This, it turns out, is an important question, because there's a strong correlation between trust in government and overall prosperity (the above chart is via NZZ). The extreme examples of distrust are somewhat intuitive. If, for example, you don't believe that your government will uphold property rights, why would you ever want to risk investing in property?

But it can be even more subtle and insidious:

Trust is central to both stability and development. If citizens have trust in their system, they will be more likely to push for growth-promoting reforms. Moreover, they will be more confident that politicians will actually implement such reforms, and that sacrifices made today will pay off in the future. If this trust is lost, democracies become unstable, and autocratic tendencies are more likely to prevail. However, trust is also important for the transition from an autocracy geared solely toward the extraction of resources and wealth into a progressive democracy. A politically dominant class that governs autocratically will make concessions voluntarily and refrain from repression only if it trusts that it too will benefit from the institutional changes over the long term, and that it will not later be deprived of all opportunities.

All of this forms part of the work of economists Daron Acemoglu, Simon Johnson and James A. Robinson, who were awarded the Nobel Prize in Economics earlier this year. Their research explains why wealth is so unevenly distributed across the world. It's a problem of institutions. But it's also highly relevant to countries that are already rich.

Distrust is on the rise in countries like the UK (57%), France, (51%), Germany (49%), and Italy (47%). The outliers among OECD countries are places like Luxembourg and Switzerland. Only 25% of Swiss people express distrust in the government. That's a good thing for overall prosperity and it shows in their GDP. So how can we be more like the Swiss?

Radical transparency when it comes to decision making and more of a direct democracy (versus a representative democracy) are two places to start, according to the research. People, it seems, trust their government more when they themselves make more of the decisions.

Here's the full NZZ article. It's an illuminating read.

In 2019, London implemented something known as an Ultra-Low Emission Zone (or ULEZ). The intent was to reduce the number of older and higher-polluting vehicles entering and driving around the city.

It works like this: If you have a vehicle that does not meet the ULEZ emission standards, you need to pay a daily charge of £12.50. This applies all day every day (except Christmas) and it is in addition to London's congestion charge.

It's also done entirely through license plate cameras. If you enter the zone, don't have an approved plate, and don't pay the charge within a few days, you get sent a fine. The result is that London's ULEZ is now the largest clean air zone in the world (at least according to London).

It also achieved its intended purpose. In 2017, only 39% of cars entering London would have met the ULEZ emission standards. Today the number is over 95%. Meaning, most people don't actually pay the charge.

At the same time, nitrogen dioxide levels in the zone have more than halved, improving overall health outcomes. It's a perfect example of taxing the things you want less of. What's also interesting is that there were positive second-order consequences.

Vehicle traffic as a whole declined by about 9% in the first year, with no evidence of displacement to other areas. And according to this research study, it actually encouraged more kids to walk and take other forms of "active transport" to and from school.

Seems like a no brainer to me.

Yesterday's post tried to pit politics against the realities of how we know cities and economics work. So today, I thought I would share a set of memos from Howard Marks (of Oaktree Capital) titled Economic Reality, Political Reality (which he refers to as an oxymoron), and Shall We Repeal the Laws of Economics?

In this last one, he specifically talks about things like price gouging (starting with the grocery industry) and apartment rent controls. Each is worth a full read when you have the time, but here I'll leave you all with a few city building-related thoughts.

Marks describes economics as the study of choice. And within these choices, there are many complicated moving pieces and second-order consequences. Take, for example, rent control in New York City. What rent control does is stop the free market from being able to freely set rents. The result:

A person in favor of this arrangement would argue that it maintains affordability and diversity. What it means in purely economic terms is that some people who couldn’t afford to live in New York City if rents were set by free-market forces are able to live there if they’re lucky enough to secure an apartment with regulated rent. But other people who would like to live in New York City and can afford higher rents can’t do so because there are no apartments for them. And lastly, landlords that have apartments that are somehow unregulated can command higher rents than would be the case if additions to the supply of apartments weren’t being discouraged. It’s a matter of personal philosophy whether this is good or bad. But clearly, the laws of economics and the actions of free markets aren’t at work in New York City. Someone in government is making the decisions.

Much like inclusionary zoning in the case of new housing, the tradeoffs with regulated rents are that you get (1) less overall housing supply and (2) more expensive prices for the people that can pay market rents.

You could argue, as Marks suggests, that these are acceptable outcomes; but regardless of your opinion, there are real consequences to this policy decision. There's no such thing as a "free lunch" in economics, and consequently there's no such thing as no-cost affordable housing. The question is: Who pays?

Going back to the topic of traffic congestion from yesterday's post, Toronto's general reluctance to implement any form of road or congestion pricing is also an economic choice. We have priced our roads so cheaply that demand is always going to outstrip supply. And this is expected. What we are experiencing today is a natural market outcome.

Targeting bike lanes as part of the problem is meant to counter this by increasing road supply. Less bike lanes means more space for cars, right? But the second-order consequence of this choice is that you push people off their bikes (which take up less road space) and into cars (which take up more road space). So demand is also likely to increase.

The stark reality of solving traffic congestion is that it will require greater change. It will mean fewer people driving, more people taking transit and biking, and the people who do continue to drive will have to pay more for it.

Of course, this is not what any politician wants to talk about. As Marks says: "In the world of politics, there can be limitless benefits and something for everyone. But in economics, there are only tradeoffs." The tradeoff we have decided to make is cheap roads in exchange for crippling traffic congestion.