Why Living Standards Are About To Collapse, Says Economist | Steve Hanke
Summary
Affordability Backdrop: Discussion links post-2020 money supply expansion to asset inflation, widening wealth gaps, and a K-shaped recovery impacting New York’s cost of living.
Real Estate: Extensive critique of rent freezes harming small landlords, degrading property quality, and risking foreclosures and tax delinquencies.
Affordable Housing: Skepticism on building 200,000 city units for $100B, citing NYC public housing failures and concerns over quality, crime, and fiscal strain.
Grocery Retail: Debate on city-run grocery stores versus private markets, noting sub-2% margins, supply-chain efficiencies, a Kansas municipal store’s ~$900K loss, and NYC zoning barriers to low-cost entrants.
Rent Control: Economists overwhelmingly disagree that rent freezes improve affordability, with expectations of reduced quantity and quality of housing supply.
Minimum Wage: A $30 target by 2030 seen as triggering ripple effects across wages, job losses (especially for youth), business closures, and reduced competitiveness.
Free Transit: Making buses free could add ~$1B in costs amid existing fare evasion, with Luxembourg’s experience showing limited congestion benefits; congestion pricing is favored as a market solution.
Fiscal Risks: NYC’s projected deficits ($8–10B) and potential tax hikes raise concerns of capital flight (e.g., to Florida) and a negative economic feedback loop.
Transcript
The problem with socialism is that you eventually run out of other people's money. If you raise the minimum wage, there going to be people who are not valuable enough to justify the payment of that minimum wage and they're going to be unemployed. You you got more budget problems. Then you end up in kind of a doom loop. I I predict that Madnami he's he's he he'll be mugged by reality when he finds out that he go when he goes to the cookie jar there are no cookies in there. >> I'm joined today once more by Steve Hanky, professor of applied economics at Johns Hopkins University. And we're going to be focusing on the new budget proposals and the new economic proposals for the city of New York. As you know, uh Zoran Mdani was just elected. He's not yet entered office. We're going to examine his proposals for the city of New York and kind of speculate what may happen to the city's economy assuming that these things get passed. Professor, it's good to have you back. I think we'll have a lot of fun discussing this, but it's also a very important topic. So, welcome back. >> Great to be with you, David. >> Uh, we're going to draw from historical parallels as well uh throughout our discussion. Let me just start by playing for you um Mr. Mdani's uh proposals uh from before he was elected. This was seven months ago when he was starting to uh uh run for the mayor. And uh just take a listen and then um we can start talking about start by talking about why he's even bringing up the issues that he's addressing here. So let's watch. I was born in Kala, Uganda and came to [music] the city with my family at the age of seven. It's a city that I've grown up in. It's a city that I love. It's a city that [music] I want to represent. This city is the wealthiest city in the wealthiest country in the history of the world. Yet, the working-class New Yorkers who built it are being priced [music] out of it. One in four New Yorkers are living in poverty. 500,000 children go to sleep hungry every night, [music] and a majority of New Yorkers hand over more than 50% of their paycheck each month to a landlord or a mortgage lender, and they don't have much to show for it. [music] Simply put, this city is getting too expensive. This is a campaign to change that. It's a campaign to make this city more affordable, [music] to make this a city that you can actually afford to live in, afford to dream in, and afford to continue calling your home. We're going to do that [music] by freezing the rent for more than 2 million rentstabilized tenants. By making the slowest buses in the country fast and free, [music] and by delivering universal child care to each and every New York family, whether their child is 6 weeks or 5 years of age. We will do this because our northstar is a relentless focus on an [music] economic agenda. And it's why I've pledged to increase the minimum wage to $30 an [music] hour by 2030. It's why I will build 200,000 new affordable, permanently rentstabilized, [music] union-built homes. This is our plan for a New York that works for the people who built it and we're going to deliver it on [music] June 24th. >> All right. So, uh, rent freezes, free transit, u, he didn't mention this, but free grocery stores some neighborhoods. We'll talk about that. Uh, more housing, uh, supply, uh, uh, universal child care, and, uh, $30 minimum wage. We'll talk about, am I missing anything? No. I think we we'll talk about all these things, but let's just, uh, address the underlying issue of affordability in New York. Is he correct that it's way too expensive to live there? >> He he has a point about the affordability and the reason that that got traction is the fact that when CO hit, David, in 2020, February of 2020, what what happened is that the Federal Reserve gooseed the money supply, loosened it up, exploded the money supply literally to record rates of growth. And as you know uh what happened what happened is what John Greenwood and I predicted would happen. The money supply exploded and and with the lag inflation exploded but also before the inflation hit we had asset prices going up. If you inject a lot of money into the economy the first thing that happens is that asset prices go up. So, we had land prices go up, real estate go up, the stock market went up big time, commodity prices went up big time, and and who owns those assets? Well, rich people own assets? Their balance sheets have a positive number on on on the equity side. the the the assets outweigh the liabilities and there's a positive number for equity for people who are wealthy. People who have low incomes actually end up with the assets being less than the liabilities. They have a negative. They don't own anything net. So as a result, we we had the Fed made the rich very very rich. And if you look at the billionaires in the United States, a figure I like to use is what was the billionaire's wealth before CO in January of 2020? It was 14.1% of GDP. Today, billionaires wealth as a percent of GDP is 22.7%. So, as you see, the rich did extremely well with with the Fed loosening up the monetary spots and opening them up and and flooding the place with money, jacking up infla inflation and asset prices. So we we have now >> I'm just going to leave this on the screen as you're talking about it. This is the wealth distribution of household wealth in the US as reported by the Federal Reserve and like you said the wealth gap has widened. Yes, please continue. >> Yeah. So the wealth gaps widened and and then if if you look just now at the top 10% of the income distribution those people account for 50% of all the consumption in the United States consumption is is equal roughly to about 2/3 of GDP and 50% of that 2/3 of GDP is actually consumption by the top 10% of income or wage earners in in in the economy. So we have what's called now a K-shaped recovery. The the the top line on the K the the wealthy are booming. They're going up, but the bottom part is go is going down on the K. And and the reason for that is that people with lower incomes, they didn't make out like bandits when the inflation hit. That inflation dug into their salaries. So if you look at their inflation adjusted wages, they actually have gone down since the co. So as a result, there is an affordability issue. I mean this this thing gets traction. So Mandami got into it, he got traction with it and and now he's >> Professor has New York always been this unaffordable or was this a recent trend? I I've I've visited New York many times in the past 20 years or so since I've been traveling to the US. I I love the cities or tourists. I've never lived there so I can't comment, but I I presume that all American cities, the big ones, right? New York, LA, Chicago, San Fran, so on and so forth. They've always been expensive to live in. >> Yeah, cities have been more expensive than small towns. I mean, if you're out in a, you know, where I grew up out in a rural Iowa, believe me, the real estate values are a lot less than they are in New York. >> But you're saying you're saying the issue was exacerbated recently in the last couple years. it it's been exacerbated a and it it it's been it's been something that's more visible in the sense that the the very rich uh seem to flaunt it on top of everything else. It it's it's it's become uh shall we say a little bit more visible. It's not only happened but it I I think it's more more visible and as a result uh the the the the issue the issue is is something that grabs people. It grabs a lot of people. Now the the so so that's one thing. He he got on the affordability issue uh and and and he he made out he he he he made hay out of that in in a political sense. Now, the the next thing is in in general, well, what what's he going to be coming becoming mayor of? He's becoming mayor of a city that's that's got fiscal problems. They're they're in a they're in a little bit of a fiscal jam. And that is that the budget for next year just for the city government's $116 billion. And for fiscal 26, the budget is is more or less balanced, but the the fiscal watchdogs that look after the thing, they they say there'll be actually probably a deficit of about $3 billion. If you look at 27, 28, and 29, the fiscal watchdog say there'll be budget deficits of between 8 and 10 billion. And and so this is this is a city with fiscal problems that's that's heavily dependent, by the way, on on the federal the federal government. And and so this this is a this is a a a dicey situation to get into. You you have a president of the United States who says he's going to come down hard on on the new mayor Mandamu because he's a socialist and and the reality is what a budget that's out of whack. >> So that's where >> Yeah. >> So that's that's that that's the environment that that he's going into. 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Just to put things in perspective, the the the Canadian federal budget for the projected year of 2025, 2026, I've just looked it up, is somewhere north of $486 billion Canadian. >> So you're looking at a fourth of the Canadian federal budget >> is one city in America. Just let that sink in for a minute. Anyway, um I that's what we're here to discuss. So let's talk about his proposed solutions and whether or not you agree with some of them and what they may look like in practice and we can draw on some historical examples if you like. Um now he never so the thing is Mandani never claims to be a socialist. I don't believe he said that on the campaign. I think I think he's denied that when questioned by news reporters by Fox. You know people people have accused him of being a socialist. What do you say to that? He says I'm not a democratic socialist. I just, you know, I just think everything's a little bit too little too expensive. I I but but but people critics of his plans call them socialist plans. So, are they actually socialist plans? Let's go over them. I don't know where you want to start. Um do you want to start with the um the free Okay, let's start with the free public transit because we people have been talking about higher minimum wage for quite some time. Let's talk about free public transit. Um how do you make all the buses free, professor? Well, you you make all the buses free in in in in New York and what happens? You you you you run up number number one, two points. About 50% of of all those passengers on buses now beat the fair. So for them it's free already. >> So So 50% of the riders don't pay don't pay. They they they're just freeloaders. So that's that's one background point. The other the other point is that the estimates are that if you go to this no fair system, the city will lose about a billion dollars. The cost will be about a billion dollars. So that goes back into the budget picture that we looked at where if you look at the budget realistically they're going to be running deficits of about 8 to 10 billion and and this would increase that to 9 to 11 billion. So it puts you further into fiscal crisis and and believe me if with those kind of budget numbers what's the solution? And you either have a fiscal crisis, that's that's a possibility, or you have a massive tax increase. And if you have a massive tax increase, what what happens? The economy goes in the tank. And and and and then you end up in kind of a doom loop. If the economy is slowing down relative to where it would have been before you had a massive tax increase, you you got more budget problems. So, so it comes back to a practical solution to things. What people actually want, and they've done surveys in New York, they they don't want free bus fairs. They they want a transit system that actually works, that's safe, and actually works. >> Um, >> so that's that's that's my take on on on on that on that thing. uh the transit and and this comes back to one of his themes. He he says he's not a socialist. Well, he he used to say he was a democratic socialist. Now he doesn't because he had to win an election. But as Margaret Thatcher put it, the problem with socialism is that you eventually run out of other people's money. And that's what we're getting at even with this bus thing. So So that's that's one thing. It's a fiscal. It's just it's just the accounting, the numbers. It costs money. Where are you going to get the >> Well, I'm going to give you one pro and then one con and then no one's here to debate you. So, I'll just play that part. So, the pro for his policy is that first of all, like you mentioned, a lot of people are using are you are already freeloading anyway, so it doesn't really make a difference. Uh, but the second part is he's collecting more taxes from the wealthy. And like I know I know what people are going to say. Well, the wealthy are just going to leave New York City. The ar the counterargument against that New York is still the finance capital of the world. They're not going to leave New York City and Mandani is proposing a 2% increase in marginal tax rate, not like you know 120%. So it's not enough to incentivize the financial um bigwigs of New York to pull out shop. They're still going to pay the additional 2%. Uh that could cover part of the deficit. That's that's the proargument. What do you think? Well, uh, n number one, the the the rich have been leaving New York City. It it is the financial capital of the world. There's no question about that. But everything happens at the margin. And remember, economics is all all about incentives. So if if if there there number one the tax level is is very ownorous already in New in New York City and now you're proposing to increase it a little bit more. Well, a little bit more you get a a few more people moving down to to Florida. Florida's booming right now and becoming kind of a secondary center for capital actually. So it it's not going to help. The the argument that number one, the argument that it's not going to affect anything is ridiculous because as I say, economics is all about incentives and if you change the price of something and increase it, you're going to get less of it. And and and that gets, by the way, David, a major thing. We we have this fiscal budget. All this stuff comes back. It it plays back into the budget of New York which is already in in not a crisis but in in bad shape. But what what this is all about and the buses are perfect example. Mandami wants to replace the market and market prices with prices that are set by the government. So you're he's and this is this is socialism. What? Capitalism is markets. Socialism is non-markets. So, so one one way to say whether somebody is a socialist or not is say, well, are they for markets and market prices? Are they are they for the market to be done away with and the government to set the prices? And in this case, it's blatant. He wants the government the government to set the prices zero. >> Uh there's some other examples we can draw on for that. uh just on the free buses. One last point, well, two last points and I'll move on. Uh there's some historical examples of this having been implemented elsewhere. So, Luxembourg, one of the richest countries in the world, already tried this, as you're probably aware. Um to curb its driving addiction, Luxembourg's 640,000 residents enjoy the world's highest per capita income of any independent state. To drive its driving it to curb its driving addiction, the country is trying an ambitious idea. on the 29th of February 2020, it became the first nation in the world to make all public transit entirely free at the point of use. Um, it goes down to evaluate, this is from the European Commission itself. It goes down to evaluate, however, there's little evidence as yet that such programs have reduced the number of cars on the road. In May 2022, the congestion on Luxembourg's roads was, depending on the location, largely equivalent to or higher than the levels in in May 2019. Um I don't know if we can use Luxembourg as a parallel but it doesn't change traffic patterns is the result of this particular study. This is Mani answering a question on a street interview. Somebody asked him why do we need free buses? This is his response. Just take a listen. It's about 10 seconds. >> One of the key reasons why we have to make buses free. >> Today we get to interview Zoran Mandani and ask him how he plans to help working New Yorkers. My first question for you is you have a plan to make the bus better for working people who ride the bus. What is your plan to make the bus better for the working people who operate the bus? I think it's one of the key reasons why we have to make buses free is because it reduces the assaults on bus drivers. It creates a safer work environment. When we made five bus routes free in New York City, the assaults on bus drivers rather dropped by 38.9%. That is transformative. And that allows bus drivers to just focus on getting from point A to point B and not have to worry about their own safety. And so it's a key part of why we want to extend those results citywide >> during the primaries. >> What's what's the relationship between making buses free and lower assaults on drivers? Well, I I I don't know. But what what what it is, I I haven't looked at any studies on that. So, I don't I don't know whether what Mandami indicated is even factually correct, but you you you have to note that he he's a very articulate guy and and he has responses to everything. So, so that's that's one point. But the the other the other point uh is going back to Luxembourg and the because th those were data that you presented and this reminds me of Churchill's comment about socialism. Churchill said socialism is a philosophy of failure. So what whatever it is you're promising, you're going to fail. and and my my and Luxembourg was a perfect example. The idea was you were going to make buses free and and everybody would ride the bus and congestion would improve and you you'd get cars off the street. Uh apparently didn't work. >> Well, I can understand why it didn't work for the richest country in Europe because you don't need the bus to be free to ride the bus. There's [laughter] no financial incentive to, you know, maybe that'll work. I I'm not sure. Anyway, >> so by the way, if it's interesting, this has been a debate in New York City about congestion fees which which were really first developed and proposed by Bill Vickery, a Nobel laureate economist, a friend of mine, a professor at Columbia University. And Vickery came up with this idea. Well, the who who owns the streets in New York? New York does. And and New York should be char charging for the use of that property, that government property, and they should in we we should be using a pricing system to do that. Well, they they started to do that and and as far as I haven't kept up with it in detail, but I I think they've more or less tanked that idea and put it to the sideline. I don't know. I don't know why if they're not talking about uh in improving the speed for movement around the city. One of the best ways to do that uh whether it's in Luxembourg or New York City is to put a congestion toll in. If you want to go into New York during peak hours, you got to pay. You basically the market is a very simple thing. You you've got to pay to play. >> Yeah. >> Yeah. that's been proposed before by previous mayors of New York. But uh I want to move on to the means of production that you brought up earlier. So he wants to seize a means of production in uh several faculties. Take a look at what he had to say about private property first. On day one, we will expand the city's special enforcement programs, doubling fines for hazardous violations, and tripling them for conditions that are immediately dangerous. And when a really bad landlord like this guy refuses to fix it, the city's going to step in, make the repairs, and send them the building. If that doesn't work, the city's taking over the building. Putting the worst landlords out of business. >> I I'm not a lawyer. I don't know if he's legally allowed to even do that. Um, the banks might have something to say about that, but let me just get your response to what you just listened to. >> Well, uh, you know, tough guy on on on building enforcement. The problem is they they've had building codes for a long time in New York and everybody knows what what what do you what what do you do with with the with the city inspector that comes around? You you pay the guy off and get off the hook. It's it's a it's a classic. New York is a classic. Um >> Okay, but [laughter] hold on. So like in theory, if the state takes over the building, again, I'm not arguing legalities here. Let let let's suppose he's legally allowed to do this. Will that make the situation better? Forget because you don't have inspectors to tip off anymore. The city in theory should just adhere to their own codes and maintain the buildings to their standards at all times. Are there historical precedents for this? Not that I'm aware of, but but again, I'm I'm I'm not a student of the details of confiscation of property. We we have by the way abandoned buildings for example in Baltimore. Now the city has taken those over but they're abandoned. So so you know there there there are there are precedents for things along those lines but there there again that specific details of those programs I I don't I don't know. So, I can't intelligently really comment on them, but I I know that that there's a and and there's a big brewhaha about that even in Baltimore, the the legal aspects and hoops that they've had to go through before the city can actually condemn a building and take it over. But there are there one one of our big problems in in Baltimore actually we we due to very high property taxes we we have a lot of the population that's draining away and when the population drains away of course you don't have people to rent the rent the building and live in the building and the building eventually becomes abandoned. So what what do you do with all these abandoned buildings? I mean, they're number one, they're fire hazards, and they're they're also ha havens for for the drugies, criminality of all kinds. And so, the city wants to clean them up and do something. And and and and there are legal procedures that are being used to essentially condemn those buildings and take them over. That's not that's not what he was talking about. he was talking about some something a little bit different but along the same lines. >> I I know you have much to say about the next uh topic still on the general theme of controlling the means of production here. >> And then lastly, one of your platforms to build uh city-owned grocery stores in each one of the five bureaus. It's really gotten a mixed bag response here. Um you know, I think a lot of people want to see everyone have access to healthy food. Um and you proposed like lowering costs by uh using city land or buildings building food uh buying food who wholesale and um being exempt from property taxes. So I guess you know how would this proposal work? You know actually you know foots on the ground. >> Look I think some of the critique I've heard have been from people like John Katitis who runs Christis and is making quite a good bit of money off of New Yorkers in this moment. What I've heard from more New Yorkers, however, is that whether they're making $40,000 or $200,000, when they go to the grocery store, they feel that sticker shock that the same items they could comfortably buy years ago are now seemingly out of reach. And I look at the example in Kansas where they have a municipal own grocery store. I look at the feasibility study in Chicago which found that we could do this in an urban setting. And I think about why should New Yorkers not have that? Why should they not have not only access but the ability to buy goods that are within their price range? So the core of this is cheaper groceries as a guarantee. The cost of this is $60 million to set up one store in each burrow. So that's five stores as the pilot program. Now that should be compared to the city's existing program called City Fresh where they're set to spend $140 million subsidizing corporate grocery stores without any requirement for lower prices, any requirement for collective bargaining or any requirement that they even accept SNAP or Wick. So we would take less than half of the money the city's already set to spend and actually deliver results. >> I I have a lot of questions about how this would work. uh forget the funding part for a minute. We've already talked about funding. First of all, wouldn't he technically be competing with other local grocery stores in those bureaus and he's going to drive out a lot of businesses and he wants to help small businesses? So, that's number one. Number two, how would this work in theory? Can anybody just go in to these free or lowcost grocery stores and buy whatever you want? I mean, wouldn't there be immediately a shortage unless you put a quota on every single buyer? >> Where where they getting the supply from? Anyway, I'll let you comment on this. >> So, so you see um Mandami, he he's a fast talker. We we we have to put this into context. I I mentioned this before, but this guy's a fast talker. >> He's talking about he he said that the right now the New York is subsidizing private groceries. He said $140 million. Actually, the number they're only subsidizing 3.3. So he he's got his numbers way off. This this is a fast talker. He he mentioned Kansas City has a a public grocery stores, right? Did you catch that? You know you know how much last year the governmentrun grocery stores in Kansas City lost >> $23,000. Yeah. Go ahead. >> Lost $900,000 almost a million dollars last year. The these things aren't free. He's talking he he's he's he's he's talking fast and loose here and and the guy is a fast talker. He's very articulate by the way and he just doesn't have his numbers right. The private margins on grocery stores for private is less than 2%. And the grocery stores have to control their cost and they do this with very effective complex supply chain management and economies of scale. So the public thing just can't cut it relative to a private store. But if they really wanted, you know, you know, low cost, why don't they let Walmart go into New York? Because of zoning, they keep them out. The other thing, this neighborhood argument, they they rate all the United States uh cities in terms of accessibility to grocery stores. The accessibility is is the best in New York of of any city in the United States. So the idea this neighborhood thing you got to have a neighborhood got to they have neighborhood now he also used another uh thing that was ridiculous he said your food costs now are much higher than they were a few years ago. Of course that's because the infla the the Fed inflated the economy. It doesn't have anything to do with New York. Everybody's food costs are higher than they were. Whether you're in Baltimore, >> well, I understand. >> Denver, Los Angeles, you you name the city, the food costs are a lot higher than they were three or four years ago. And that's thanks to the Federal Reserve, expanding the money supply, and giving us inflation. >> But look, look, professor, you and I are both people who can afford our own groceries. What about let's just talk about the principle of free grocery stores. Can we just, you know, if if if first of all, I I I would want free groceries. I mean, it doesn't matter if I were a millionaire or billionaire where, you know, free stuff sounds great. I I I would not say no to that, right? So, especially if you're somebody who's in the lower income distribution, this would tremendously help you. What is wrong, if anything, with the principle of just having state-run free grocery stores, right? these lowcost grocery stores, fixed prices, so you're not susceptible to Fed printing money, right? Increases in the money supply, just fixed cost for everybody. What's wrong with that? >> To quote Margaret Thatcher, the problem of socialism is that eventually you run out of other people's money. That's what's wrong with it. >> So, it's a so it's a funding issue. >> You if you're going to give handouts to everybody, by the way, we have a few a huge federal program. SNAP, the SNAP program that that deals with this and and it it became open and very noticeable for everybody because when the government shut down for over 40 days, uh the you know, the the this the SNAP thing became an issue and we've got millions of people on subsidized food already in the United States. But but at any rate, it's you've got to come up with the money to pay for it. This stuff doesn't grow on trees >> in Okay, so you're against this idea. What uh what do we do then to make I mean policy makers have been trying to make grocery store prices more affordable in Canada. I'll just give you an example. I think we talked about this a year and a half ago. The Trudeau government when Trudeau was still prime minister was proposing um raising taxes on grocery stores that do not that are still raising prices. So essentially a soft price control on grocery stores. Um I don't think that went anywhere but um but but but what what what are practical solutions to? >> Again it gets back to this overall problem that that that I mentioned and that is the the idea of of socialist progressives whatever you want to call them. They they want to get rid of the price system and the market and and they want to replace it with the government dictating what the prices are, whether whether they're dictating at zero and giving everything away and and obviously you run out of other people's money pretty fast if the price is zero or whether it's some positive price. So that's fundamentally what's going on. They they want to get rid of the price system >> and and what happens what have we learned from history when governments try to seize the means of production and get rid of their price system? >> Well, I think you know on on a large scale look look at just take a look at China or take a look at Russia or go or go down to Cuba. It's close by. That's it's it's ba basically what he's talking about. If you want to zero in on it and and get, you know, the same kind of population, everything else, just go to Cuba. What's what's going on in Cuba? Describe describe the, you know, scrging around trying trying to survive in Cuba. The only way you can survive in Cuba is to is to go to the black market or gray market and and and basically check out of the system completely because the system the system is a failure. He he Madami he he fundamentally wants to impose a a Cuban type system on New York City piece by piece. That that's what's going on. But but you look what happened to Russia. That that that didn't work out very well, did it? Or look look at China. That didn't work out very well, did it? Now, now look at China. By the way, the the the greatest turnaround in the history of man is has been what? It's been China since Deng's famous speech in December of 1979. Now the Now the privatization, by the way, what what's happened to the privatization? The recent issue of the journal of law and economics has a brilliant article where they've analyzed the thing very carefully and the total factor productivity due to privatization in China has has been about a 15% increase in productivity. So if you want to do if you want to do something that works you privatize put the market in in in gear and let the price system work. If you want something that fails, you you have price controls. They got they got them big time in Cuba. Check Cuba out. >> Okay, let's talk about um housing supply. So, here we have two proposals by the um mayor elect, Mr. Mandani. We have here increasing housing supply, which you know I can show you in just a minute. But then let's talk about rent freezes for a minute. So, according to economic theory, they're opposing kind of plans. Um, rent freezes should actually reduce housing supply, not increase it. I mean, the common sense theory would just tell you developers would move away from that city and so you're going to get fewer housing supply. So, this is a study or a survey done by the Chicago Booth School asking a lot of uh very prominent economists here. These are the people they've surveyed here. um Asamlu was the 2024 um recipient of the Nobel uh prize in economics. But anyway, they asked people freezing the rents paid by tenants of all rent stabilized apartments in New York for 4 years would substantially improve the availability of affordable housing for low and middle inome households. The economists surveyed uh by Chicago Booth overwhelmingly strongly disagree. So anyway, where where do you stand on this? How would you answer this question? >> I I I I would agree with the the the majority who took the survey that >> Okay. >> It would the rent freeze that he's proposing for four years. By the way, in New York, it would be the kiss of death for small landlords. They they're they they they now are having trouble with their mortgages, property taxes, utilities, and insurance payments. And and at the margin again, if they're not able to increase rents for four years, they're they're going to get squeezed. And what what's that mean? That means they don't maintain the apartment. They don't keep it up. And and that means who who gets screwed in the end? The the the renter who who doesn't have his the facilities aren't being maintained and so forth. >> Well, hang on. We know that if the if the landlords don't keep up with the buildings, Mandami is just going to confiscate their building, right? >> Yeah. Well, that's right. We go back to that that story then with the inspectors and so forth. So, so you're going to you're going to have foreclosures, tax tax delinquencies. It comes back to the again the city's budget. you you you'll have tax delinquencies, so you'll have less tax revenue coming in because the the especially the smaller landlords are going to have problems. So it it it's it's it's just it just common sense as well as principles of economics tells us that if you put a price control on something, you're you're eventually going to get less of it. In terms of quantity and quality, both the quantity >> quantity and quality is going to go down. >> Here's Mani's plan to offset what you just said. If the supply goes down because of rent freezes, he's just going to build more housing. The core tenant of Madani's economic platform are follows rent freeze rent for 2 million rent stabilized apartments. We talked about that and construct additionally construct 200,000 new affordable units over 10 years at a budgeted cost of hundred billion. He also wants to repeal some zoning regulations that will make it easier for developers to build in wealthier neighborhoods. But anyway, let's talk about the 200,000 new affordable units over 10 years. It's going to cost a city hundred billion dollars. Maybe that'll offset some of the decreased supply from the friend uh the rent freezes. >> Well, again, you you you have to use common sense and and real realism and and look at history. And you don't have to go any further than New York City to see what a complete disaster public housing has been. It It's a complete disaster. >> Sorry, I don't I'm not familiar with New York. How has it been a complete disaster in in in terms of the the quality of facilities, the crime? >> Okay. the everything you you you would you would really have to stretch it to find anyone in New York City or any place else who studied public housing in New York who would defend it. It's been an utter failure right right across the board. So I I don't I don't know how this fast talker can come up with a proposal and make it sound like he's going to solve anything. he's going to create more problems, not solve them. >> Um, I want to uh move on and uh close on maybe the biggest topic and the most widely debated topic amongst academics is the minimum wage issue. He wants $30 million minimum wage by 2030. Um, up from 1650, so almost double. Uh, I don't have to show you surveys. economists overwhelmingly disagree that this plan is going to work. Uh actually, there are some economists who are sort of on the fence. They've told me on they're on the fence whether or not there's there's a debate as to whether or not raising the minimum wage will make everyone better off. I don't know. Does specifically for New York City, will this plan make the lower income people better off? >> No. They're going to end up losing jobs. The current median wage in New York City is $2745. He wants to increase the minimum wage, which is $1,650, up to $30 by 2030. And and that by increasing that minimum wage, there would be a rip what's called a ripple effect that goes across the whole labor market, all the wages would go up. And as a result of that, you'd have again at the margin, you you you would have businesses that leave New York. I mean, they they they just can't make it. So, it it basically would be bad for business and bad for the labor market and particularly bad for youth. The the studies that have been done about youth unemployment show that a 10% increase in the minimum wage reduces the teen unemployment by 7/10en of a percent. So again, economics is about incentives. incentives matter. So again, it's just common sense. If you raise the minimum wage, they're they're going to be people who are not valuable enough to justify the payment of that minimum wage and they're going to be unemployed. People will unemploy them. >> Uh if you're a small business owner watching, comment below what you think of this plan. I've seen videos online of um people small business owners in New York being interviewed about this and they were completely unaware that this plan is being proposed and they were they said yeah that's not sustainable for me. I I wonder how they will practically react because on the other hand you could say well yeah I'm not going to hire them as many people fine but they still need some workers right? >> I mean that goes back to if I were a convenience store owner and and my costs are higher I'm just going to raise prices. Well, may maybe maybe the market won't let you raise prices. Maybe competition in the market won't make make allow you to do it. But the the bottom line is some some businesses will just close. And and again, remember the ripple effect. It isn't just the minimum, [clears throat] but but we find where these minimum wages go up and set a floor, you do get a ripple across the lab the labor market. wages drift up right across the board with the ripple effect and ultimately business slows down. You lose businesses and and for young workers just starting out in the labor market, it's it's a disaster. The unemployment rate pops up a a great deal. And then and then what are you going to do about affordability? They're g they're going to have to live off if you're unemployed, what are you gonna do? You gonna live live off of welfare? It it it a lot a lot of this comes back to just to summarize the thing. Uh the the key point is that socialism is a pro a problem because you eventually run out of other people's money and it'll come back to the budget and all these things that he's been proposing and fast talking about. He he's gonna get mugged by reality when he becomes mayor. That's that's the that's our conclusion. Mandami has been fast talking. He's hooked into this affordability thing and he's proposed a lot of things that are going to cost a lot of money. But the budget, the fiscal situation is already in the tank in New York. And I I predict that Mandami he's he's he'll be mugged by reality when when he finds out that he go when he goes to the cookie jar, there are no cookies in there. >> I'm going to I'm going to I'm going to play for you one last clip and we'll end it. Uh we'll end it here. The cookie jar. Actually, he's asking for people to directly donate to the cookie jar. So, take a listen to this. >> Very soon not to have to ask you for money, but until then, I'm asking. In a social media video, Mum Donnie said his team needs $4 million total to vet resumeums, pay the transition team, and plan the inauguration and implement his agenda starting day one. So far, the transition raised $1 million with an average donation of about $80. >> Um, in the original video, Mami claims this is a normal part of the process anyway before uh inauguration campaigns would be uh raising money to facilitate the transition. They usually raise money from rich donors. He's he doesn't want to do that. He says he's fundraising directly from the people. So far, according to that uh news release, he's raised a million dollars out of the $4 million he's planning to raise. Um so, so potentially he might just going forward ask the people of New York to fund the deficit through fundraising. >> We're we're we're we're we're dealing with a lot of smoke and mirrors here. David, >> I [laughter] I I don't know. >> I don't know. What do you think about this? >> And and and we're dealing with a lot of smoke and mirrors, but again, as a realist, I I I I listen to Mandami and he he's a fast talker and and and and there there are a lot of people who who uh who listen and that's and and he and he clearly he he won the election big time. I must say I must say his competition was nothing to write home about, but he won and and convince people that he was going to be able to deliver on a lot these things that he promised. And and my my view is it it's just not going to happen. >> Okay. So, let's just close off on this thought. Let like you said, maybe some of these things won't happen. He still has to get the approval from uh the governor on a lot of these issues. He still has to get state approval, federal funding as well. He might have to get approval from that from Trump and he's been mouthing off at Trump. So, he's not off to a great start there. But anyway, the people of New York, and I've seen a lot of street interviews. The people that voted for him said, "Yeah, of course I want free buses. I want free grocery stores. This sounds great." You know, these are things that people in New York want. So, what is New York City going to look like in 10 years? Let's assume all these things get passed. For the sake of argument, what does New York City look like in 10 years? >> Worse than it looks like today. >> Oh, okay. Well, welcome to Miami Beach. [laughter] >> Somebody somebody on my show called him Florida's best realtor. I don't know. [laughter] Anyway, Professor Hanky, that was a lot of fun. Thank you very much. Um, we can uh we can follow Professor Hanky by emailing him. I'll put the email down below. Uh, where else can we follow you, Professor? >> On X, Steve_Hanky. David, >> um, I encourage everyone to submit questions for the next interview. um to see what else uh you'd like to ask uh the professor and uh he's very welcome to taking suggestions from the audience. So we want to make this as open to the public as we can. So thank you for watching. Don't forget to follow Professor Hanky down below. Don't forget to subscribe to this channel and we'll see you next time. Thank you, Professor. >> Thank you, David. Have a great day.
Why Living Standards Are About To Collapse, Says Economist | Steve Hanke
Summary
Transcript
The problem with socialism is that you eventually run out of other people's money. If you raise the minimum wage, there going to be people who are not valuable enough to justify the payment of that minimum wage and they're going to be unemployed. You you got more budget problems. Then you end up in kind of a doom loop. I I predict that Madnami he's he's he he'll be mugged by reality when he finds out that he go when he goes to the cookie jar there are no cookies in there. >> I'm joined today once more by Steve Hanky, professor of applied economics at Johns Hopkins University. And we're going to be focusing on the new budget proposals and the new economic proposals for the city of New York. As you know, uh Zoran Mdani was just elected. He's not yet entered office. We're going to examine his proposals for the city of New York and kind of speculate what may happen to the city's economy assuming that these things get passed. Professor, it's good to have you back. I think we'll have a lot of fun discussing this, but it's also a very important topic. So, welcome back. >> Great to be with you, David. >> Uh, we're going to draw from historical parallels as well uh throughout our discussion. Let me just start by playing for you um Mr. Mdani's uh proposals uh from before he was elected. This was seven months ago when he was starting to uh uh run for the mayor. And uh just take a listen and then um we can start talking about start by talking about why he's even bringing up the issues that he's addressing here. So let's watch. I was born in Kala, Uganda and came to [music] the city with my family at the age of seven. It's a city that I've grown up in. It's a city that I love. It's a city that [music] I want to represent. This city is the wealthiest city in the wealthiest country in the history of the world. Yet, the working-class New Yorkers who built it are being priced [music] out of it. One in four New Yorkers are living in poverty. 500,000 children go to sleep hungry every night, [music] and a majority of New Yorkers hand over more than 50% of their paycheck each month to a landlord or a mortgage lender, and they don't have much to show for it. [music] Simply put, this city is getting too expensive. This is a campaign to change that. It's a campaign to make this city more affordable, [music] to make this a city that you can actually afford to live in, afford to dream in, and afford to continue calling your home. We're going to do that [music] by freezing the rent for more than 2 million rentstabilized tenants. By making the slowest buses in the country fast and free, [music] and by delivering universal child care to each and every New York family, whether their child is 6 weeks or 5 years of age. We will do this because our northstar is a relentless focus on an [music] economic agenda. And it's why I've pledged to increase the minimum wage to $30 an [music] hour by 2030. It's why I will build 200,000 new affordable, permanently rentstabilized, [music] union-built homes. This is our plan for a New York that works for the people who built it and we're going to deliver it on [music] June 24th. >> All right. So, uh, rent freezes, free transit, u, he didn't mention this, but free grocery stores some neighborhoods. We'll talk about that. Uh, more housing, uh, supply, uh, uh, universal child care, and, uh, $30 minimum wage. We'll talk about, am I missing anything? No. I think we we'll talk about all these things, but let's just, uh, address the underlying issue of affordability in New York. Is he correct that it's way too expensive to live there? >> He he has a point about the affordability and the reason that that got traction is the fact that when CO hit, David, in 2020, February of 2020, what what happened is that the Federal Reserve gooseed the money supply, loosened it up, exploded the money supply literally to record rates of growth. And as you know uh what happened what happened is what John Greenwood and I predicted would happen. The money supply exploded and and with the lag inflation exploded but also before the inflation hit we had asset prices going up. If you inject a lot of money into the economy the first thing that happens is that asset prices go up. So, we had land prices go up, real estate go up, the stock market went up big time, commodity prices went up big time, and and who owns those assets? Well, rich people own assets? Their balance sheets have a positive number on on on the equity side. the the the assets outweigh the liabilities and there's a positive number for equity for people who are wealthy. People who have low incomes actually end up with the assets being less than the liabilities. They have a negative. They don't own anything net. So as a result, we we had the Fed made the rich very very rich. And if you look at the billionaires in the United States, a figure I like to use is what was the billionaire's wealth before CO in January of 2020? It was 14.1% of GDP. Today, billionaires wealth as a percent of GDP is 22.7%. So, as you see, the rich did extremely well with with the Fed loosening up the monetary spots and opening them up and and flooding the place with money, jacking up infla inflation and asset prices. So we we have now >> I'm just going to leave this on the screen as you're talking about it. This is the wealth distribution of household wealth in the US as reported by the Federal Reserve and like you said the wealth gap has widened. Yes, please continue. >> Yeah. So the wealth gaps widened and and then if if you look just now at the top 10% of the income distribution those people account for 50% of all the consumption in the United States consumption is is equal roughly to about 2/3 of GDP and 50% of that 2/3 of GDP is actually consumption by the top 10% of income or wage earners in in in the economy. So we have what's called now a K-shaped recovery. The the the top line on the K the the wealthy are booming. They're going up, but the bottom part is go is going down on the K. And and the reason for that is that people with lower incomes, they didn't make out like bandits when the inflation hit. That inflation dug into their salaries. So if you look at their inflation adjusted wages, they actually have gone down since the co. So as a result, there is an affordability issue. I mean this this thing gets traction. So Mandami got into it, he got traction with it and and now he's >> Professor has New York always been this unaffordable or was this a recent trend? I I've I've visited New York many times in the past 20 years or so since I've been traveling to the US. I I love the cities or tourists. I've never lived there so I can't comment, but I I presume that all American cities, the big ones, right? New York, LA, Chicago, San Fran, so on and so forth. They've always been expensive to live in. >> Yeah, cities have been more expensive than small towns. I mean, if you're out in a, you know, where I grew up out in a rural Iowa, believe me, the real estate values are a lot less than they are in New York. >> But you're saying you're saying the issue was exacerbated recently in the last couple years. it it's been exacerbated a and it it it's been it's been something that's more visible in the sense that the the very rich uh seem to flaunt it on top of everything else. It it's it's it's become uh shall we say a little bit more visible. It's not only happened but it I I think it's more more visible and as a result uh the the the the issue the issue is is something that grabs people. It grabs a lot of people. Now the the so so that's one thing. He he got on the affordability issue uh and and and he he made out he he he he made hay out of that in in a political sense. Now, the the next thing is in in general, well, what what's he going to be coming becoming mayor of? He's becoming mayor of a city that's that's got fiscal problems. They're they're in a they're in a little bit of a fiscal jam. And that is that the budget for next year just for the city government's $116 billion. And for fiscal 26, the budget is is more or less balanced, but the the fiscal watchdogs that look after the thing, they they say there'll be actually probably a deficit of about $3 billion. If you look at 27, 28, and 29, the fiscal watchdog say there'll be budget deficits of between 8 and 10 billion. And and so this is this is a city with fiscal problems that's that's heavily dependent, by the way, on on the federal the federal government. And and so this this is a this is a a a dicey situation to get into. You you have a president of the United States who says he's going to come down hard on on the new mayor Mandamu because he's a socialist and and the reality is what a budget that's out of whack. >> So that's where >> Yeah. >> So that's that's that that's the environment that that he's going into. 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Just to put things in perspective, the the the Canadian federal budget for the projected year of 2025, 2026, I've just looked it up, is somewhere north of $486 billion Canadian. >> So you're looking at a fourth of the Canadian federal budget >> is one city in America. Just let that sink in for a minute. Anyway, um I that's what we're here to discuss. So let's talk about his proposed solutions and whether or not you agree with some of them and what they may look like in practice and we can draw on some historical examples if you like. Um now he never so the thing is Mandani never claims to be a socialist. I don't believe he said that on the campaign. I think I think he's denied that when questioned by news reporters by Fox. You know people people have accused him of being a socialist. What do you say to that? He says I'm not a democratic socialist. I just, you know, I just think everything's a little bit too little too expensive. I I but but but people critics of his plans call them socialist plans. So, are they actually socialist plans? Let's go over them. I don't know where you want to start. Um do you want to start with the um the free Okay, let's start with the free public transit because we people have been talking about higher minimum wage for quite some time. Let's talk about free public transit. Um how do you make all the buses free, professor? Well, you you make all the buses free in in in in New York and what happens? You you you you run up number number one, two points. About 50% of of all those passengers on buses now beat the fair. So for them it's free already. >> So So 50% of the riders don't pay don't pay. They they they're just freeloaders. So that's that's one background point. The other the other point is that the estimates are that if you go to this no fair system, the city will lose about a billion dollars. The cost will be about a billion dollars. So that goes back into the budget picture that we looked at where if you look at the budget realistically they're going to be running deficits of about 8 to 10 billion and and this would increase that to 9 to 11 billion. So it puts you further into fiscal crisis and and believe me if with those kind of budget numbers what's the solution? And you either have a fiscal crisis, that's that's a possibility, or you have a massive tax increase. And if you have a massive tax increase, what what happens? The economy goes in the tank. And and and and then you end up in kind of a doom loop. If the economy is slowing down relative to where it would have been before you had a massive tax increase, you you got more budget problems. So, so it comes back to a practical solution to things. What people actually want, and they've done surveys in New York, they they don't want free bus fairs. They they want a transit system that actually works, that's safe, and actually works. >> Um, >> so that's that's that's my take on on on on that on that thing. uh the transit and and this comes back to one of his themes. He he says he's not a socialist. Well, he he used to say he was a democratic socialist. Now he doesn't because he had to win an election. But as Margaret Thatcher put it, the problem with socialism is that you eventually run out of other people's money. And that's what we're getting at even with this bus thing. So So that's that's one thing. It's a fiscal. It's just it's just the accounting, the numbers. It costs money. Where are you going to get the >> Well, I'm going to give you one pro and then one con and then no one's here to debate you. So, I'll just play that part. So, the pro for his policy is that first of all, like you mentioned, a lot of people are using are you are already freeloading anyway, so it doesn't really make a difference. Uh, but the second part is he's collecting more taxes from the wealthy. And like I know I know what people are going to say. Well, the wealthy are just going to leave New York City. The ar the counterargument against that New York is still the finance capital of the world. They're not going to leave New York City and Mandani is proposing a 2% increase in marginal tax rate, not like you know 120%. So it's not enough to incentivize the financial um bigwigs of New York to pull out shop. They're still going to pay the additional 2%. Uh that could cover part of the deficit. That's that's the proargument. What do you think? Well, uh, n number one, the the the rich have been leaving New York City. It it is the financial capital of the world. There's no question about that. But everything happens at the margin. And remember, economics is all all about incentives. So if if if there there number one the tax level is is very ownorous already in New in New York City and now you're proposing to increase it a little bit more. Well, a little bit more you get a a few more people moving down to to Florida. Florida's booming right now and becoming kind of a secondary center for capital actually. So it it's not going to help. The the argument that number one, the argument that it's not going to affect anything is ridiculous because as I say, economics is all about incentives and if you change the price of something and increase it, you're going to get less of it. And and and that gets, by the way, David, a major thing. We we have this fiscal budget. All this stuff comes back. It it plays back into the budget of New York which is already in in not a crisis but in in bad shape. But what what this is all about and the buses are perfect example. Mandami wants to replace the market and market prices with prices that are set by the government. So you're he's and this is this is socialism. What? Capitalism is markets. Socialism is non-markets. So, so one one way to say whether somebody is a socialist or not is say, well, are they for markets and market prices? Are they are they for the market to be done away with and the government to set the prices? And in this case, it's blatant. He wants the government the government to set the prices zero. >> Uh there's some other examples we can draw on for that. uh just on the free buses. One last point, well, two last points and I'll move on. Uh there's some historical examples of this having been implemented elsewhere. So, Luxembourg, one of the richest countries in the world, already tried this, as you're probably aware. Um to curb its driving addiction, Luxembourg's 640,000 residents enjoy the world's highest per capita income of any independent state. To drive its driving it to curb its driving addiction, the country is trying an ambitious idea. on the 29th of February 2020, it became the first nation in the world to make all public transit entirely free at the point of use. Um, it goes down to evaluate, this is from the European Commission itself. It goes down to evaluate, however, there's little evidence as yet that such programs have reduced the number of cars on the road. In May 2022, the congestion on Luxembourg's roads was, depending on the location, largely equivalent to or higher than the levels in in May 2019. Um I don't know if we can use Luxembourg as a parallel but it doesn't change traffic patterns is the result of this particular study. This is Mani answering a question on a street interview. Somebody asked him why do we need free buses? This is his response. Just take a listen. It's about 10 seconds. >> One of the key reasons why we have to make buses free. >> Today we get to interview Zoran Mandani and ask him how he plans to help working New Yorkers. My first question for you is you have a plan to make the bus better for working people who ride the bus. What is your plan to make the bus better for the working people who operate the bus? I think it's one of the key reasons why we have to make buses free is because it reduces the assaults on bus drivers. It creates a safer work environment. When we made five bus routes free in New York City, the assaults on bus drivers rather dropped by 38.9%. That is transformative. And that allows bus drivers to just focus on getting from point A to point B and not have to worry about their own safety. And so it's a key part of why we want to extend those results citywide >> during the primaries. >> What's what's the relationship between making buses free and lower assaults on drivers? Well, I I I don't know. But what what what it is, I I haven't looked at any studies on that. So, I don't I don't know whether what Mandami indicated is even factually correct, but you you you have to note that he he's a very articulate guy and and he has responses to everything. So, so that's that's one point. But the the other the other point uh is going back to Luxembourg and the because th those were data that you presented and this reminds me of Churchill's comment about socialism. Churchill said socialism is a philosophy of failure. So what whatever it is you're promising, you're going to fail. and and my my and Luxembourg was a perfect example. The idea was you were going to make buses free and and everybody would ride the bus and congestion would improve and you you'd get cars off the street. Uh apparently didn't work. >> Well, I can understand why it didn't work for the richest country in Europe because you don't need the bus to be free to ride the bus. There's [laughter] no financial incentive to, you know, maybe that'll work. I I'm not sure. Anyway, >> so by the way, if it's interesting, this has been a debate in New York City about congestion fees which which were really first developed and proposed by Bill Vickery, a Nobel laureate economist, a friend of mine, a professor at Columbia University. And Vickery came up with this idea. Well, the who who owns the streets in New York? New York does. And and New York should be char charging for the use of that property, that government property, and they should in we we should be using a pricing system to do that. Well, they they started to do that and and as far as I haven't kept up with it in detail, but I I think they've more or less tanked that idea and put it to the sideline. I don't know. I don't know why if they're not talking about uh in improving the speed for movement around the city. One of the best ways to do that uh whether it's in Luxembourg or New York City is to put a congestion toll in. If you want to go into New York during peak hours, you got to pay. You basically the market is a very simple thing. You you've got to pay to play. >> Yeah. >> Yeah. that's been proposed before by previous mayors of New York. But uh I want to move on to the means of production that you brought up earlier. So he wants to seize a means of production in uh several faculties. Take a look at what he had to say about private property first. On day one, we will expand the city's special enforcement programs, doubling fines for hazardous violations, and tripling them for conditions that are immediately dangerous. And when a really bad landlord like this guy refuses to fix it, the city's going to step in, make the repairs, and send them the building. If that doesn't work, the city's taking over the building. Putting the worst landlords out of business. >> I I'm not a lawyer. I don't know if he's legally allowed to even do that. Um, the banks might have something to say about that, but let me just get your response to what you just listened to. >> Well, uh, you know, tough guy on on on building enforcement. The problem is they they've had building codes for a long time in New York and everybody knows what what what do you what what do you do with with the with the city inspector that comes around? You you pay the guy off and get off the hook. It's it's a it's a classic. New York is a classic. Um >> Okay, but [laughter] hold on. So like in theory, if the state takes over the building, again, I'm not arguing legalities here. Let let let's suppose he's legally allowed to do this. Will that make the situation better? Forget because you don't have inspectors to tip off anymore. The city in theory should just adhere to their own codes and maintain the buildings to their standards at all times. Are there historical precedents for this? Not that I'm aware of, but but again, I'm I'm I'm not a student of the details of confiscation of property. We we have by the way abandoned buildings for example in Baltimore. Now the city has taken those over but they're abandoned. So so you know there there there are there are precedents for things along those lines but there there again that specific details of those programs I I don't I don't know. So, I can't intelligently really comment on them, but I I know that that there's a and and there's a big brewhaha about that even in Baltimore, the the legal aspects and hoops that they've had to go through before the city can actually condemn a building and take it over. But there are there one one of our big problems in in Baltimore actually we we due to very high property taxes we we have a lot of the population that's draining away and when the population drains away of course you don't have people to rent the rent the building and live in the building and the building eventually becomes abandoned. So what what do you do with all these abandoned buildings? I mean, they're number one, they're fire hazards, and they're they're also ha havens for for the drugies, criminality of all kinds. And so, the city wants to clean them up and do something. And and and and there are legal procedures that are being used to essentially condemn those buildings and take them over. That's not that's not what he was talking about. he was talking about some something a little bit different but along the same lines. >> I I know you have much to say about the next uh topic still on the general theme of controlling the means of production here. >> And then lastly, one of your platforms to build uh city-owned grocery stores in each one of the five bureaus. It's really gotten a mixed bag response here. Um you know, I think a lot of people want to see everyone have access to healthy food. Um and you proposed like lowering costs by uh using city land or buildings building food uh buying food who wholesale and um being exempt from property taxes. So I guess you know how would this proposal work? You know actually you know foots on the ground. >> Look I think some of the critique I've heard have been from people like John Katitis who runs Christis and is making quite a good bit of money off of New Yorkers in this moment. What I've heard from more New Yorkers, however, is that whether they're making $40,000 or $200,000, when they go to the grocery store, they feel that sticker shock that the same items they could comfortably buy years ago are now seemingly out of reach. And I look at the example in Kansas where they have a municipal own grocery store. I look at the feasibility study in Chicago which found that we could do this in an urban setting. And I think about why should New Yorkers not have that? Why should they not have not only access but the ability to buy goods that are within their price range? So the core of this is cheaper groceries as a guarantee. The cost of this is $60 million to set up one store in each burrow. So that's five stores as the pilot program. Now that should be compared to the city's existing program called City Fresh where they're set to spend $140 million subsidizing corporate grocery stores without any requirement for lower prices, any requirement for collective bargaining or any requirement that they even accept SNAP or Wick. So we would take less than half of the money the city's already set to spend and actually deliver results. >> I I have a lot of questions about how this would work. uh forget the funding part for a minute. We've already talked about funding. First of all, wouldn't he technically be competing with other local grocery stores in those bureaus and he's going to drive out a lot of businesses and he wants to help small businesses? So, that's number one. Number two, how would this work in theory? Can anybody just go in to these free or lowcost grocery stores and buy whatever you want? I mean, wouldn't there be immediately a shortage unless you put a quota on every single buyer? >> Where where they getting the supply from? Anyway, I'll let you comment on this. >> So, so you see um Mandami, he he's a fast talker. We we we have to put this into context. I I mentioned this before, but this guy's a fast talker. >> He's talking about he he said that the right now the New York is subsidizing private groceries. He said $140 million. Actually, the number they're only subsidizing 3.3. So he he's got his numbers way off. This this is a fast talker. He he mentioned Kansas City has a a public grocery stores, right? Did you catch that? You know you know how much last year the governmentrun grocery stores in Kansas City lost >> $23,000. Yeah. Go ahead. >> Lost $900,000 almost a million dollars last year. The these things aren't free. He's talking he he's he's he's he's talking fast and loose here and and the guy is a fast talker. He's very articulate by the way and he just doesn't have his numbers right. The private margins on grocery stores for private is less than 2%. And the grocery stores have to control their cost and they do this with very effective complex supply chain management and economies of scale. So the public thing just can't cut it relative to a private store. But if they really wanted, you know, you know, low cost, why don't they let Walmart go into New York? Because of zoning, they keep them out. The other thing, this neighborhood argument, they they rate all the United States uh cities in terms of accessibility to grocery stores. The accessibility is is the best in New York of of any city in the United States. So the idea this neighborhood thing you got to have a neighborhood got to they have neighborhood now he also used another uh thing that was ridiculous he said your food costs now are much higher than they were a few years ago. Of course that's because the infla the the Fed inflated the economy. It doesn't have anything to do with New York. Everybody's food costs are higher than they were. Whether you're in Baltimore, >> well, I understand. >> Denver, Los Angeles, you you name the city, the food costs are a lot higher than they were three or four years ago. And that's thanks to the Federal Reserve, expanding the money supply, and giving us inflation. >> But look, look, professor, you and I are both people who can afford our own groceries. What about let's just talk about the principle of free grocery stores. Can we just, you know, if if if first of all, I I I would want free groceries. I mean, it doesn't matter if I were a millionaire or billionaire where, you know, free stuff sounds great. I I I would not say no to that, right? So, especially if you're somebody who's in the lower income distribution, this would tremendously help you. What is wrong, if anything, with the principle of just having state-run free grocery stores, right? these lowcost grocery stores, fixed prices, so you're not susceptible to Fed printing money, right? Increases in the money supply, just fixed cost for everybody. What's wrong with that? >> To quote Margaret Thatcher, the problem of socialism is that eventually you run out of other people's money. That's what's wrong with it. >> So, it's a so it's a funding issue. >> You if you're going to give handouts to everybody, by the way, we have a few a huge federal program. SNAP, the SNAP program that that deals with this and and it it became open and very noticeable for everybody because when the government shut down for over 40 days, uh the you know, the the this the SNAP thing became an issue and we've got millions of people on subsidized food already in the United States. But but at any rate, it's you've got to come up with the money to pay for it. This stuff doesn't grow on trees >> in Okay, so you're against this idea. What uh what do we do then to make I mean policy makers have been trying to make grocery store prices more affordable in Canada. I'll just give you an example. I think we talked about this a year and a half ago. The Trudeau government when Trudeau was still prime minister was proposing um raising taxes on grocery stores that do not that are still raising prices. So essentially a soft price control on grocery stores. Um I don't think that went anywhere but um but but but what what what are practical solutions to? >> Again it gets back to this overall problem that that that I mentioned and that is the the idea of of socialist progressives whatever you want to call them. They they want to get rid of the price system and the market and and they want to replace it with the government dictating what the prices are, whether whether they're dictating at zero and giving everything away and and obviously you run out of other people's money pretty fast if the price is zero or whether it's some positive price. So that's fundamentally what's going on. They they want to get rid of the price system >> and and what happens what have we learned from history when governments try to seize the means of production and get rid of their price system? >> Well, I think you know on on a large scale look look at just take a look at China or take a look at Russia or go or go down to Cuba. It's close by. That's it's it's ba basically what he's talking about. If you want to zero in on it and and get, you know, the same kind of population, everything else, just go to Cuba. What's what's going on in Cuba? Describe describe the, you know, scrging around trying trying to survive in Cuba. The only way you can survive in Cuba is to is to go to the black market or gray market and and and basically check out of the system completely because the system the system is a failure. He he Madami he he fundamentally wants to impose a a Cuban type system on New York City piece by piece. That that's what's going on. But but you look what happened to Russia. That that that didn't work out very well, did it? Or look look at China. That didn't work out very well, did it? Now, now look at China. By the way, the the the greatest turnaround in the history of man is has been what? It's been China since Deng's famous speech in December of 1979. Now the Now the privatization, by the way, what what's happened to the privatization? The recent issue of the journal of law and economics has a brilliant article where they've analyzed the thing very carefully and the total factor productivity due to privatization in China has has been about a 15% increase in productivity. So if you want to do if you want to do something that works you privatize put the market in in in gear and let the price system work. If you want something that fails, you you have price controls. They got they got them big time in Cuba. Check Cuba out. >> Okay, let's talk about um housing supply. So, here we have two proposals by the um mayor elect, Mr. Mandani. We have here increasing housing supply, which you know I can show you in just a minute. But then let's talk about rent freezes for a minute. So, according to economic theory, they're opposing kind of plans. Um, rent freezes should actually reduce housing supply, not increase it. I mean, the common sense theory would just tell you developers would move away from that city and so you're going to get fewer housing supply. So, this is a study or a survey done by the Chicago Booth School asking a lot of uh very prominent economists here. These are the people they've surveyed here. um Asamlu was the 2024 um recipient of the Nobel uh prize in economics. But anyway, they asked people freezing the rents paid by tenants of all rent stabilized apartments in New York for 4 years would substantially improve the availability of affordable housing for low and middle inome households. The economists surveyed uh by Chicago Booth overwhelmingly strongly disagree. So anyway, where where do you stand on this? How would you answer this question? >> I I I I would agree with the the the majority who took the survey that >> Okay. >> It would the rent freeze that he's proposing for four years. By the way, in New York, it would be the kiss of death for small landlords. They they're they they they now are having trouble with their mortgages, property taxes, utilities, and insurance payments. And and at the margin again, if they're not able to increase rents for four years, they're they're going to get squeezed. And what what's that mean? That means they don't maintain the apartment. They don't keep it up. And and that means who who gets screwed in the end? The the the renter who who doesn't have his the facilities aren't being maintained and so forth. >> Well, hang on. We know that if the if the landlords don't keep up with the buildings, Mandami is just going to confiscate their building, right? >> Yeah. Well, that's right. We go back to that that story then with the inspectors and so forth. So, so you're going to you're going to have foreclosures, tax tax delinquencies. It comes back to the again the city's budget. you you you'll have tax delinquencies, so you'll have less tax revenue coming in because the the especially the smaller landlords are going to have problems. So it it it's it's it's just it just common sense as well as principles of economics tells us that if you put a price control on something, you're you're eventually going to get less of it. In terms of quantity and quality, both the quantity >> quantity and quality is going to go down. >> Here's Mani's plan to offset what you just said. If the supply goes down because of rent freezes, he's just going to build more housing. The core tenant of Madani's economic platform are follows rent freeze rent for 2 million rent stabilized apartments. We talked about that and construct additionally construct 200,000 new affordable units over 10 years at a budgeted cost of hundred billion. He also wants to repeal some zoning regulations that will make it easier for developers to build in wealthier neighborhoods. But anyway, let's talk about the 200,000 new affordable units over 10 years. It's going to cost a city hundred billion dollars. Maybe that'll offset some of the decreased supply from the friend uh the rent freezes. >> Well, again, you you you have to use common sense and and real realism and and look at history. And you don't have to go any further than New York City to see what a complete disaster public housing has been. It It's a complete disaster. >> Sorry, I don't I'm not familiar with New York. How has it been a complete disaster in in in terms of the the quality of facilities, the crime? >> Okay. the everything you you you would you would really have to stretch it to find anyone in New York City or any place else who studied public housing in New York who would defend it. It's been an utter failure right right across the board. So I I don't I don't know how this fast talker can come up with a proposal and make it sound like he's going to solve anything. he's going to create more problems, not solve them. >> Um, I want to uh move on and uh close on maybe the biggest topic and the most widely debated topic amongst academics is the minimum wage issue. He wants $30 million minimum wage by 2030. Um, up from 1650, so almost double. Uh, I don't have to show you surveys. economists overwhelmingly disagree that this plan is going to work. Uh actually, there are some economists who are sort of on the fence. They've told me on they're on the fence whether or not there's there's a debate as to whether or not raising the minimum wage will make everyone better off. I don't know. Does specifically for New York City, will this plan make the lower income people better off? >> No. They're going to end up losing jobs. The current median wage in New York City is $2745. He wants to increase the minimum wage, which is $1,650, up to $30 by 2030. And and that by increasing that minimum wage, there would be a rip what's called a ripple effect that goes across the whole labor market, all the wages would go up. And as a result of that, you'd have again at the margin, you you you would have businesses that leave New York. I mean, they they they just can't make it. So, it it basically would be bad for business and bad for the labor market and particularly bad for youth. The the studies that have been done about youth unemployment show that a 10% increase in the minimum wage reduces the teen unemployment by 7/10en of a percent. So again, economics is about incentives. incentives matter. So again, it's just common sense. If you raise the minimum wage, they're they're going to be people who are not valuable enough to justify the payment of that minimum wage and they're going to be unemployed. People will unemploy them. >> Uh if you're a small business owner watching, comment below what you think of this plan. I've seen videos online of um people small business owners in New York being interviewed about this and they were completely unaware that this plan is being proposed and they were they said yeah that's not sustainable for me. I I wonder how they will practically react because on the other hand you could say well yeah I'm not going to hire them as many people fine but they still need some workers right? >> I mean that goes back to if I were a convenience store owner and and my costs are higher I'm just going to raise prices. Well, may maybe maybe the market won't let you raise prices. Maybe competition in the market won't make make allow you to do it. But the the bottom line is some some businesses will just close. And and again, remember the ripple effect. It isn't just the minimum, [clears throat] but but we find where these minimum wages go up and set a floor, you do get a ripple across the lab the labor market. wages drift up right across the board with the ripple effect and ultimately business slows down. You lose businesses and and for young workers just starting out in the labor market, it's it's a disaster. The unemployment rate pops up a a great deal. And then and then what are you going to do about affordability? They're g they're going to have to live off if you're unemployed, what are you gonna do? You gonna live live off of welfare? It it it a lot a lot of this comes back to just to summarize the thing. Uh the the key point is that socialism is a pro a problem because you eventually run out of other people's money and it'll come back to the budget and all these things that he's been proposing and fast talking about. He he's gonna get mugged by reality when he becomes mayor. That's that's the that's our conclusion. Mandami has been fast talking. He's hooked into this affordability thing and he's proposed a lot of things that are going to cost a lot of money. But the budget, the fiscal situation is already in the tank in New York. And I I predict that Mandami he's he's he'll be mugged by reality when when he finds out that he go when he goes to the cookie jar, there are no cookies in there. >> I'm going to I'm going to I'm going to play for you one last clip and we'll end it. Uh we'll end it here. The cookie jar. Actually, he's asking for people to directly donate to the cookie jar. So, take a listen to this. >> Very soon not to have to ask you for money, but until then, I'm asking. In a social media video, Mum Donnie said his team needs $4 million total to vet resumeums, pay the transition team, and plan the inauguration and implement his agenda starting day one. So far, the transition raised $1 million with an average donation of about $80. >> Um, in the original video, Mami claims this is a normal part of the process anyway before uh inauguration campaigns would be uh raising money to facilitate the transition. They usually raise money from rich donors. He's he doesn't want to do that. He says he's fundraising directly from the people. So far, according to that uh news release, he's raised a million dollars out of the $4 million he's planning to raise. Um so, so potentially he might just going forward ask the people of New York to fund the deficit through fundraising. >> We're we're we're we're we're dealing with a lot of smoke and mirrors here. David, >> I [laughter] I I don't know. >> I don't know. What do you think about this? >> And and and we're dealing with a lot of smoke and mirrors, but again, as a realist, I I I I listen to Mandami and he he's a fast talker and and and and there there are a lot of people who who uh who listen and that's and and he and he clearly he he won the election big time. I must say I must say his competition was nothing to write home about, but he won and and convince people that he was going to be able to deliver on a lot these things that he promised. And and my my view is it it's just not going to happen. >> Okay. So, let's just close off on this thought. Let like you said, maybe some of these things won't happen. He still has to get the approval from uh the governor on a lot of these issues. He still has to get state approval, federal funding as well. He might have to get approval from that from Trump and he's been mouthing off at Trump. So, he's not off to a great start there. But anyway, the people of New York, and I've seen a lot of street interviews. The people that voted for him said, "Yeah, of course I want free buses. I want free grocery stores. This sounds great." You know, these are things that people in New York want. So, what is New York City going to look like in 10 years? Let's assume all these things get passed. For the sake of argument, what does New York City look like in 10 years? >> Worse than it looks like today. >> Oh, okay. Well, welcome to Miami Beach. [laughter] >> Somebody somebody on my show called him Florida's best realtor. I don't know. [laughter] Anyway, Professor Hanky, that was a lot of fun. Thank you very much. Um, we can uh we can follow Professor Hanky by emailing him. I'll put the email down below. Uh, where else can we follow you, Professor? >> On X, Steve_Hanky. David, >> um, I encourage everyone to submit questions for the next interview. um to see what else uh you'd like to ask uh the professor and uh he's very welcome to taking suggestions from the audience. So we want to make this as open to the public as we can. So thank you for watching. Don't forget to follow Professor Hanky down below. Don't forget to subscribe to this channel and we'll see you next time. Thank you, Professor. >> Thank you, David. Have a great day.