Better Wages and Lower Cost of Living in California Depend on Better Understanding of Economics

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A San Francisco teacher’s union is threatening a strike because proposed wage increases won’t be sufficient to keep up with the skyrocketing cost of living.

Raising wages might seem like the obvious solution to a skyrocketing cost of living, but it fails to actually address the sources of the extremely high cost of living in the Bay Area. One of the biggest is the cost of housing, which is artificially high due to government land-use regulations that restrict new development. Writing in a recent report for the Pacific Research Institute, Wendell Cox says,

There is considerable evidence that urban containment policies drive up the price of land for residential development, especially by rationing land. This is consistent with the economic principle that rationing of a good or service tends to lead to higher prices. Urban containment policies are in wide use in the Bay Area, especially urban growth boundaries, while house prices have escalated far out of proportion with the increase in household incomes.

The real solution to San Francisco’s problem is a better understanding of economics. Productivity drives wage increases, so fostering conditions that allow us to do more with the same or less is where we should start. As economics professors James D. Gwartney and Richard L. Stroup note on page 13 of their book, What Everyone Should Know About Economics and Prosperity,

Once the linkage between output and income is recognized, the real source of economic progress is clarified. We improve our standard of living (income) by figuring out how to produce more output (things that people value). Economic progress is dependent, for example, on our ability to build a better house, computer, or video camera with the same or a lesser amount of labour and other resources. Without increases in real output…there can be no increases in income and no improvement in our living standards.

California currently has one of the worst tax environments in the country. Instead of attempting to further penalize San Francisco taxpayers, San Francisco teachers should push for market reforms that could benefit everyone.

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