Zoning Laws Suffer From The Fixed Window Fallacy

The Fixed Window Fallacy is an error in reasoning whereby people believe they know or can know what is nice/preferred/optimal. This line of thought is based on unimaginative, linear-thinking and further held back by the Local Maximum Problem. 

It can be summarized as a thought process that goes: "We know what is best. We/they can afford what is desired (after all, it is usually for our/their own good). Therefore, we should make ourselves/them provide it." 

Both premises are false, and the conclusion is fallacious (non sequitur) as it ignores the critical questions: do we have a right to do this, and can we successfully do this? 
The only constant is change, and it comes in two types. 

1. Depreciation, which is the natural condition, difficult to counter, and mostly objective.
2. Appreciation, which is the abnormal condition, difficult to achieve, and highly subjective. 

Attempts to stop depreciation such as zoning laws are never done in a vacuum. They are not single events where good replaces bad, and we move on to the next decision. They are part of economic evolution where decisions made affect trend trajectories with uncertain net outcomes and unpredictable magnitudes. 

Similarly collective action attempts to realize appreciation such as subsidizes for development and master plans are fraught with captured interest risk bringing asymmetric outcomes adverse to the presumed collective goal. In other words the rent-seeking developers and their friends in power do what is good for them and costly for society. For those cases where everyone has the best of intentions, we still have the knowledge problem. When artificial outcomes are engineered by those who do not bear the full risk, bad ideas do not get properly punished and good ideas do not get properly rewarded. 

Back to zoning, trying to stop people from doing things they want to do is prohibition. People and markets work to thwart prohibitions in proportion to how much they desire that which is prohibited. The less morally sound the prohibition, the less compliant are those working against it and those third parties who have no dog in the fight. Fortunately the long-term trend is for less and less prohibition. Unfortunately working against a prohibition is costly as is the administration of a prohibition. 

Whether it is in icky markets (e.g., sex work, recreational drugs deemed illicit, kidney transplants, etc.) or in we-know-better markets (e.g., zoning), an underlying force supporting the prohibition is not in my backyard thinking. In fact I believe NIMBY is the last vestige of prohibition rationalization.

Planes, trains, and central planning

I recently took the family to the 36th annual Oklahoma City Train Show. Since my 3-year-old son thinks trains are the reason for man's being, this event was a big hit. Several of the displays were quite impressive. It is always amazing to me how diverse and intense human interests can be.

Looking at the various model towns and layouts, I couldn't help but think how much these models look like the real world but are in fact so very different. There is a lesson here for economics. Our models are vague facsimiles of what human existence looks like. They are not complete representations. We zone and plan cities as if we were designing a model train set rather than establishing incentives/disincentives in relative darkness.

The human world is filled with incredible complexities no individual or group can possibly know, understand, or fully appreciate. The train set world is a design-able project aimed at satisfying one train enthusiast or at most a small group. The human world must evolve over time with many random, chaotic elements interceding. The train set world is fixed.

There is no cause and effect in designing model train layouts aside from the designer wanting something and then acting to bring it about. But cause and effect is multidimensional and phenomenally jumbled in the human world. Of course this inconvenient fact need not stop our attempts at assigning cause to effect. Hence, renters and multi-unit housing cause higher crime rates and lower home values. Good urban planning causes successful restaurants and profitable entertainment districts.

Yet again I hear Hayek:

The curious task of economics is to demonstrate to men how little they really know about what they imagine they can design.

If you build it, they'll make you keep it

Like a bad penny, the infamous Gold Dome of northwest, central OKC is back in the news. It is one of those “classic” and “iconic” architectural features of a neighborhood that is too vital to lose. You know, one of those buildings so important that supporters insist that someone else must (be made to) pay to have it preserved lest a cultural heritage be demolished. It is a classic lesson in be careful how creative you are in what you build; for if ugly enough, it shall never be destroyed.

Okay, so some tastes may have been acquired for it. De gustibus non est disputandum. But that should come with a caveat, solvat aut sedatos esse (pay or be quiet). Sadly, we don’t live fully in that society. But aside from the principled case against this kind of a taking, there is a pragmatic one. Property rights uncertainty begets conservative choices that stifle creativity and experiment. No doubt about it; the Gold Dome as “the bank of tomorrow” was a creative chance taken. It worked until tomorrow came (a few decades later), and then it stopped working. And I can say it stopped working with strong confidence because the best indicator that we have says so. Namely, individuals in the market willing to risk capital were attempting in the 1990s to replace the Gold Dome with another idea. How free that market is largely determines how confident we can be. More on that another day. Suffice it for now to assume that the market was speaking and saying, “it is believed that these resources will be better used if used differently”. The market was denied and may be denied again.

Now let me connect the dots to another “ugly” building in OKC that may stay ugly if that lesson from before is heeded. The thermal plant in downtown OKC needs a makeover according to The Oklahoman’s Steve Lackmeyer. His idea is to turn the plant into “a great canvass for public art or for glitzy Times Square style billboards”. Take something plain and make it not so plain. I could be persuaded. I’m sure the question of who is going to pay for it is more important to me than to Lackmeyer, but again that is not my point here. Clever readers may think I’ve gotten the lesson/analogy from the Gold Dome backwards here, but cleverer readers will know better. The lesson is if you allow your building to be too far out of the norm, too creative, stand too far forward, you run the risk of having something politically powerful people won’t let go away—despite the fact that you own it. Turn the thermal plant into a graffiti mural and then in ten years when the neighboring hotel wants to raze the plant and expand onto the lot that option might not be allowed.