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Works in Progress is an online magazine devoted to new and underrated ideas about economic growth, scientific progress, and technology. Subscribe to listen to the Works in Progress podcast, plus Hard Drugs by Saloni Dattani and Jacob Trefethen.
Ben Southwood: A thing that marks
me apart from my British countrymen
is that I'm very optimistic about
the potential of local government.
I think that local government
can do great things, has done
great things, and potentially if
we fix it, will do great things.
However, this marks me apart in Britain
because many people here believe that
local government is inherently ineffective
and maybe even corrupt and venal.
I got lots of my opinions on local
government from Judge Glock, so I've got
him here on the Works in Progress podcast
to discuss local government with me.
Judge recently wrote an article for us
in issue 22 of Works in Progress called
The Gold Plating of American Water,
about how American Water had gotten so
expensive over the past 30 to 40 years,
and as I understand it, Judge, this is
actually a story of local government
doing a great job and then being basically
overridden by national government.
Am I right there?
Judge Glock: Exactly.
So there's always problems with local
governments as you point out, but
there's often something of a nirvana
fallacy where people at higher levels of
government think that they could smooth
out the rough edges in local governments
and perfect whatever minor or major
problems they've exhibited in the past.
And water was certainly
an example of that.
So, as I pointed out, local government
was the main driver of clean water
in the 19th and 20th century.
And this clean water was overwhelmingly
led by the New York cities, the Chicagos,
the San Franciscos of the world that
did this on their own initiative, not
because any higher level of government
was pushing them to do it, or not even
because the higher level of government
was giving them grants to do it.
They did it because their citizens
cared about clean water; they demanded
it, and then the governments listened
to those citizens and provided it.
And it wasn't really till the 1970s, the
federal government stepped in and told all
these local governments, no, no, no, no.
You're doing a terrible job.
We are going to fix it for you.
And in one sense they did.
They forced them to get
much, much cleaner water.
Ben Southwood: I was very
interested in the story that I
had no idea, I hadn't heard about.
So I had heard that Chicago, winched
its entire city center and then
moved it, so I knew about that.
I'd heard of that, but I didn't
know they also reversed the
course of the Chicago River.
Judge Glock: Yeah.
Ben Southwood: For water cleaning reasons,
so amazing things they were pulling off.
Judge Glock: Yeah, absolutely.
And again, done in their own initiative.
This was raised by property- This,
well, the actual ground raising was
raised by, a lot of property owners
who had to screw jack their houses
up to make sure the sewer lines
would slope downwards into the river.
And then later in the end of the 19th
century, the Chicago sanitary canal,
which is often put up there as one of
the great civil engineering achievements
in human history, was created.
And the whole point of that was
to bring water from a higher up
to push enough force down at the
Chicago River to reverse the flow.
So the sewage was carried not up,
the Chicago River into, or down the
Chicago River, into Lake Michigan as
it was the time was carried in the
opposite direction, away from the city
and away from Lake Michigan to further
protect the water of those citizens.
Should I mention the Cuyahoga
river catching on fire,
which is another example?
Can we talk about that for a hot second?
Ben Southwood: Yeah, go ahead.
Judge Glock: Okay, so everyone
knows, or maybe not everyone, I
don't know, is in UK is that a thing?
Ben Southwood: I think everyone knows.
Judge Glock: People who
listen to the Works in - Yeah.
Ben Southwood: Yeah.
It gets raised in a lot of Works
in Progress article drafts.
It's like a background fact to be
like rivers actually set on fire in
the 1970s or the 1960s or whatever.
Judge Glock: But as I'm sure also many
of your listeners and readers know,
the reality was, that the river had
been catching on fire for decades.
This, for whatever reason, this last
fire in '69, I believe acquired national
prominence, which led to the song, which
led to the eventual Clean Water Act and
all these other things- was very short,
was put out soon, and was actually kind
of the end of a trend where Cleveland
was cleaning up its river piece by piece.
And as I pointed out just before that
river caught on fire, the citizens of
Cleveland had voted for a- I'm going
to forget the number, it was tens
of millions of dollars bond issue
to further clean up their river.
They said, 'Hey, we care
about rivers catching on fire.
We don't like it anymore than you do
rest of the country, but we're going
to spend money to make sure it stops.'
And they were about to do that, until
the federal government stepped in with
a clean water act and says, no, no, no.
We are going to make, tell every city
in the country how clean your water
is going to be and how much you're
going to have to spend to do it.
We are going to be the ones up in DC
to balance these costs and benefits.
And there are both.
People always forget that in
the environmental discussions.
And as I try to show that this created
this kind of one-way ratchet effect
without the countervailing balance
of local voters and taxpayers who
would actually think about, well,
how much do I care about clean water?
There is a point at which
it's no longer valuable to me.
We replace that feedback loop,
which should be again, the
nature of good government.
but you obviously had some
wonderful pieces and Works in
Progress to show historically how
important local governments can be.
And that little factoid that I
always tell people, to illustrate
how important it was in the US in
circa 1900, 50% of all government
spending was local government spending.
Another chunk was state
government spending.
And then a smaller, much smaller
chunk was federal government spending.
And we've never appreciated
them, frankly, since.
Ben Southwood: I think there's an
interesting question about what
is it about water that means local
government is good at doing it?
Whereas say national defense obviously
is not a local government responsibility.
It would probably be worse if like the
Holy Roman Empire, the US was made up
of hundreds of competing counties and
cities who had their own armies, which
were then supposed to join together
in the event of an external invasion.
Now tell me if you agree with my little
toy model of what I think, where I
think it works out is that, so water,
making water clean, is something that a
local government is going to be better
at than a private company, probably.
Maybe the actual processing plants
are going to be a private company or a
concession or something like that, but
the force for it happening is something
that is best done probably not we all
buy the amount of water cleanliness
we want, but instead some organization
doing it for everyone like we agree
together through majority or a super
majority, some kind of democratic system.
The reason I have in my head for that,
which is like this is obvious stuff,
but I think it's worth saying, the
reason I have in my head for that
is there are spillover benefits of
everything that people do, right?
I could easily free ride on other
people cleaning up the water.
And if I free rode on cleaning up the
water and if I had that incentive,
then everyone might decide they can
free ride on cleaning up the water.
If everyone decides to free ride
on cleaning up the water, then
the water doesn't get cleaned up.
So that makes sense.
Judge Glock: Yeah.
Ben Southwood: Now my thinking is that
because those spillovers with water,
those spillovers are basically local.
There are some cases I imagine where
you'll share a river that's very
long and so you actually can have
spillovers that go through a whole US
state or maybe even across the state
border and to become a federal thing.
But by and large, that's not how it works.
By and large, you are extracting water
relatively locally, it's not having
much of an effect on anyone else.
You're cleaning the water up near you.
And it's only, it's having spillovers
very significant ones to individual
streets or areas because they're
the people who might give each other
cholera or those sorts of things.
But it's not spreading
across the entire country.
So my thinking is maybe local
government responsibilities are
things that have public good elements.
Like they're very high spillovers.
It's very hard to exclude people
from them, from those benefits.
but those spillovers are, are local.
Do you agree with - is
that the way to do things?
And then the reason why not to
have like a national bureaucracy
that goes around and tries to do
that for every individual place.
I mean, the real reason is that we've not
seen that be very effective in history.
But my theory for thinking about why
that hasn't been very effective is
that to some extent local areas are
competing with one another, right?
So you get the benefits of public
good provision, but the public good
provider is kind of in a market
with other public good providers.
Not completely in a market, but people
do move around and what one of the
reasons they move around is for the
cost of the taxation and other things.
What amenities am I getting?
Like, is that the right
way to think about things?
Do you agree with that
way of thinking about it?
Judge Glock: Totally.
I entirely agree with both aspects of
that, and I think I've agreed with it that
ever since we first started talking about
these issues, lo those many years ago.
So on the second part to deal with
in the competition, we can allow
the public to decide the right level
of public goods, not just through
votes in general, but precisely
the mechanism that you discussed.
They can choose which way to, how
much public- they want by choosing
different types of local governments.
If they like a certain amount of
schools offset with a certain amount
of taxes, they can move there.
If they like a certain amount of parks
or policing, they can move there, and
that choice has two wonderful effects.
One is the pure competitive side of that
you are effectively in a competitive
local government system, choosing your
government, much like you choose any
bundle of consumer goods, your shoes,
your internet service, whatever it is.
and that's a wonderful thing.
We know competition works and we
would like to have that sort of
competition in local government.
I can move two blocks over, and I'm
in a new city in America where there's
going to be a different police force
that enforces things differently
in a different district attorney
doing all sorts of different things.
And to some people, that's very scary.
That seems like that would never work.
And yet historically in America
that's worked very well.
That competition allows these
cities to be more efficient.
And we have lots of evidence
that areas with more local
governments are more competitive.
They tend to provide, more goods,
public goods at a lower tax rate.
So the other side of that is the one
you mentioned of the just preference,
choosing that genuinely a lot of
people want just the low taxes.
They don't really care
about the schools that much.
They don't, maybe they
don't ever go out in a park.
Maybe they sit in their room, watching
Netflix 24 hours a day and they're totally
okay with that and that's the world.
Give them a local government
that just provides them the bare
minimum at the bare minimum cost.
And that's good.
And to your first point about
the cost being internalized.
Yes, that's exactly when we're,
what we should think about this as.
The local government should
be enough to internalize those
benefits of public goods.
A lot of that your local park service,
your policing, your water, exactly
to the point about water, is largely
a localized public good provision.
There are these examples where the
sewer goes downstream and Chicago
actually got a lot of guff because it
started to pollute another city down
the river after it reversed the flow
and the state had to deal with that.
But historically, the states dealt
with that pretty well before the
federal government got involved.
But there's always a technocratic impulse
that makes people very suspicious of
these sorts of people choosing for
themselves, either their own goods or
their own public goods, that a lot of
people just innately react against,
which is very unfortunate in my view.
Ben Southwood: Well, I think that I
want to get onto that actually at some
point, because I think that there's -the
reason why - there is a technocratic
impulse, but that technocratic impulse
is often empowered in various countries.
And I think my theory is that that's when
local governments have done bad stuff.
And I think there's something related
to that of maybe the responsibilities of
local governments should be to some extent
constrained to prevent this kind of demand
for shutting down local governments.
And on, along those lines, in the US
right now I've noticed that at least
in Florida and Texas and maybe in some
other states, there are increasingly
loud property tax revolts, people
getting upset about property taxes.
Now I'm sure that one cause
is just like in the 1970s, one
cause is that inflation is high.
Property taxes are often a tax
that you actually hand over.
Like you pay them money,
they don't get deducted.
I dunno if that's always true.
But it for some people, like I gather
that some people, their banks take
them as part of their mortgage.
And so you probably don't notice the
specific portioning between property
taxes and your other monthly payments
as much, but for other people who don't
have a mortgage or whatever, they're
paying, they're handing over a certain
amount of money, they get upset.
So I've seen these revolts, and
one reason obviously is inflation,
just the number going up feels
bad, when it comes up quickly.
But another reason, it seems to
be that schooling is a debatable
one for whether it should be a
local government responsibility.
I'm not said- when I say debatable,
I don't mean it as a weasel
word saying it shouldn't be a
local government responsibility.
I think it's genuinely debatable.
If you look at house prices in the UK,
one of the big drivers is 'Is there a
good school I want to send my children
to nearby?' I'm sure the same thing is
true in the US and I'm sure that's why
property prices are really high near
the famous schools in Prosper, TX, or
Carmel, Indiana that have amazing marching
bands and triple height ceilings on
their incredibly grand school buildings.
So to some extent this is just a market
for schooling and especially in places
where school districts are unaligned
with other local government forms.
It's like almost literally
a market in schooling.
But in other places, they've
created an actual market in
schooling, like with vouchers.
And you can also see how competing by
moving your whole life to a school might
be less good than competing by moving
your children to the schools around you.
Right?
And with most, with many goods we don't
have local governments compete over
who can provide the best groceries.
We have grocery chains that compete
to provide the best groceries to
everyone, and we drive to the nearest,
or we take the train or whatever
to the nearest grocery stores and
that's how you get competition.
So I think it's, there's an
interesting question there.
Like, should education be a
local government responsibility?
How do we think through that?
And am I right in thinking like,
is that tension at the heart
of these recent tax revolts?
Judge Glock: It's a huge part of it.
And if you look at where the property
tax goes in America, about a third
goes to schooling some places,
most certainly it's closer to half.
You look at the history of
school districts in America,
it was unbelievably decentralized.
Like we romanticize in America the
one room red schoolhouse and there's
plenty of recreations of these or
survivals that are kept up, by little
old ladies in small towns and they do
the guide tours of them and everything.
But what people don't appreciate about
those little schoolhouses is that was
the entirety of a government unit.
There was a school district whose
entire job was maintaining and paying
for this one schoolhouse and often
the sole teacher that would be in it.
And that meant America had an unbelievably
decentralized schooling system where,
at one point, I want to say we had
something like almost a hundred
thousand separate school districts in
America in a much smaller population.
And again, some of these are, some of
these are literally dozens of people,
just paying for their local elementary
school in their farming community.
That is the opposite of, I forget who
was the French politician education
minister in the third Republic in the
late 19th century who said he could
look at his watch and know exactly
what every school student in France
was studying at that exact moment.
And they could, in France,
America was the opposite.
And if it is another one of those examples
of where, kind of from a theoretical
perspective, it's almost impossible to
imagine that working, creating an actually
fairly educated population, let alone a
population that's fairly patriotic and
have some sense of national connection.
And yet it did!
It like, we had not all America in
the 19th and early 20th century had
not only the most literate population
in the world by a country mile,
basically a hundred percent literacy
by the end of the 19th century.
Ben Southwood: One other unanswered
question about local government for
me is how much it should bundle.
So one of the interesting things
from a European perspective about
American local government is
that it's relatively unbundled.
You often elect a mayor who picks
lots of people, so that does happen.
But in many places, you elect Judges
separately through a separate vertical.
The school districts have elections and
they also take a separate precept when
they're paid and their pay is going,
it's not going through a central pool.
The school districts
are running themselves.
And so effectively you get to run
these things as individual services.
And I think there might
be some wisdom in this.
And the one that inspired me the
most is I read a great article by a
certain person about the Golden Gate
bridge, which as I read, they set
up a special tax district for it.
They said, we're going
to build this bridge.
We think that the toll is going to
cover all the revenues, but we might
need a bit of cash to get started, and
we need someone to be on the hook in
case it doesn't cover all the revenues.
And so, it turned out they needed
very little money from them, but they
did take a small amount of startup
capital at the very beginning,
and then they- the toll covered it
and the toll's still covering it.
It paid itself off and then it just
paid the maintenance, going forward.
And I feel like politics means that if
you have swing voters who care about
one thing above all, and you bundle
all the issues together, then the
swing voters might say, well, you might
say, for example, in recent elections,
swing voters have been desperate
to vote for anti-immigrant parties.
And the anti-immigrant parties have
also been the anti-VAX parties.
And they're like, well, I don't
really care about anti-vax.
Maybe I'm a bit anti-vax, maybe I'm
in fact provax like nearly everyone
in most countries, but nevertheless,
I'm voting for the anti-VAX
party because immigration is such
a salient issue for me.
Judge Glock: Yeah.
Ben Southwood: And I wonder if that
leads to suboptimal outcomes, whereas
if you debundle the services then
you can- like one thing failing, does
not cause failure and other things.
What do you, is that a possible
reason for some of this success?
Judge Glock: Yeah, so I did write that
article on the Golden Gate Bridge and I
think it's a wonderful illustration of two
important truths about local government
America, both of which get forgotten.
And the one is exactly to your first point
of that these, when you create a body who
has a single job, and that job for the
Golden Gate Bridge was to construct and
then run the bridge and to pay it off.
You created people with a clear
incentive to make that system work well.
And when people discussed the Golden
Gate Bridge to today as this kind of
wonderful example of when government
worked well, when you could build
things, there to some extent, right.
It was built efficiently on time.
Now, as I also pointed in that article,
it took decades, to actually get all those
local government bodies in alignment and
try to figure out the right state law to
allow the district to get up and running.
But when the district was up
and running, it worked great.
It constructed it in
four and a half years.
On time, on budget, and it
opened up and became one of the
marvels of the developed world.
But the other side of the Golden Gate
Bridge, which I also think is important in
this story, is the fact that it's still in
existence today and by many measures has
become a horrible, bloated monstrosity.
Maybe monstrosity is a little too harsh.
I'm sure I know through like second order
or two or three jumps, someone who works
at the Golden Gate Bridge District in
San Francisco and it basically should
have disappeared in 1970 when all of the
bonds were paid off, but they have since
found a bunch of boondoggle projects to
keep themself going and keep collecting
tolls and wasting money and so forth.
So special districts to my mind, seem to
be like fairly successful means to create
new infrastructure, to manage a particular
project, but over the long term, they can
become little fiefdoms that are not too
accountable for voters precisely because
nobody in San Francisco even knows there's
a different district there that's somehow
operating this bridge, and also the
ferries, and also a handful of buses now.
And so it can just kind of go
about its business without any
sort of accountability for voters.
So America has about 20,000
general purpose local governments.
Those are your cities and so
forth, but it has about 40,000
of these special districts.
And I think the evidence on the whole
is clear that although these special
districts are pretty good at creating
these new projects, when you layer
them on top of each other, there's what
gets called in the political science
literature, an overfishing problem, and
that they are all actually trying to
fish from the same pool of taxpayers, and
they keep taking more and more out of it.
So I think their argument for bundling
a lot of this stuff in a central
municipal government, but that's not
often the structure to build new things
and create new things in which case new
forms are needed like the structure that
built Disney World, the, what is it?
The Reedy Creek sewer district,
which Disney created precisely
to create this whole town outside of all
the local governments in Florida, and just
build Disney World public goods like he
wanted Disney World public goods to be.
And frankly, that worked pretty well.
It's a little bit out of control
maybe now, but again, for the original
part of it, if they get reintegrated,
those things can be very helpful.
Ben Southwood: I'm excited for when
they start exercising their rights to
build nuclear power plants in there.
I'm sure we'll get them soon.
I feel like we've been told that the
Disneyland nuclear power plants are
coming, but we haven't got any yet.
Judge Glock: Nuclear power plants
actually gets perfectly to your
other question about the property tax
revolt, which I hadn't talked about.
So one of the things that went wrong
with the property tax, that I've written
about for your magazine is the fact that
historically they were supposed to be
centralized in the body or paid directly
to the local government you were in,
and that was what the property tax did.
Almost by definition they
were the perfect kind of tax.
But in the sixties and seventies,
there were a lot of things that tried
to centralize property taxes, at least
at the state level, especially school
district funding things, that there was
this leftist argument in the sixties
and seventies and still today you hear
it, although much less than you did
that 'Oh, it's this terrible thing
that it's inequitable, you're funding
schools through property taxes' and yeah.
Ben Southwood: So I mean, I
think that it probably was true
to at least some extent, right?
So at least in the 1960s and 1970s, if
you were making this argument, then you're
probably making this argument because
there were schools with lots of African
American, lots of black children in them
that were worse, and schools with lots of
white children in them that were better.
Judge Glock: Yeah.
Ben Southwood: And that was a recognized
problem that everyone accepted was true.
And the question is, did they
address it the right way?
I don't think it was like, I don't
think it was a mistaken premise that
some school districts in the 1970s and
sixties were like badly underfunded.
Judge Glock: It was not necessarily
a mistaken line of argument.
It actually was a mistaken
premise to some extent.
So, yes, like in one sense a lot of this
advocacy had to do with the aftershocks
of the Brown V Board case in the
1950s and all of the desegregation
efforts that were going on then.
And a lot of people saw de-centering
property taxes, the main mechanism
for funding schools as the main way to
continue on that battle against segregated
schools, which was very important and
to your point was a very real problem
in America in the 1950s and sixties.
But this is the important thing actually,
which did get lost in that discussion,
was that the reason the black schools
were often bad was because the districts
themselves decided not to fund them,
even if they were in the same district.
In fact, the south was very interesting
and that because of segregation,
they had massive school districts.
And actually, if you think about this,
it's almost inevitable is that if you
are trying to bus people to different
schools and you can localize them all
in one school in the area, well that's
easy to put a big circle around that
school and make that the district.
But if you have two races that have
to be bused across each angles or
travel across them, you need a lot
of different schools in a much wider
catchment area to allow those students
to all go to these segregated schools.
So the South had actually,
strangely large, and at least in
terms of the districts themselves,
equitably funded districts.
The advocates were a hundred percent
right, that inside those districts, the
black schools were massively underfunded,
but it was not a district problem.
And in the non-South part of America,
places like San Francisco, LA, New
York, et cetera, they actually got the
premise somewhat backwards, and that
a lot of the black migration from the
south was into inner cities and large
central parts of American metropolises.
And those inner cities actually had
the most property taxes because they
had these lovely downtown office
buildings that required no services,
didn't send any kids to school, but
they threw out a lot of property taxes
that actually went to the benefit of
a lot of poor and minority students
that were in these districts precisely
when the white students were fleeing.
So the net result of some of these
advocates work to say no longer fund
schools at the district level with
local property taxes was you either
had state courts decide, well, we have
to centralize it and you have to ship
property taxes across borders, or we
have, just the state legislature takes
them on themselves to centralize it.
Well, you actually had the strange
site of a lot of majority minority
districts shipping school funding to
wealthy suburbs that just didn't have
a lot of office buildings in them.
So it was kind of, they were looking
at this premise entirely the wrong way
through that kind of segregation model,
as opposed to a district funding model.
And now here's where we get to the nuclear
power plant thing that started us off
on this or started me off on this, it's
that, so one of my little favorite studies
in this regard is that they showed that
property values of homes in other places
that had nuclear power plants in their
district went down very drastically after
these school funding battles went in.
And so that seems like kind of absurd
thing, connecting nuclear power
stations, local gov- local home
values and school funding litigation.
But they were all connected in that
when property taxes got centralized,
that money that came from the nuclear
power plant that was going to all of
those local schools, local taxpayers
and so forth, no longer went directly
to them, but got shipped out elsewhere.
So the local governments who weighed
the cost and benefits to some extent
of nuclear power, which seems again,
technocrats, get kind of antsy at
this stuff- what do these, what
do these idiots know about where
to plant a nuclear power plant?
But like the business and the
local governments decide together
that we want this sort of thing.
And after those school equalization
rulings and the centralization of the
property tax, not only did the local value
go down, but there's a lot less incentive
for that local government to say,
yeah, we'd like a nuclear power plant.
You know, all things equal,
we're not thrilled about having
the cooling towers next door.
And I like the views and maybe a pelican's
going to run into them or something,
but if it's helping, it's reducing my
property taxes that's a good trade.
And after that, centralization of
property taxes, one, people turned
against property tax in general which
led to a lot of the revolts we discussed.
And two, it gave those local governments
a lot less incentive to welcome new stuff.
Housing, nuclear power plants, everything.
Ben Southwood: I follow the AI
infrastructure build out to at
least some extent as a spectator.
And you see things like Elon building
in Tennessee, or all the data centers
being built in Loudoun County, Virginia,
which is making $875 million a year
from its local business property tax.
My assumption therefore is that the
places where this is happening still get
to retain most of their property taxes.
Is that a correct impression?
Judge Glock: Yes.
So it is, it's more stable in the south,
and less likely to be centralized.
that is partially because that
weird history of large segregated
school districts that I discussed
before, which again, had a lot
of long-term ramifications that
are really hard to imagine.
They're largely coterminous with
counties in the south, which is
not the case in a lot of the rest
of the country school districts.
But yeah, there is a ton of value.
And to your point about Loudoun County
in Virginia, which I actually have
a piece that is coming out hopefully
in about two months in City Journal,
Manhattan Institute's Journal on
Loudoun County on what happened
here, because that is a strange
story in that, it is the wealthiest
county in America by some measures.
170,000 median household dollars
a year, median household income?
Not too shabby for a median income.
It's filled with just suburban homes,
it's in the outer fringes of the DC
metro area, and somehow this became
the global epicenter of data centers.
It is, if you look at basically it is
Loudoun County at circa four to five
gigawatts of data center capacity.
Number two in the world is Beijing.
And that is a very strange
outcome if you look at it.
But precisely your point,
Virginia does pretty good about
keeping those property taxes.
And right now basically half of the
property taxes in Loudoun are paid
off by these data centers, which I
talked to some of the supervisors
there and they say, 'Hey, these
things don't send kids to school.'
They say this explicitly, they
don't send kids to school.
They don't require policemen
to drive by and break up fights
among servers, they just sit there
and throw off property taxes.
And Loudoun recognize this and basically
actually has what amounts to a free
government, their schooling they still pay
for and partially pay for by the state.
But their police, their roads, their
animal shelters, their parks, basically
any local public good you imagine is
free because of these data centers.
And this is precisely to your point
of the fact that Loudoun was able to
keep so much of that, I'm sure it's
making people like actually me in
Fairfax that doesn't get a hint of
that right next door a little angry.
And if it had been centralized
in Virginia, maybe I could get
my taxes lower a little bit.
But if you think about it in a
different sense of that, allowing
these local governments to capture
that created this wonderful incentive
for them to build out something that
wouldn't have existed at all if not
for that local property incentive.
And so I think, yeah, Loudoun is a
wonderful illustration, which is precisely
why I wrote this story, that's coming
out later on how much this stuff matters.
And you can make Loudoun County, Virginia,
outpaced Beijing in the next wave of the
industrial revolution, which seems absurd
on like seven levels, but totally true.
Ben Southwood: It's pretty impressive.
I, one of the articles we published
recently that was very much on this point
was in the French nuclear build out they
had locally retained business taxes, which
have now basically been scrapped actually,
in the last seven or eight years.
It's a bit of a disaster how
local government incentives
have been completely undermined.
They get shares of sales taxes
now rather than local property
taxes for most of their revenues.
But while they did, if you were in a near
Chooz, on the Belgian border, or if you
were near one of their other 36 nuclear
power plants that were built during
that time, you would, they were known
as like Kuwait on Loire, and everyone
would just have zero property taxes.
Or if they did keep charging some
property, residential property tax
because they then they would be
charging like to give people free
cable TV and to give people like
amazing cars and or whatever it was.
And it's similar to the US in the
lowest unit of French local government
the commune can be very small.
So the area within which it
can be retained is very small.
In the UK we have by international
standards, very large, smallest form
of local government; there are 350
in England and Wales and they've all
got hundreds of thousands of people
and cover thousands of kilometers.
And so potentially some of the incentive
effects, even if you did retain the money,
which let's be clear, you don't in the UK,
but there's extremely high redistribution
between local governments, de facto and
de jure, but even if you did you might
still not want it to happen because if
there's- someone 50 kilometers away might
be happy for the big local government
for the whole area accepting a pile of
cash to allow development near them.
But if you're right near the development,
unless you think that local government
is going to direct the money to you
and your guys who are right near the
development, you might think well.
It's not worth it.
The money's being spread so thinly
across such a wide populace that even
some of the benefits of local government
can't come through potentially.
Judge Glock: And I think that's,
I mean, that's a wonderful
illustration of how important this is.
And I think it does get underestimated.
Because I know a lot of people in both
of our circles are looking about like,
how can we reform the nuclear regulatory
commission and some of these things
in DC they're unquestionably doing a
lot of strange, bad things that are
making innovation and new building hard.
And that's very important to do that work.
But I think just people consistently
underestimate the importance of
not just having local buy-in,
of local demand to build.
If you have the local demand, like of
somebody wanting that nuclear power
plant that creates a political force
that gets all the way up to DC too,
or in France to your same example.
If we can get one of these things,
we're maybe going to talk to our, our
MP or whoever it is, to make sure they
push, hard on that regulatory burden
that's preventing us from doing that.
I think there's a lot of that kind of
political economy communication that
gets cut off when we don't trust these
local governments to do anything.
Ben Southwood: So here's a
controversial thing I like to say
at parties, which is the USA has the
best housing outcomes in the world.
I'm constantly told that the USA has one
of the worst housing shortages, has a
big housing crisis, et cetera, et cetera.
But then when I look at numbers, I
see things like, wow, Americans have
dramatically more like double as much
space per capita on average as Britons do.
And obviously Britain doesn't do
especially well, one of the countries with
relatively poor housing
outcomes for our income
level.
But the US does much better than
countries -if you look at, and I do
not want to pick on literally the
best data journalist in the game, John
Burn-Murdoch, but he did a good article
on, well, he did an article on anglosphere
versus Continental housing outcomes.
And it had loads of
interesting data in it.
But my view was that the overall thrust
was mistaken because it would say, it
implied that Italy has these amazing
housing outcomes or implied places like
Italy or Spain had great housing outcomes.
If you average across the whole of
Italy and Spain fact, there is like
a, it's got loads of spare housing,
but it's got loads of spare housing in
places that people don't want to live.
And it does not have loads of spare
housing in places where, in the growing
cities and even insofar as it does have
spare housing in the growing cities,
which as I say, it doesn't, that's
largely because population growth
in terms of inward migration and not
having outward migration has just been
much higher in anglosphere countries.
So you can construct various numbers
that make anglosphere countries look bad.
And by the way, you don't have to
work very hard to construct them
for the UK because in fact, Britain
is terrible at building houses.
But it's not a general rule;
Australians live in very large houses,
they build at quite high rates.
They just have extremely high immigration.
So it results in overall like they're
doing quite well, but they're not
keeping up with the increased demand.
And that's not me saying that Australia
shouldn't have extremely high immigration.
Firstly, I think it's
their question not mine.
And secondly it seems like it's
going pretty well for them.
And I, and having lots of demand for
the land in your country, which is
something that the people in your country
generally own is basically good for you.
This is like an amazing export that
you can make selling the land of your
country as it gets more valuable.
But on the pure question of does
Australia do a good job on housing?
Well, the average house size
is like 2300 square foot, so
they're doing a pretty good job.
When I live in a country where the average
dwelling size is 850 square foot, I think
that those things aren't fully adjusted.
Judge Glock: There's actually
terrible cross country
comparisons on housing costs.
Just the reason Murdoch in that piece,
and I also argued with that piece a bit
online, was because he showed changes
in housing costs over, I think it was
the last 20 years or whatever it was,
a certain time period, not absolute
numbers of housing costs or housing size.
And to your point, like the last 20
years, 30 years or whatever, is a
very particular period for a bunch
of reasons, immigration and others.
But if America was starting from a
place where their housing costs were
actually a third lower and their size
was twice as much and they happened
to show slightly higher growth, that
would show up as a tragedy in the
Murdoch analysis, which it's actually
not, and again, just kinda the raw
numbers made me squint a lot is, wait
Italy has better housing than America?
Like, that's just categorically false.
We know that's false.
One of the things I rely on is the
OECD keeps numbers of basically,
three estimates of housing costs,
housing quality, and housing
size in America ranks number one.
It's the tallest pygmy.
Ben Southwood: It's absolutely true that
there are severe housing shortages in
say, San Francisco, New York, et cetera,
but also you need to balance that with-
Ed Glaeser, when he looked into it was
80% of US housing markets, US metros,
where a new house on the edge of town
is not significantly different from
the cost of building that new house.
Right?
Suggesting it's limited scarcity.
Now they may have specific localized
shortages, like maybe you can't
get a town home for a good price
in that city or maybe you can't
get an apartment for a good price.
No one's saying there aren't restrictions.
But there are big problems
in lots of different places,
in lots of different ways.
And the metrics are really
bad for teasing them out.
Judge Glock: Yes, and it's not
a simple number either, yeah.
I like the OECD number, but
wait, we're actually, aggregating
Midland, Texas and San Francisco
that means, that's not ideal.
These are very different circumstances.
But on the question of yeah, what America
really has, we've had something more
of a general housing issue since COVID.
I do think that's largely demand
driven, as I've told people it's
because our residences now are also
office spaces and retail spaces.
I'm working out of home right now.
This chunk of space that I have in my
house is some that used to be in an
office building, and now that's been
transferred into all of our houses,
which puts up demand, short term.
But one of the things that often
animates my thought about this is
William Fischel, the economist, who
I think I mentioned briefly before.
He did this wonderful re-analysis of
Federalist 10 by Madison the most over
analyzed piece that's probably ever
been written on political science.
And I'm sure other people have made
this too, but his basic argument was
that, when Madison was talking about
faction competing with faction, he was
actually fundamentally talking about
levels of government and which level
of government should have different
duties, because factions compete with
factions at local governments too.
Why?
When Madison was arguing for the
necessity of a federal government on
top of all of them, why did he need to
make this basic argument about faction?
And Fischel's argument is that Madison
was saying that large centralized
governments tend to be minoritarian;
they tend to listen to the voices
of small groups and individuals.
While lower levels of government tend to
be majoritarian, they tend to listen to
the majority of people most of the time.
And that's why these
local governments work.
If you're looking at the median voter,
if you're looking at how government,
local governments deal with tax
and other things, they're basically
answering to the majority there.
And they're doing it well, which
is what they want them to do.
But local governments do have
this capacity and tendency to be
somewhat oppressive of minorities.
Now as we think of in the US obviously
mainly in the context of civil rights,
and we discuss Brown v Board of
Education, and that is not surprising,
a centralized government that was
taking more than average concern about
a minority inside these states, where
the majority was ruling them, and they
did care about these civil rights.
The reason we care about the Bill of
Rights and other things is that ideally
the federal government is protecting
these minority rights at the local
level from a harsh majoritarianism.
Now, one of the most important
of these rights that has
got lost is property rights.
And a lot of these local governments
have a tendency to kind of expropriate
the value of a handful of property
owners or landlords if it's rent
control, or a small group of farmers
who maybe wanted to develop their land.
And you do want a government that
is able to stop that expropriation.
And I think part of what these cities do
need to have, ideally what they really
need to have is a lot more competition.
But they do need to have a kind of
legal and statutory structure in the
state level that is telling them,
no, you can't simply tell people that
you can't develop anything on your
land, even if it looks exactly like
the neighborhood, two feet over where
it's already been fully developed.
That's an expropriation.
And I think that's what we need to
think about, what these higher levels
of government need to do for these
lower levels when they are preventing,
where they're allowing what is
actually the majority to get their
way, which is often no development.
And, you can do that through
competition and you need to do that
to some extent through those legal
structures protecting property rights.
Ben Southwood: I have a slightly
different instinct on the way to control
it, but I'm not sure if it's right.
This is just, I'll tell you why I
think this and then you can tell
me what you think, which is that.
So in the UK, there's a small dwindling
number of people like me who think
local government is potentially good.
And this is very unpopular, for the
reasons I said at the beginning.
People think local government is corrupt
and venal or like a total joke with
incompetence or can't do anything.
And people like me argue that
no, they've just been given these
massive statutory obligations.
So they, 70% of the average district
council, that's the main form of local
government in the UK, 70% of their
budget is spent on a legal requirement to
provide social care to disabled or, old
people, 70% of the entire budget, right?
So everyone gets really angry.
Their local government is not taking
the bins out enough and they have no
idea that all the money is just being,
spent on like, everything is being
spent on avoiding being sued over
not giving someone a taxi to go to
school or all those sorts of things.
Anyway, the people who do care about
local government will often blame
Margaret Thatcher for destroying it.
And it's absolutely true that Margaret
Thatcher at the very least put the
nail in the coffin of local government.
But I think you could definitely
make the argument like significantly
undermine it in lots of different ways.
But I think that you need to take the
analysis a little bit further back,
which is that Margaret Thatcher doing
that was elected to do that, right?
There was enough widespread support.
Now you could say that she did it as
a kind of personal ideological drive
based on taking power for other reasons.
But I think that's, if you look at
what people were saying when they were
voting and the general undercurrent
of views, that wasn't the case.
There was a widespread view that local
government was bad in the same way
that people think it is bad today.
And in particular, one thing that people
disliked was that the well off minorities,
minority in a different way, right?
Like not a minority that we usually feel
that sympathetic towards, or at least
that many people feel that sympathetic
towards our brave billionaires.
But, the minority of rich people in
an area would face like really high
domestic rates property tax to try and
get loads of cash from them to spend
on local communist projects basically.
And they actually were taken over
by literal communists in loads
of important places in the UK.
People who considered
themselves to be communists.
Judge Glock: Yeah.
Yeah.
Ben Southwood: And they basically
did stuff that they were able to
do, oppress the minority at local
level, which led to these minorities
grouping up at a national level.
And they were enough of a power to
give Thatcher majorities that she
could use to destroy local government.
And obviously we all lose out because I
think infrastructure delivery has been
more expensive and slower since local
government was enervated and denuded.
And I think that house building
incentives, actually, they were kind
of already broken to at least some
extent, but they're much worse now.
And I think that now their places in the
UK don't get that money from data centers
if they built nearby; if you built a data
center in a place that earns more than
average, then that money will just be
taken, pooled and sent somewhere else.
Right?
So, this is clearly bad.
And putting the final nail
in the coffin was itself bad.
But I think that the problems
were already there beforehand.
So what this leads me to think is
perhaps local government needs to have
its functions constrained, and we say
things like redistribution must never
be pursued at a local level, right?
Like we care nationally about inequality
and about poverty, and we should do
those through a national, and unlike -the
local government, shouldn't be giving out
our main disability welfare, like it's
crazy that this is a local government.
Why do we do this at a
local government level?
I don't there's any good
reason for it being local.
Is it possible for a higher government
to not intervene- because you are, what
I'm hearing from you is that maybe the
solution is to have an active, vigilant,
higher government that checks when
they're doing nasty things and goes
in to make sure it's not happening.
But I wonder if local governments
should be constrained from taking the
kinds of, they should be like focusing
on local spillovers, public goods,
economic growth, but not redistribution,
social obligations, social care.
Do you think that's a good
idea or is it impossible?
Judge Glock: I think that's good.
And to some extent that is
how it works in America.
Local governments have almost
no redistributive function.
And there's a famous book, called
City Limits by Peterson, who discussed
exactly why are these functions divided
at different levels of government?
And he identified redistribution as
a fundamentally centralized function
that should be carried out there
because there's just a lot of negative
spillover effects and negative
attraction effects of having different
levels of local welfare provision.
And if you go back even to Adam Smith
and The Wealth of Nations, it's very
fascinating that one of his, some of
his biggest complaints are about the
local apprenticeship and local poor law
systems, which his argument, which is
not entirely wrong, is that because poor
law was funded locally, going back of
course the Elizabethan act, that these
local governments had an incentive to
exclude a lot of people from moving into
them, because they knew it, like this is
where you had the out warning, and this
was actually adopted by a lot of the
Puritans and the pilgrims in America when
they moved over here, that your local
government, because it had a complete
duty to provide for the poor, they were
very careful about letting people move in.
And Adam Smith was himself very concerned
about how this inhibited mobility and in
particular inhibited the working class
from moving to the area where they would
be most productive and most efficient.
And it was a real problem.
And it was only later where some
amount of centralization of these
functions happened that you could break
down these local mobility barriers.
And I think there was simply actually
no way to have both redistributive local
government and free cross area mobility.
And effectively a lot of these
local restrictions I think you
have in a lot of countries.
And I don't know the British situation
quite as well, but I think it's to
some extent of this, is zoning and anti
building ways are effectively a way
to control cross border immigration.
Like you can - different actual
individuals will move in, but they'll
have to have a certain level of income
or whatever it is to move into it.
And that will, using zoning to control
that in migration will limit the
sort of negative effects of having a
locally funded redistributive system.
And I think like actually exactly to
your point, getting rid of that local
redistribution, centralizing that,
which is something that Richard Nixon
in America did to some extent with, the
supplemental security income in 1972.
He said this, we're having all this
cross border problems and so forth.
Let's just make this a pure
federal function, I think would
go a very long way to that.
But I can't help but mention
too, specifically to your point
about the Thatcher problem.
I did mention in that, growing the
growth Coalition piece about her
taking away all the local commercial
property taxes, specifically from local
governments and not allowing them to
benefit, because yeah, these local
governments were bleeding, some of these
businesses dry, but the long-term effect
was local governments in the UK just
didn't build the laboratory space, the
office space, and all the other things
they needed because they got almost
nothing, out of the benefit to that.
Ben Southwood: Specifically
in wealthy areas, right?
So in practice, if you're in a less
well off area, you do generally
retain your business rates effectively
in practice, like because of
the way the formulae are done.
In worse off areas, they
expect to retain more of the
revenues they raise in practice.
And it's very complicated, and I
will get some of the details exactly
wrong if I try and explain them.
In the 1990s, generally, if you were
a well off area, if you raised one
pound, you expected to lose one pound,
so it was almost exactly pulled away.
And that's why you see, especially since
then, you see that- there's a great guy,
there is an entrepreneur called Tom Forth
who writes a lot about local government in
the UK and he's a brilliant thinker and he
has written a lot about how northern local
governments have been much more pro-growth
than local governments in wealthier
areas in like Oxford, Cambridge, London.
And he takes from this that we should
move high human capital government
run orgs like R&D orgs to the northern
cities that are willing to grow,
and shift the agglomeration benefits
there, because we can get more outta
those benefits because the other
inputs are cheaper and more abundant.
And it may or may not be true, but I
think that this gap has widened a lot
since the nineties and this anti-growth
gap, especially on business property-
Judge Glock: Yeah.
Yeah.
- Ben Southwood: has really widened
since the nineties, I think.
Judge Glock: Interesting.
Ben Southwood: Here's a question I
have for you is, so I'm very interested
in the idea of new local governments.
I think that the US and maybe Switzerland
and lots of other countries have invented
pretty good local government systems,
that have generally retained a lot
of their benefits over the long run.
But even those systems have been
best when they've introduced new
systems, or at least there has been
a lot of introduction of new systems.
So, condominiums, new kind of very
small hyperlocal government that
governs an individual building or
basically the same thing governs an
estate, what I would call a housing
estate, a homeowner's association.
Right?
It's like kind of like a condominium
authority, but for a spread out building.
Now, am I right in thinking that
these new institutions came about in
response to local government changing
and not being able to do certain things
that it used to be able to do before?
Judge Glock: Yeah, I think so, to
a large extent and just allowing
more flexibility in setting up
these local governments in
the structure you wanted to.
The interesting thing is historically
in America it was basically founding new
governments out of scratch all the time
for people just creating a new fundamental
constitutional structure there.
And I do sometimes tell people
this that similar to like how the
European Bavarian stance of like
monopoly legitimate violence is a very
specifically European view of government.
And in some sense the kind of
rousseauean social contract or locking
social contract actually operated in
not metaphorical me ways in America.
Often in that you'd have,
there's this famous, story in.
this book Law and Freedom, forgetting
the author's name about a bunch of people
who moved to Wisconsin in the 1830s and
they get together, they're a claims club.
They're kind of doing something illegally,
occupying some of the land, but they
basically form a constitution, about
what their new government is going to be.
And because most government is local
in this time, you are effectively
forming a social contract right
there and then, and from sui generis!
I love this stuff so much because
like for political philosophers
who like all of these very abstract
analogies, like this is actually
happening in America regularly.
You're creating new social
contracts on the ground in a
fundamentally original way.
And some of them are good
and some of them are bad.
But to your point about allowing
these, these efflorescence of new
social structures, new governments,
that really helped, I think,
America grow, and created a fairly
successful local government system.
Now today?
Yes.
Like I mentioned, these local government
codes are very formalized and very
strict, and you create a lot of these
properties, homeowners associations, that
basically run towns like governments.
the Homeowner Association in Reston,
Virginia, I think governs 60,000 people.
So technically it's one of the bigger
cities in the state of Virginia.
The Woodlands in Texas is governed
largely by homeowners association and
they have a lot more power to create
the kind of governance they want.
But in some sense we should just allow
locals a little more discretion about
yeah, when to create these things
and how to create, I mean, in another
fundamental way, Hendrik Hartog, this
great book, Public property and private
power, talked about how the laws of
corporations and municipal corporations in
early America was barely differentiated.
The corporation of the city of New York
was not fundamentally different in legal
terms from the corporation of Chase,
Manhattan Bank or whatever, at the time
it was just Bank of New York or whatever.
And you know, just like today you
have a lot of discretion in creating
a corporation and writing your bylaws
and doing all that sort of stuff.
Back historically in America, you had
a lot of discretion of creating your
local corporation, and how it could work.
And I think a lot of these large
homeowners associations, other
projects are doing it, are creating
those new sorts of governance that
works and creating competition
with the old foreign governance.
But we should also just look at municipal
governments, especially in a competitive
environment, in a not too dissimilar way
from how we look at some corporations
in that we want to let them try out,
we let want to let them compete for
business which are effectively people.
And we want to kind of let the chips fall
where they may sometimes, which is going
to mean some bad ones, and some good ones.
The last thing I'll say, and I keep
saying nothing makes people nervous more
than saying the last thing I'm going
to say on this because one, it shows
they've been talking too long, and two,
it shows that they got something, too
long to say that they have to preface it.
But after that preface, like one
of the things we know about even
competitive free market sector, say
like the shoe industry or something.
The difference in efficiency between
the least efficient and the most
efficient can be like a six x difference.
It can be huge.
And again, a lot of people see similar
like differences in efficiency in local
government and assume that's a failure.
But to some extent, you've got to say,
well, that's just what's going to happen
in any sort of competitive market.
And the ideal centralized version is
not going to be better necessarily.
Ben Southwood: I'm very interested
in whether we can introduce new
local governments to existing areas.
It seems to me that your Americans
settling new areas or stealing land
off people and settling new areas-
Judge Glock: Important.
Yeah, yeah, yeah.
Ben Southwood: -And your HOAs
homeowners associations on
effectively new developments.
Like the territory is claimed
by a state, but no one really
cares that much about it.
It's just farmland.
And then, or even maybe it's just a
forest because it's the US and you don't
need to use all your land as farmland.
Those ones seem much easier politically
than introducing new government
forms within existing inhabited areas
because in an existing inhabited
area, there's always going to be
someone who objects to a change.
But I think that there are big
problems; some of these problems are
particularly American problems, which
is interesting given what we said.
But there are big problems
of local government failure.
So think of Main Streets, for example.
So Main Streets failed in the 1970s and
eighties and people stopped going to
them, and these places get low value or
boarded up or less popular, whatever.
But it doesn't seem like people had
actually lost the desire to walk on a
walkable high street, and go to a bunch
of shops at the same time, and so on.
Like they went to malls.
Malls are just like internal old
high streets done a bit better.
Now that suggests, and by the
way, in worse locations, right?
You've the main street's already
in the best possible locations.
They're in the easiest,
successful locations.
Why do they fail?
Well, it seems to me that local
government was either bad at doing
its job and had bad ideas, or the
voters were telling it to do the wrong
thing, or it was constrained from
achieving the things it needed to do.
So in the interest of like
- main streets have some prisoner's
dilemma situations going on.
Right?
Whereas if it's in total fragmented
ownership, every shop is owned by
a different person and there are no
rules about what you can do, then
often you have an incentive to have
lurid signs to attract people to you.
And to have businesses that generate a
high revenue per square foot, but destroy
the revenue in all nearby businesses.
Like you are running a legal brothel
or something like, I don't know.
I dunno.
But there are lots of
businesses that do that, right?
Or something noxious or bringing
criminals in or whatever it is.
And of course, shopping malls have,
they're pedestrianized and obviously roads
are very useful infrastructure, but also
cars going past fast in the middle of
a two sides of a high street to a main
street is like extremely enervating on
public life there and means that it's not
a very attractive place to go shopping.
Judge Glock: Yeah.
Ben Southwood: And so all of these
factors put together, and also you can't
control crime, you have malls where you
can keep everyone out, if you want to.
And then there aren't going to be any
like known criminals running around or
drug dealers, on the corner, whereas.
You know, it's a free country that on a
main street, that that might just happen.
So I wonder, can we come up with
ways to tackle this problem?
I went to the meat packing district,
Chelsea, in New York, and there's a
business improvement district there.
And they have removed
most of the ugliest signs.
They've resurfaced, they've torn up
the tarmac so that the original stone
sets are many of the streets, the
pavements are all flagstones rather
than, like nice stone flagstones rather
than tarmac or anything like that.
Or concrete or broken concrete as
it mostly is in the UK, like broken
concrete panels with big holes, and
so they've done a good job there.
Is that a generalizable thing?
Like could we recover loads of main
streets and of course they've got
regulated shop signs and all the
shops and they're not letting random
smoke shops set up there or whatever.
It's a curated, nice set of shops, no
hotelling problems, you get a nice mix.
Is this something we can generalize?
Like are business improvement
districts the answer or is there a
big- why isn't this more widespread?
Basically, yeah.
Why aren't we doing this across the US?
Judge Glock: I think it's
becoming much more common.
And you know, Dan Biederman, who was
the guy who created the, I believe
the 42nd Street Improvement District
in New York and kind of led off the
American movement for bids as they're
called, was a big part of this.
And he realized all the problems
that you identified and realized
there could be a governance solution
to that, which is creating this
semi-independent body that has some amount
of authority and got uniformed guys.
They're not policemen, but they'll
shoo away the right people.
And they're not carrying guns, but
they'll make clear who can be there
and who can't be there, and try to
create some of these, or internalize
some of these externalities that exist.
Ben Southwood: That's
what we have time for.
That was the Works in Progress podcast.
Thank you very much, Judge, for coming on.
Thank you everyone for listening.