California Voters Take Free Market Positions On Some Key Ballot Measures
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California Voters Take Free Market Positions On Some Key Ballot Measures

As for the potentially positive long-term political and policy implications, it seems many Californians remain open to economically rational public policies. 

On Tuesday, California voters defeated a statewide rent control measure and Los Angeles city voters declined to move forward with a public bank. These results suggest the electorate has the economic wisdom to turn back some of the state’s worst economy-damaging impulses. And it may even augur well for market-friendly policy ideas in the Golden State going forward.

Proposition 10, a measure which would have restored local governments’ ability to impose new rent control laws, was defeated by a wide margin. More than 60 percent of those voting on the measure opted to retain the Costa-Hawkins Act, a state law that prohibits local rent controls on properties built since the mid-1990s. Passage of the measure would have freed cities like Santa Monica to impose price controls on new rental housing, thereby likely choking off the already insufficient amount of new residential housing construction going up in California.

The vote against Proposition 10, along with the passage of two statewide affordable housing bond measures and a new corporate tax to support homeless services in San Francisco is suggestive of a pattern. Voters, aware of skyrocketing housing costs and widespread homelessness, want to see more housing supply.

New housing units can be added most cost-effectively inland, where land acquisition costs are lower. Unfortunately, a lot of the bond funds will be devoted to central city residential in-fill projects that could be built privately for market rents and without subsidies. While San Francisco’s leaders have rightly called for a regional approach to the Bay Area’s housing crisis, what is really needed is a statewide strategy.

It would be much cheaper to build large amounts of supportive housing well inland. The state should deploy affordable housing bond proceeds away from San Francisco, San Jose, Los Angeles, and San Diego, where land acquisition costs are so high. Instead, the state should consider increasing the amount of social service funding it makes available to inland counties if they approve affordable housing units and take in homeless or under-housed individuals from coastal counties.

In Los Angeles, voters rejected a measure that would have paved the way for the city to create a public bank. Municipal and state-owned banks have become a holy grail for some activists in the aftermath of the 2008 financial crisis. The Bush administration’s Troubled Asset Relief Program (TARP) reinforced suspicions that banking is a one-way bet, with bankers reaping windfall profits and big compensation packages during the good times and then handing taxpayers the bill for bad loans when the music stops. Why not end this rollercoaster through public ownership, the reasoning goes.

But, as recent experiences in Germany show, public banks don’t necessarily protect taxpayers; indeed, they often heighten risks to the public purse. While TARP loans were ultimately repaid with interest, failures at multiple German publicly-owned banks necessitated tax funded bailouts that will never be recouped.

A better way to take the excess profits and cushy compensation packages out of banking is to encourage more competition—from both for-profit startups and not for profits.

Web-based, peer-to-peer lending platforms like LendingClub make it easier for savers and borrowers to connect with one another while limiting the amount taken by intermediaries. Alternative payment providers like Veem compete with expensive funds transfer services offered by banks. In recent years, the term fintech has come to embrace a wide array of technology-driven financial innovations that provide viable alternatives to consumers frustrated with banks. It is worth noting that banks have responded with significant innovations of their own – as anyone who deposits checks via their smartphone or uses Zelle for interbank transfers can confirm.

Alternative banking does not necessarily have to be a for-profit enterprise. Kiva is a non-profit that helps borrowers in 80 countries obtain subsidized microloans to help them start businesses. Another financial non-profit, EARN, helps low-income families save for retirement and other purposes.

So rather than pursue an initiative that could impose more risk on the community, public bank advocates in Los Angeles and elsewhere should consider partnering with startups and non-profits to provide better, cheaper and more socially responsible financial services.  The $44,000 advocates raised for the Los Angeles public banking ballot measure could have more usefully invested in microloans to struggling Angelinos.

As for the potentially positive long-term political and policy implications, it seems many Californians remain open to economically rational public policies.

Marc Joffe

Marc Joffe is a senior policy analyst at Reason Foundation.