Tomorrow, the Senate’s Judiciary Committee’s Subcommittee on The Constitution will hold a hearing on Google’s alleged anti-conservative bias and “censorship.” In a video released last month, James O’Keefe, a conservative activist, interviews an unnamed Google insider. The film, which has been widely shared by conservative outlets and cited by Sen. Ted Cruz (R‑TX) and President Donald Trump, stitches a narrative of Orwellian, politically-motivated algorithmic bias out of contextless hidden camera footage, anodyne efforts to improve search results, and presumed links between unrelated products. Although the film’s claims are misleading and its findings unconvincing, they are taken seriously by lawmakers who risk using such claims to justify needless legislation and regulation. As such, they are worth engaging (the time stamps throughout this post refer to the Project Veritas video that can be viewed here).

Search algorithms use predefined processes to sift through the universe of available data to locate specific pieces of information. Simply put, they sort information in response to queries, surfacing whatever seems most relevant according to their preset rules. Algorithms that make use of artificial intelligence and machine learning draw upon past inputs to increase the accuracy of their results over time. These technologies have been adopted to improve the efficacy of search, particularly in relation to the gulf between how users are expected to input search queries, and the language they actually use to do so. They are only likely to be adopted to the extent that they improve the user’s search experience. When someone searches for something on Google, it is in the interest of both Google and the user for Google to return the most pertinent and useful results.

Board game enthusiasts, economics students, and those taking part in furious public policy debates over dinner all may have reasons to search for “Monopoly.” A company that makes it the easiest for such a diverse group of people to find what they’re looking for will enjoy increased traffic and profit than competitors. Search histories, location, trends, and additional search terns (e.g. “board game,” “antitrust”) help yield more tailored, helpful results.

Project Veritas’ film is intended to give credence to the conservative concern that culturally liberal tech firms develop their products to exclude and suppress the political right. While largely anecdotal, this concern has spurred hearings and regulatory proposals. Sen. Josh Hawley (R‑MO) recently introduced legislation that would require social media companies to prove their political neutrality in order to receive immunity from liability for their users speech. Last week, President Trump hosted a social media summit featuring prominent conservative activists and conspiracy theorists who claim to have run afoul of politically biased platform rules.

The film begins by focusing on Google’s efforts to promote fairer algorithms, which are treated as attempts to introduce political bias into search results. The insider claims that while working at Google, he found “a machine learning algorithm called ML fairness, ML standing for machine learning, and fairness meaning whatever they want to define as fair.” (6:34) The implication being that Google employees actively take steps to ensure that Google search results yield anti-conservative content rather than what a neutral search algorithm would. Unfortunately, what a “neutral” algorithm would look like is not discussed.

Although we’re living in the midst of a new tech-panic, we should remember that questions about bias in machine learning and attempts to answer them are not new, nor are they merely a concern of the right. Rep. Alexandria Ocasio-Cortez (D‑NY) and the International Committee of the Fourth International have expressed concerns about algorithmic bias. Adequate or correct representation is subjective, and increasingly a political subject. In 2017, the World Socialist Web Site sent a letter to Google, bemoaning the tech giant’s “anti-left bias” and claiming that “Google is “’disappearing’ the WSWS from the results of search requests.”

However, despite the breathlessness with which O’Keefe “exposes” Google’s efforts to reduce bias in its algorithms, he doesn’t bring us much new information. The documents he presents alongside contextless hidden camera clips of Google employees fail to paint a picture of fairness in machine learning run amok.

One of the key problems with O’Keefe’s video is that he creates a false dichotomy between pure, user created signals and machine learning inputs that have been curated to eliminate eventual output bias. The unnamed insider claims that attempts to rectify algorithmic bias are equivalent to vandalism: “because that source of truth (organic user input) has been vandalized, the output of the algorithm is also reflecting that vandalism” (8:14).

But there is little reason to presumptively expect organic data to generate more “truthful” or “correct” outputs than training data that has been curated in some fashion. Algorithms sort and classify data, rendering raw input useful. Part of tuning any given machine learning algorithm is providing it with training data, looking at its output, and then comparing that output to what we already know to be true.

Take a recent example from Wimbledon. IBM uses machine learning to select highlight clips, their algorithm’s inputs include player movements and crowd reactions. While crowd reactions can provide valuable signals, they can also be misleading. “An American playing on an outside court on 4 July may get a disproportionate amount of support, throwing the highlight picking algorithm out of sync.” While we expect the crowd’s cheers to be driven by their appreciation of a player’s skill, they may also cheer to celebrate the appearance of an American on Independence Day. If IBM wants to identify moments of skillful play rather than the mere appearance of Americans on the court, they must reduce the relative importance of audience applause in their algorithm, debiasing it. 

Despite the insider’s claim that “they would never admit this publicly,” (9:45) Google is quite open about its efforts to prevent algorithmic bias. The firm maintains a list of machine learning fairness resources, including an extensive glossary of terms describing different sorts of bias, and sample code demonstrating how to train classifiers while avoiding bias. These public resources are, frankly, far more extensive, and reveal more about Google’s efforts to prevent machine learning bias, than anything in the latest Veritas video.

The fact that Google News is not an organic, unfiltered search product (11:30) is not news either. Google’s news content policies are open to the public, and Google gives further public guidance to publishers as to what their algorithms prioritize in news pages.

The “demonstration” of Google search bias that follows, relying on autocomplete suggestions rather than actual search results, are far from “undeniable.” O’Keefe first types “Hillary Clinton’s emails are” into Google’s search bar and notes that Google does not continue to autofill the search. Without actually conducting a search, they conclude that “Google is suggesting that people do not search for this term” and that “its not even worth returning any results for” (15:48). But they haven’t actually conducted a search. If they had, Google’s search would have returned millions of web pages concerning Clinton’s use of a private email server as a government employee. When one uses a more generic query, with less punctuation, typing “clinton ema” into the search bar, Google autosuggests “clinton emails on film” and “clinton emails foia”, and surfaces results from Judicial Watch and the Daily Caller. While few people may use O’Keefe’s convoluted search term, Google’s autofill doesn’t shy away from suggesting searches for Clinton’s emails, and returns a deluge of results regardless of the search phrase used.

Next, O’Keefe uses Google trends to compare searches for “Hillary Clinton’s emails” to searches for “Donald Trump’s emails”. Compared to searches for Clinton’s emails, searches for Trump’s emails are effectively nonexistent. However, these are relative trends, so the fact many more people searched for “Clinton’s emails” than “Trump’s emails” does not mean that no one has ever searched for “Trump’s emails.” Nevertheless, O’Keefe claims that the low relative interest in “Trump’s emails” implies that there ought to be no autocomplete suggestions for the search term. “Now let’s go back to Google​.com and search for Donald Trump’s emails and it should show us no autocomplete because according to Google no one searches for it compared to Hillary Clinton’s emails.” (17:07) Despite this expectation, Google does indeed suggest search queries when one types “Donald Trump’s emails” into the search bar. The Google insider explains this result by saying; “according to them (Google) Hillary Clinton’s emails is a conspiracy theory and it’s unfair to return results based on her emails” (17:40).

Is this the incontrovertible evidence of Google’s bias that conservatives have been searching for? Not at all. The fact that there were relatively more searches for Clinton’s emails than for Trump’s does not mean that no one ever searched for Trump’s emails. Simply because one query is used more often than another does not imply that the seldom-used query ought not generate search suggestions. Remember that O’Keefe never actually searched for “Clinton’s emails,” and generated an absence of autocomplete results by typing “Hillary Clinton’s emails are,” a more specific search term less likely to generate autofill suggestions. Finally, far from refraining from returning “results based on her emails,” because it would be “unfair,” if one actually searches for any of these Clinton email query permutations, Google returns a host of topical results.

While undercover footage of a Google employee discussing the 2016 election is supposed to provide evidence of anti-conservative animus, these clips have been so stripped of context. The employee (who I have not named here because of the threats she has received following her involuntary appearance in O’Keefe’s film) could be discussing either nefarious efforts to prevent Trump’s reelection or Google’s very public work to secure its services against Russian manipulation. Absent context it’s impossible to tell.

While perhaps inarticulately phrased, “We got screwed over in 2016, it wasn’t just us, it was, the people got screwed over, the news media got screwed over, like everyone got screwed over so we’re rapidly been like, what happened there and how do we prevent it from happening again?” (3:12) does not a smoking gun make. The employee, for her part, says that she had been approached to discuss mentorship programs for women of color and was filmed recounting how Google has worked to prevent election interference.

Escalating from mere misrepresentation to outright falsehood, the unnamed insider discusses Section 230 of the Communications Decency Act. CDA 230 contains two substantive provisions. The first, (c)(1), prevents “providers of an interactive computer service” from being “treated as the publisher or speaker of any information provided by another information content provider.” This prevents Planned Parenthood from suing YouTube for hosting O’Keefe’s undercover videos of Planned Parenthood employees.

The second provision, (c)(2), allows content hosts to moderate content, or “restrict access to or availability of material that the provider or user considers to be obscene, lewd, lascivious, filthy, excessively violent, harassing, or otherwise objectionable.” This ensures that if YouTube does not want to play host to O’Keefe’s misleading videos, it does not have to.

After reading only CDA 230(c)(1) to viewers, O’Keefe asks the unnamed insider about proposals to amend the statute.

19:14 O’Keefe: Some people think a solution is this section 230 and taking it away?

19:20 Unnamed Insider: I mean, they violated not only the letter of the law but the spirit of law, section 230 says that in order for them to be a platform they can’t censor the content that they have, instead they decided to act as a publisher, making them responsible for everything they put on and they’re still masquerading as a platform even though they’re acting as a publisher.

This is not a case of poor interpretation of law or clumsy use of language. It is simply not true. CDA 230 (c)(2) clearly contravenes the insider’s claim. The full statute explicitly provides for private moderation; “censorship” in the employee’s parlance. It also makes no mention of a publisher/​platform distinction. As far as the law is concerned, whether a website that hosts user submitted content is a “platform” or a “publisher” simply does not matter.

The comparison between discreet refusals to host videos and Nazi book burnings that follow (22:57) do not inspire greater confidence. While conservatives may have reason to suspect that their cultural distance from Silicon Valley makes fair moderation difficult, this concern should not spur the embrace of conspiratorial claims made by those with a history of misleadingly editing video. Public policy must rest on firm factual grounds, not aspersions and the deliberate misreading of existing statutes. Unfortunately, some members of Congress seem poised to legislate on the basis of misleading propaganda, instead of taking the time to understand how algorithms actually work.

Special thanks to Cato Institute research assistant William Duffield for research assistance. 

The Eleventh Circuit’s decision in Corbitt v. Vickers, handed down last week, constitutes one of the most grotesque and indefensible applications of the qualified immunity I’ve ever seen. The case involves a claim of excessive force against Michael Vickers, a deputy sheriff in Coffee County, Georgia, who shot a ten-year-old child lying on the ground, while repeatedly attempting to shoot a pet dog that wasn’t posing any threat. Without even deciding the constitutional question, a majority of the Eleventh Circuit panel granted qualified immunity to Vickers, simply because there was no case on point with this particular set of facts.


The key facts as alleged in the complaint are as follows: Vickers and other officers were pursuing a criminal suspect, Christopher Barnett, when Barnett wandered into the backyard of Amy Corbitt (who had no relation to Barnett). At the time, one adult and six minor children were in the yard, and the officers demanded they all get on the ground. Everyone immediately complied, and the police took Barnett into custody.


But then, the family’s pet dog Bruce walked into the scene. Without provocation or any immediate threat, Vickers fired his weapon at Bruce. His first shot missed, and Bruce retreated under the home. About ten seconds later, Bruce reappeared and approached his owners, and Vickers fired again – missing once more, but this time striking Corbitt’s ten-year-old child, who was at the time still lying on the ground only 18 inches away. The bullet tore through the back of the child’s knee, causing serious injuries. The child suffered severe pain and mental trauma and has to receive ongoing care from an orthopedic surgeon.


Corbitt, individually and on behalf of her child, filed a lawsuit against Vickers under Section 1983, the text of which guarantees that any state actor who violates someone’s constitutional rights “shall be liable to the party injured.” Vickers filed a motion to dismiss, but the district court held that he wasn’t entitled to qualified immunity, emphasizing that the facts as alleged in the complaint indicated that there was no conceivable safety threat or any need to discharge his weapon at the family’s dog.


But in a split decision, the Eleventh Circuit panel reversed, holding that Vickers was entitled to qualified immunity as a matter of law. Judge R. Lanier Anderson, for the majority, said that there was no prior case law involving the “unique facts of this case,” in which a child was accidentally shot while the officer was intending to shoot someone (or something) else. Although the majority dutifully recited Supreme Court precedent purporting to say that overcoming qualified immunity does not require that “the very action in question has previously been held unlawful,” it is clear from the rest of the opinion that the majority was, indeed, requiring this level of specificity:

No case capable of clearly establishing the law for this case holds that a temporarily seized person—as was [the child] in this case—suffers a violation of his Fourth Amendment rights when an officer shoots at a dog—or any other object—and accidentally hits the person.

Given the shockingly reckless nature of Vickers’ actions here, it is of course unsurprising that no prior case involving precisely this sort of misconduct. The majority’s analysis vindicates the stinging criticism of Fifth Circuit Judge Don Willett, who recently stated in another case that “[t]o some observers, qualified immunity smacks of unqualified impunity, letting public officials duck consequences for bad behavior—no matter how palpably unreasonable—as long as they were the first to behave badly.”


To add insult to injury, the majority here took the common but cowardly option of declining even to decide the constitutional question, ensuring that the law will not be “clearly established” going forward either. In other words, Vickers could commit the exact same sort of misconduct tomorrow and receive qualified immunity yet again. Despite the majority’s reluctant finger-wagging that Vickers “could have acted more carefully” (!), the practical bottom line is the federal judiciary green-lighting some of the most reckless police misconduct imaginable.


The case did provoke a powerful dissent from Judge Charles Wilson, who appropriately began his opinion by noting that “[b]ecause no competent officer would fire his weapon in the direction of a nonthreatening pet while that pet was surrounded by children, qualified immunity should not protect Officer Vickers.” The dissent also took the majority to task for dismissing the “conclusory” allegation that the family pet was non-threatening. To the contrary, the complaint specifically alleged that the dog “posed no threat,” that “[no]one appear[ed] to be threatened by its presence,” and that it was merely “approaching his owners” at the time Officer Vickers fired. Of course, if the case had actually been permitted to go to a jury, Vickers would have had the opportunity to dispute these allegations. But by dismissing the case outright on the basis of qualified immunity, the majority short-circuited the exact mechanism — a public jury trial — that is supposed to ensure accountability for public officials.


The result in Corbitt is especially atrocious, but far from unique. As David French has already noted, this case it is not simply an unfortunate outlier, but rather an illustrative example of why “it’s time to rethink qualified immunity entirely.” The doctrine has no legal basis in either the text or history of Section 1983, severely undermines official accountability, and routinely results in morally indefensible decisions. I hope the Supreme Court is listening.

My new op-ed at The Hill discusses the disastrous rise in federal government debt as profligacy dominates both parties in Washington. With the far-left lurch of the Democrats and the complete abdication of responsible budgeting by Republicans, I don’t see how the nation escapes from a damaging and protracted economic crisis down the road.

It does not have to be this way, as my article discusses. Canada escaped a similar debt spiral in the 1990s as a left-of-center government imposed and sustained sharp spending cuts. We can and should do that here, now, yet virtually all members of Congress appear uninterested in reform. 

An excerpt from The Hill:

So while debt projections already look scary, we’ll probably be hit by surprises that make the outlook even worse, such as recessions, wars, higher interest rates or a new president in 2021 who wants spending on a Green New Deal or Medicare for All.

We are on a budget death spiral similar to what Canada faced in the 1990s. As deficits soared, interest costs began devouring their federal budget—rising from 10 percent of total spending in the mid-1970s to 30 percent by the mid-1990s. The high debt scared away investors and the economy struggled. Canada’s federal debt was downgraded by the ratings agencies, and a Wall Street Journal editorial called the country a “basket case” and “an honorary member of the Third World” for its bleak outlook.

The Canadian story has a happy ending because leaders were jolted to their senses and made gutsy decisions to slash spending. They cut defense, business subsidies, farm aid, welfare, grants to lower governments, federal jobs and much else. Federal debt plunged from 67 percent of GDP in 1996 to 34 percent by 2006. Defying Keynesian predictions, the large spending cuts revived the economy and launched the nation on a long boom.

American leaders used to know how to reduce debt. Debt spiked during every war over the past 230 years but was always paid down afterwards. After the Civil War, for example, the government ran surpluses 28 years in a row, causing debt to plunge from 31 percent of GDP down to just 7 percent.

Today we are at peace yet the debt is soaring. The profligacy is so scary because our leaders don’t seem to have the guts to make tough spending decisions like Canada did. We’re marching into a fiscal crisis and few of our leaders seem to care about debt or know how to tackle it.

This study puts government debt in historical perspective and explains why it is so harmful.

This chart shows the history of federal debt and CBO’s baseline projection, which is an “optimistic” forecast if Congress does not make spending reforms.

Image Credit: Congressional Budget Office 

The federal government spends $14 billion a year on subsidies for local rail and bus transit. This spending should be zeroed out in the next federal transportation bill because it induces cities to own and run monopoly transit systems that are unionized and mismanaged.

Federal transit aid has mainly covered capital costs, not operations and maintenance. That has encouraged cities to purchase rail systems with big up-front costs, rather than cheaper, safer, and more flexible bus systems.

One consequence of the bias toward rail is that cities get stung by huge maintenance costs down the road. Rail systems across the nation are suffering from breakdowns, delays, and safety hazards. Subway systems in New York City, Washington D.C., and Boston are in poor shape, yet those cities are induced by federal aid to keep expanding them.

A New York Times investigation of that city’s subway system found lavish spending on new projects at the same time as a shocking neglect of maintenance. Meanwhile, Washington’s Metro is building a boondoggle $5.8 billion rail line to Dulles airport, even though the system suffers from maintenance and safety failures, smoke in tunnels, crashes, and declining ridership.

It is a similar story with Boston’s rail system, as discussed in the Wall Street Journal today:

Bostonians are losing patience with their transit system.

In June, a 50-year-old subway car left its track and smashed signaling equipment, just days after a trolley derailed underground. The resulting commuting chaos, along with a July 1 fare increase and a plan to limit summer service for repairs, combined to overshadow the aging system’s slow-moving rehabilitation.

The Massachusetts Bay Transportation Authority, a state agency that runs the system, estimates it will take about $10.1 billion and 13 more years to modernize it, with costs expected to rise as equipment ages. 

… Nationwide, it would cost at least $100 billion to address the backlog of transit-system upgrades, said Paul Skoutelas, chief executive of the American Public Transportation Association, which represents transit agencies. “It’s difficult, once you go any number of years—and in some cases it’s decades of that underinvestment—it’s very difficult to dig your way out of that hole,” he said.

… The MBTA suffered widespread failures during a brutal winter in 2015, just as Mr. Baker, a Republican, took office. He found a system beset by neglect and financial problems, including an inability to spend available resources quickly enough. The Baker administration says the extended timeline for MBTA upgrades reflects the challenges in addressing long-running problems.

… “Digging out from decades of neglect doesn’t happen overnight, not on a system that must continue to operate every single day,” [Baker] said.

Why has there been “decades of neglect?” Why is there a $100 billion “backlog?” Why is the Boston system “beset by neglect and financial problems?” Why are all these transit systems so shoddy? Because they are unionized monopolies owned by governments, and there is little incentive for efficiency, innovation, and improvement. Federal subsidies encourage bad behavior and bad choices by states and cities.

The federal government should end subsidies and the states should privatize. Before the 1960s, most U.S. urban transit systems were private, and they should be private once again. Hong Kong privatized its metro system in 2000, and the reform has been a big success. Government transit has been a failure, so it is time to give entrepreneurs and markets a chance.

More on these issues here, here, and here.

Back in 2017, tax expert Professor Michael Devereux claimed that digital services taxes being proffered in Europe were “Marxist.” Not because they were socialist or communist ideas. No, he didn’t have good old Karl Marx’s theories in mind. A limited tax on certain firms’ sales, with those burdened being determined by arbitrary thresholds and industry definitions, instead echoed the spirit of Groucho Marx. He who famously said: “those are my principles, and if you don’t like them, well I have others.”

European countries have long adopted the principle that profits should be the basis for corporate taxation. Those corporate profit taxes are supposedly levied in the country where the profit making takes place. Yet with murkiness about where true profit-making activity occurs for digital firms, given intellectual property and firms’ ability to shift headquarters between countries, the European polities looked willing to throw out their principles altogether upon disliking its results. Their aim instead was higher government revenue from certain firms, and if new, highly targeted secondary tax bases were needed to achieve it, so be it.

That, sadly, is the new reality in France and soon the UK too. The French this week passed a law such that any digital company with worldwide revenue of more than $844 million (and at least $28 million from France) will face a new 3 percent tax on sales generated in France. The UK tax is likewise introducing a 2 percent tax on revenues from intermediate (not retail) sales for “search engines, social media platform or online marketplaces” for those with worldwide revenue exceeding $628 million, and at least $31 million from UK activity.

If this seems arbitrary and highly targeted at companies such as Google, Facebook, and Amazon, that’s because it is. There are big, evident challenges for the current corporate tax system. But rather than debate wholesale change, such as whether a destination-based tax system might be preferable to the status quo (explicitly changing the central principle from taxing where profits are made to where sales occur), the UK and France are instead undergirding their existing approach with a new revenue stream explicitly directed at large, American businesses.

Implementation is almost certain to lead to a reaction from President Donald Trump. Since Europe isn’t blessed with many home-grown tech giants, these digital services taxes are a bit like tariffs. The odds of a tit-for-tat reaction from a US President who self-identifies as “Tariff Man” must therefore be very short. But in truth, these measures won’t just hit existing firms and their consumers. They could have chilling effects on tech innovation too, especially in Europe.

It will be future digital giants – those fast growing, initially low profit-margin (or even loss-making) digital businesses – who will suffer most from a revenue tax. Think Amazon a decade ago. Businesses in those positions may find they have to raise funds just to pay their tax bills. That’s why the UK is already thinking about an exemption for very low profit companies, making the policy even messier. On the margin, still, such taxes could deter firms scaling up or serving new markets due to the compliance cliff-edges. This problem will be much worse if there are very different taxes operating across different countries. It’s almost a fatalistic admission that Europe is completely giving up on ever becoming a breeding ground for successful digital giants.

Sadly, as I’ve written before, new taxes for digital companies are politically popular, and supported by bricks and mortar retail competitors to Amazon, especially in the UK. These firms and prominent politicians have effectively popularized the line that it’s unfair that businesses such as Amazon are not burdened by local business property taxes, unlike “High Street” stores. The result, it is said, is “unfair competition” caused by an “uneven playing field.”

This, of course, completely misunderstands the nature of the competitive process. Companies such as Amazon have developed business models that explicitly avoid the need for high-cost, inner-city premises. That’s one reason why they can offer consumers low prices. To punish them for that with a new revenue tax would be a bit like imposing extra revenue taxes on companies that found ways to automate certain activities to save on labor costs.

That is the key point. The French and UK governments are not thinking through their tax codes from first principles, or trying to develop a neutral framework updated for modern challenges. They are, Groucho Marx-like, trying to justify the revenue grab from large foreign firms by adding new principles to their already hideously complex tax laws.

Writing in the Washington Post, Kate Cohen says, Let the extreme right have the “Betsy Ross flag,” and “the left wing can just take back that boring ordinary flag we all use every day.” Why would anyone want the Betsy Ross flag, she asks:

I mean, honestly, if you’re into the Betsy Ross flag, I assume it’s because America was great back in 1777, when only white male landowners could vote and slavery was legal in all 13 colonies.

Well, I can’t speak for the extreme right. But speaking as an American history major and a lover of America’s libertarian roots, that’s not how I see it. I think the flag with 13 stars and 13 stripes represents the people who launched the first great national liberation movement to throw off their distant imperial overlords and did so with the argument that all men were created equal, endowed with the inalienable rights of life, liberty, and the pursuit of happiness. True, that promise was very imperfectly realized, and is still imperfect, but we’ve made progress in ensuring that all people are equal in the eyes of the law, with their rights guaranteed and protected. And that Declaration served as a guidestar for that progress. As Andy Craig wrote last week on July 4, those words were used by Frederick Douglass and Abraham Lincoln and Martin Luther King Jr. to challenge the nation to make good on its promissory note. And by the feminists at Seneca Falls to insist that “all men” must include women, too. And he could have added, by the advocates of equal liberty for gay people.

That’s not a flag that liberals — people who believe that the role of government is to protect everyone’s rights and freedom — should give up.

And by the way, people who don’t believe that all people are created equal? They shouldn’t fly the flag of the American Revolution. There are plenty of flags of monarchic, theocratic, ethnic, fascist, or communist states to choose from.

In recent years, housing prices and rents have increased dramatically in the cities of the Northeast corridor and the West Coast. Leading Democratic presidential candidates have proposed plans to address this issue and, fortunately, most of these proposals recognize that public policy (i.e., local zoning and land use regulations) has limited the construction of new housing. As Edward Glaeser and Joseph Gyourko observed in a 2002 Regulation article, local and state laws have restrained housing supply from keeping pace with demand. While the willingness of Democrats to admit the importance of constraints on private supply is an important step away from an exclusive focus on public provision of housing or subsidies, a more direct and local option would be to establish a framework for developers to pay localities to alter their zoning constraints.

A recent New York Times editorial outlines Senator Cory Booker’s, Julian Castro’s, and Senator Elizabeth Warren’s plans to incentivize local governments to relax land-use laws and allow more housing development. Booker and Castro would require local governments to institute land-use reforms before they can obtain existing federal infrastructure subsidies while Warren would attach the land-use reform requirement to a new $10 billion spending program for governments that comply. Booker and Castro have additionally proposed increasing subsidies to tenants through tax credits or expanded housing vouchers. (Senator Kamala Harris also has proposed increasing tenant subsidies but without a parallel incentive to increase the housing supply.)

For the most part, Booker’s, Castro’s, and Warren’s plans eschew traditional, deleterious alternatives such as rent regulations and subsidies for developers. Last month I discussed how New York State’s recently tightened rent control regulations will decrease housing supply and harm both current and future renters. And, while not ideal, tenant-based assistance is more efficient and equitable than project-based assistance, such as housing tax credits.

It is encouraging that the proposals have managed to avoid those types of interventions and identified the harmful effects of zoning laws, but the proposals’ downside is that they tie land-use reform to federal subsidies for infrastructure. As a recent Regulation article argued, “although there are some reasons for higher-level governments to provide some local infrastructure projects … it is preferable for users to pay whenever that is feasible.”

In the current issue of Regulation, law professor Christopher Elmendorf proposes an alternative. Instead of incentivizing jurisdictions to relax zoning laws with federal money, state and local governments can independently create systems for developers to pay incumbent homeowners for the right to build more and denser housing. Fundamental to Elmendorf’s proposal is the recognition that zoning rules have become de facto property rights. Currently, local governments hold these rights and capture value from them by imposing impact fees, mandating that developers offer communities in-kind benefits (such as affordable housing requirements), or, most commonly, by zoning for less development than needed and extracting benefits including money, land for parks, and affordable housing from developers on a project-by-project basis (Roderick Hills and David Schleicher describe the negative consequences of this ad hoc exaction in their Fall 2015 Regulation article). The negotiations between developers and politicians are often behind the scenes and the benefits extracted do not always clearly go to incumbent homeowners.

Elmendorf’s alternative is for localities to transparently and directly sell developers the right to upzone. As he explains,

Development rights would be auctioned in the form of tradeable “development allowances” roughly analogous to the emissions allowances that are now bought and sold under cap-and-trade regimes for greenhouse gas emissions. Each allowance would permit its owner to build, say, 100 square feet of housing in excess of the baseline, up to a maximum defined by the new zoning map. To illustrate, imagine a parcel of 5,000 square feet that had been zoned for a floor-to-area ratio of 2:1, i.e., 2 square feet of housing for every square foot of lot size. After upzoning, the maximum floor-to-area ratio is 8:1. This means that the owner of the parcel, who previously could build no more than 10,000 square feet, may now construct as many as 40,000 square feet. But to obtain a permit to build 40,000 square feet, she would have to acquire and redeem 300 development allowances ([40,000 – 10,000] ÷ 100 = 300).

The local governments would be able to take the proceeds they receive and put them towards building new parks, infrastructure projects, tax reductions, or direct compensation of incumbent residents.

I have made similar proposals to resolve conflicts over Airbnb and conventional air pollution, which are rooted in economic theory developed by Nobel Laureate Ronald Coase. Allowing those with initial property rights to negotiate with entities who wish to purchase those property rights leads to trade and conflict resolution as long as transaction costs are low. In regard to the aforementioned examples and zoning rights, those who wish to offer their homes up for short-term rental, emit air pollutants, or develop new housing can purchase the right to do so and thus reimburse the initial property rights holders for any costs imposed.

Though the theory supporting Elmendorf’s idea is sound, there are pragmatic concerns. In a comment on Elmendorf’s article, economist William Fischel, one of the originators of the concept of exchanging zoning rights, notes that there will still be significant interests opposed to new development. The same incumbent homeowners that currently fight each building project and the unions and other interest groups that attempt to capture some of the producers’ surplus from development, will still attempt to influence the local politicians who will retain control of the zoning rights auctions. In fact, Fischel contends that because a zoning rights auction confers an abstract right to increase a plot’s floor-to-area ratio, as opposed to a tangible building plan that interests groups can directly address in zoning hearings, Elmendorf’s proposal actually may increase homeowners’ perceived risk of land-use change. 

But if the compensation for change is high enough and directed specifically to incumbent homeowners, change occurs. For example, Northern Virginia was once dominated by single-family homes. Between the late 1980s and early 2000s, developers bought up neighborhoods for redevelopment, often paying homeowners more than double the listed price of their houses. The Ballston corridor now has 22-story apartment buildings.

Allowing local governments to convert the current in-kind, opaque, underground market for zoning change into an explicit legal exchange of cash for density would facilitate the development of housing and address affordable housing shortages.

Written with research assistance from David Kemp.