Sewer Liberalism

Good Outcomes Improve Vibes

It is no secret that liberal states like California and New York are growing much slower than conservative ones like Texas and Florida. California’s population grew from 34.0 million in 2000 to 39.0 in 2023 (39.5 in 2020 if you only trust censuses). Texas by contrast has grown from 20.9 to 30.5 million (29.2 in 2020) in 2023. That means every year California was growing by 0.60% each year compared to 1.65% in Texas. The next biggest states, New York and Florida have grown 0.12% and 1.51% annualized respectively.

This presents a fairly good argument for conservatives: if liberalism is so good why doesn’t anyone vote with their feet? With New York, Illinois and Massachusetts a weather based argument is possible but California’s climate is famously desireable. Thus the liberal must acknowledge that they have bad housing policies or leave the challenge unanswered. Either is obviously suboptimal, it would be a lot easier if liberal states were growing just as fast if not faster.

Matt Yglesias made the point that “[i]t would not be that hard to turn California, New York, Massachusetts, and Maryland into the fastest-growing states in America and if that was the situation I think perceptions of Democrats would meaningfully change”. People can see what governance looks like when liberals are in charge of a polity, and it’s not obviously better. This essay will thus give suggestions for policies that are good on the merits and achievable in subnational governments in order to generate broad prosperity and make liberalism more appealing to the american electorate. What I will not do is give advice to people trying to win moderate electorates, what generates good outcomes is not always the same as what is advantageous to run on.

Milwaukee was the most socialist city in America at the turn of the 20th century. Despite lack of widespread support across america, local elections could be won by various parties from Union-Labor in 1886 to the Socialist Party of America in the 1900s. They expressed a form of pragmatic socialism focused on delivering useful institutions which measurably improved people’s lives, like the municipal sewer which they would brag about to no end.

It is now time for liberalism to create accomplishments liberals can proudly brag about.

Housing

Liberal states’ struggle with housing is well documented at this point. Sure, California and New York have run farther through the supply of empty land with reasonable travel times to city centers, but there remains massive opportunities to densify.

My own city of Santa Cruz is one of the 5 most expensive metro areas in the country. Here’s a map of its zoning, yellow denotes R-1 zoning which is broken into R-1-10, R-1-7 and R-1-5 depending on if the minimum lot size is 10k, 7k or 5k square feet respectively. All of these are excessive, homes usually go for above a million here. People should be allowed to split their lots in half or thirds, allowing multiple families to purchase their own homes in this extremely expensive area.

Additionally, they set a maximum building area of between 3,000 and 4,000 square feet. If you’d like to build an accessory dwelling unit, as has been encouraged in California recently, you’d better hope your existing house isn’t too large or you need to petition for a zoning variance.

A lot of housing capacity could be unlocked by raising the maximum building area permitted to the size of the lot (a Floor Area Ratio of 1) and shifting existing minimum lot sizes down by 3,000 feet in each of the R-1-5, R-1-7 and R-1-10 zones (so they’re now R-1-2, R-1-4 and R-1-7). Of course this would come with a corresponding decrease in minimum front and back setbacks and minimum lot widths.

Narrowing lot sizes is the natural reaction to increases in land value, simply allowing it to happen requires no additional spending while being easy to understand and change. Denser regions such as SF proper and New York City require similar reforms, but focused on height limits, floor area ratios and streamlining the permitting process so houses can go from plan to completion as fast as possible with minimum risk whether that be legal, demand or interest rate increases.

A final note: focusing changes on arterial roads is a terrible idea. By nature of their heavy use, the air is filled with pollutants posing a health risk, increasing intersections will cause additional traffic to an already congested right of way and all the travelers will see it and form an erroneous belief that the city is rapidly builing or is extremely dense. This kind of planning is based around seeing multifamily housing as a noxious use (a tradition that goes back to City of Euclid versus Ambler Realty Company) to concentrate near other noxious uses. It should be seen for what it is: mostly a good whose negative externalities are concentrated among cars with increased traffic and decreased parking availability.

These are the constraints a government must deal with and seek to work around. Maximizing the number of renters who can go without a car through placement near transit lines and bike paths is good, but so is spreading housing out to saturate underused road and parking capacity. Lots of small apartment buildings are your friend, they blend in well and don’t change streets that much, but they add up. The only problem is that they don’t give enough profit for it to be worth it to go on lengthy permitting battles, if you streamline permitting they will come.

The overton window is shifting in favor of land use deregulation, but not fast enough. Sluggish home construction is by far the largest problem in liberal areas but there is not the appropriate focus on it. Rather than using the emergency session to increase homebuilding and allow for people to flee to California, Newsom and the legislature are focused on fighting legal battles. This is a missed opportunity that I hope is not a portent of future action.

Infrastructure

See my article on High-Speed Rail if you’d like to see a national take on railroads but this section will be focused on the state level.

An underdiscussed problem in American government is the crisis of highway costs. Since 2003, consumer prices have risen 1.71x, private capital goods 1.64x and highways 3.24x. Adjusting for inflation (CPI), highways are thus 1.89x more expensive to build. Part of this is the high cost of asphalt (very volatile but 3.07x higher than January 2003 as of September 2024) but savings can be made by switching from the current prevailing wage system to actual market wages. Freeing up money currently spent on highway construction allows for either more generous spending or a reduction in taxes.

Subway construction in New York is extraordinarily inefficient, at around 10x the price (PPP adjusted) per kilometer of international best practices and 5x of what can realistically be achieved. The appointment of and most critically political support thrown behind an MTA Construction and Development President who is willing to say no to the endless demands of interest groups will allow for projects like the second avenue subway to not be embarassingly expensive.

Currently, stations are made significantly larger than they need to be, with most of the excess space not even open to the public but instead providing underground offices and breakrooms for various different organizations. These rooms are both made larger than they need to be and are constructed underground, where costs are significantly higher. The second avenue subway spent 300 million dollars alone on agreements with various permit issuers such as “a 15 million deal the MTA made with NYC Parks in 2004 to temporarily stage construction at the Marx Brothers Playground on Second Avenue between 96th and 97th Streets” (Transit Costs Project). Political pressure should be put on these organizations to simply give permits that the duly elected legislature has obviously approved of. These deals alone were almost 10% (perhaps more if you count contractor delays) of the cost of the project, able to be evaporated at will by a willing government.

The NYC department of Environmental Protection delayed approval of a pipe relocation for 6 months and required an unneeded redesign which led to a 9 month total increase in time and 20% extra cost for that particular contract. These kinds of issues lead to MTA plans sending stations and tunnels as deep as possible to avoid utilities, which further increases price and worsens user experience of the final product. In the current system where departments go unpunished for the harm they cause, they will continue to ignore tradeoffs.

Union sandhogs certainly get paid more than market wages, but more damaging is the excessive personnel required by contract. New York should seek to make a grand bargain where each segment requires fewer workers in exchange for promises of increased total contracts due to the MTA’s capital budget now going further (mostly at the cost of nonlaborer contractors).

Other jurisdictions like Los Angeles have similar problems, but not to quite the same scale. They will all benefit from a proactive governor or legislature willing to go to bat for transit construction even without extra funding. Boston shows that cost savings can be made if an executive is willing but stupid barriers remain such as zoning codes blocking construction. For goodness’ sake, all government construction should be by right.

Transit Operations

Certain parts of a city amplify the effects of disordered conduct. A man smoking crack on a train affects a much larger set of people than if he did it in his home. Public and private services alike can be venues with large numbers of people but public ones tend to be much more tolerant. This pushes people away from public ones and delegitimizes the government.

This problem definitely overlaps with homelessness but there are differences. Most homeless people are sheltered and doing things like couch surfing. Although drug abuse is common, most are not public nuisances outside of possibly looking unkempt but that’s permissible. Similarly there are people polluting the commons with their own homes. I’ll also note that despite being a habitual bus user I have only run into one case that would fit this mold and it was just a man who was told to leave the bus for non drug or violence related reasons. The vast majority of people who look like they don’t have proper sanitary facilities act graciously and are well within their rights to use public services.

Some of this is an unwillingness to punish repeat offenders. Shitty behavior follows a power law distribution and removing the right tail can eliminate most problems. San Francisco implemented new fare gates that prevented turnstile hopping, and anecdotally incidents dropped substantially near those stations and official numbers show a general 15% decline across the system as various anti crime policies have gone into effect. Reducing fare evasion increases revenue directly but also encourages more riders to join the system as the experience comes with less risks. With the extra revenue, more vehicles can be run creating a virtuous cycle of increased frequency.

The goal of a transit system should be ridership, nothing more, nothing less. Positive equity benefits already fall out of running a system well, there is no need to make it explicit and create conflicting mandates that paralyze agencies. Much like maximizing shareholder value acts as a guiding principle to reduce corporate conflicts, creating a simple and measurable goal cuts the gordian knot of warring interest groups and gives bureacrats a clear go-ahead to run a virtuous service.

To that end, bus routes should be redesigned with larger stop spacing to reduce stop penalties/increase speeds and with fewer total routes to further increase frequency. Improving individual bus stops with actual benches in shelter, rather than whatever La Sombrita was, reduces wait penalties and allows for even larger stop spacing and faster busses for yet more improvements.

Unemployment

A lesser known failure are the high rates of unemployment in California and Illinois. The Niskanen Center has a lot of articles on unemployment insurance and they deserve to be taken seriously. Active labor market policies like job retraining have fallen to the wayside in the US, but they work well when implemented. Large UI payments can crowd out disability benefits and other welfare programs and keep people searching for jobs where they would otherwise give up.

Access rules can be confusing with complicated rules around whether someone is eligible, leading to a lack of uptake. Similarly, large paperwork requirements can lead to time which should be spent on searching for a new job instead being spent on the 8th form proving that you are looking for work. These programs should be streamlined with an eye towards easing user frictions and counting eligible individuals who get no benefits as improper payment as suggested by Dave Guarino on Complex Systems. Furthermore, UI experience ratings punish firms with high turnover such as construction companies who disproportionately hire workers at risk of unemployment.

Tinkering with unemployment insurance and increasing active labor market policies is important, but can only go so far. California’s unemployment problem is concentrated in LA, the Inland Empire and the central valley for reasons I am not entirely sure of. An increasing supply of housing in the Bay Area would let people move to where jobs are plentiful. Reducing occupational licensing could be helpful and open up new opportunities without requiring lengthy certifications. A good rule of thumb is to try copying Minnesotan Policies and err towards what does not exclude people from jobs like burdensome teacher’s licenses.

Taxes

It’s no secret taxes are high in liberal areas, a common refrain is that people leave california because of the taxes, but the median texan pays more than the median californian and higher income residents aren’t more likely to leave. This gap in who pays what is due to an increased reliance on property taxes in Texas, which are superior to income taxes in reducing economic harm. Additionally, as they change the net present value of housing assets, they don’t discourage immigration as new entrants are given a discount.

Ideally California would repeal Prop 13 and rely more heavily on property tax revenue but that seems unworkable. In the mean time, there are various tweaks that can lead to a reduction in deadweight loss and boost growth.

California specifically has an extremely small IRC Section 179 deduction at 25k. Section 179 allows taxpayers to deduct purchases of property used for business from their taxable income (though it gets taxed as income when the property is no longer used for business). The nationwide limit is 1,250,000 dollars for 2025 and California should stick to that or go higher if they want to stop disincentivizing people from making capital investments.

Contrary to what one may expect from a tax reformer, I think of the highly graduated nature of California’s income taxes as a good thing as households are hit by high effective marginal tax rates from the expiry of various programs such as Medi-Cal, in the event Medi-Cal, or failing that Medi-Cal for kids is universalized among other phaseouts, it makes more sense to even out effective marginal rates.

In the mean time, liberals should try to move corporate income taxes in the direction of a cash flow tax where possible and make tweaks to reduce welfare cliffs and penalties to behavior like marriage.

Conclusion

Democrats have large majorities in many places, they should use them! It doesn’t improve outcomes to vote with 80% margins for mediocre policy while becoming bitterly divided over stuff that doesn’t matter. The american voter has sent a message that urban governance is not well regarded. Now is the time to change their opinion.

Rigorous accounting of costs and benefits are useful, but so is a willingness to tell interest groups to pound sand. An opportunity has emerged to build a better tomorrow and a staging ground for the recapture of national institutions. Taking it is not mandatory (thermostatic public opinion is strong!) but it would be helpful to point to governing successes.

When the dust settles and competent institutions have been built generating plentiful homes and jobs, with a government that is more than a pain to deal with, it will be that much easier to be trusted with national power again.