The mirage of revealed preferences

I often hear from libertarian-inclined defenders of the suburban status quo that the fact that American is so overwhelmingly suburban is proof that it’s what Americans want. Economists call this “revealed preference,” but it could also be understood as voting with your feet and wallet. People have made the decision to live in the suburbs, so there must be something they like about it. Randal O’Toole of Cato and Wendell Cox of Demographia have both made versions of this argument, as has Jesse Walker back when he was at CEI. Though some liberals take issue with the idea that markets reflect preferences better than democracy, for the most part people understand that there’s wisdom in consumer choices.

There is, however, one catch to using revealed preferences: the market has to actually be a market. That is, it has to be free of regulation and subsidies that push consumers too much one way or the other. So, for example, you cannot use consumers’ “revealed” preference for high-fructose corn syrup to argue that Americans prefer it over sugar, because the government massively subsidizes corn and imposes tariffs and quotas on sugar.

Now of course, America has a mixed economy, with an arcane structure of rules and regulations undergirding a capitalist system, so no sector is going to be entirely free of interference.  Although people like O’Toole are adamant in their stated opposition to parking minimums and mandatory low density zoning, they believe that density-forbidding regulations are mostly benign and unnecessary, since most Americans wouldn’t really want to live more densely than they do now.  By this logic, even if restrictions on density were loosened, developers wouldn’t change their ways and America’s deeply suburban land use and transportation patterns would endure.

At the end of the day, whether not we can use “revealed preference” becomes an empirical question: do developers want to build more densely than current regulations allow?  Land use is an enormously complicated and hyperlocal subject, with good data only beginning to emerge, but from what I’ve seen, the answer is an emphatic yes.  Everyone can probably agree that there is a huge amount of pent up demand for density in desirable East Coast urban cores, with high-end markets in illegal land uses.  But empirical proof is more compelling, and in that vein, I think this paper on parking minimums in Los Angeles County is the best evidence we have so far that land use codes induce sprawl beyond the market equilibrium.

Of course, that one paper is not the be all, end all of land use research.  But regardless of which way the evidence goes, I at least recognize that divining Americans’ desired land use patterns is more complicated than looking at the status quo – simply saying “Houston” and waving your hands is not enough.  Too many libertarian defenders of suburbia accept the status as a preference revealed by market competition and refuse to accept debate on this point, and from shaky premises can only come shaky conclusions.