc.).
8) The largest landowner after the government is the corporation, University of Pittsburgh Medical Center. They have acquired land on a metastatic scale, and do not pay taxes. The more land they have acquired, the more everyone elses taxes have gone up.
9) To emphasize Craig’s point: There is way too much consumption and destruction of wealth, and very little creation.

I could go on and on, but I will stop here. I love Pittsburgh with all my heart, but it is not exactly the ideal economic paradigm. It is the anti-libertarian city in so many ways.

Runyan June 26, 2010 at 1:34 am

http://edsmedspittsburgh.org/
http://www.edsmedspittsburgh.org/video/
The success of the Pittsburgh region’s economy, even in the face of the worldwide downturn, has largely and correctly been attributed to the strength of Pittsburgh’s powerful education and medical sector.

The “eds and meds” factor accounts for more than $11 billion in local salaries—22 percent of the total salaries in the region.

:X

Picturing Pittsburgh Real Estate July 28, 2010 at 12:33 pm

Sure Pittsburgh has its flaws, but I think Forbes nailed it. We are an eminently livable city. And there is no better time to invest in Pittsburgh than now. If people choose to invest in Pittsburgh real estate that will help both the city and those individuals.
Interest rates are the lowest they’ve been in 70 years. For those looking to buy homes in Pittsburgh, there are well priced options in homes for sale. This is a particularly great time in real estate for those looking to upgrade. In many Pittsburgh neighborhoods now, we are in a buyer’s market for higher end properties and a seller’s market for lower priced homes. Despite what you hear on the national news, in Pittsburgh, at least with Howard Hanna, there is ample mortgage money available even to those who don’t have 20% to put down, as well as special programs for physicians.

joe at home in Seattle October 13, 2010 at 4:56 pm

OK the “eds and meds” term is fantastic. I am looking forward to all of this turning around as soon as possible and agree that people actually taking advantage of the great loan rates will speed the process along.

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