Klein on Construction

Here’s Klein writing about construction productivity in the New York Times:

Here’s something odd: We’re getting worse at construction. Think of the technology we have today that we didn’t in the 1970s. The new generations of power tools and computer modeling and teleconferencing and advanced machinery and prefab materials and global shipping. You’d think we could build much more, much faster, for less money, than in the past. But we can’t. Or, at least, we don’t.

…A construction worker in 2020 produced less than a construction worker in 1970, at least according to the official statistics. Contrast that with the economy overall, where labor productivity rose by 290 percent between 1950 and 2020, or to the manufacturing sector, which saw a stunning ninefold increase in productivity.

In the piquantly titled “The Strange and Awful Path of Productivity in the U.S. Construction Sector,” Austan Goolsbee, the newly appointed chairman of the Chicago Federal Reserve and the former chairman of the Council of Economic Advisers under President Barack Obama, and Chad Syverson, an economist at the University of Chicago’s Booth School of Business, set out to uncover whether this is all just a trick of statistics, and if not, what has gone wrong.

After eliminating mismeasurement and some other possibilities following Goolsbee and Syverson, Klein harkens back to our discussion of Mancur Olson’s Rise and Decline of Nations and offers a modified Olson thesis, namely too may veto points.

…It’s relatively easy to build things that exist only in computer code. It’s harder, but manageable, to manipulate matter within the four walls of a factory. When you construct a new building or subway tunnel or highway, you have to navigate neighbors and communities and existing roads and emergency access vehicles and politicians and beloved views of the park and the possibility of earthquakes and on and on. Construction may well be the industry with the most exposure to Olson’s thesis. And since Olson’s thesis is about affluent countries generally, it fits the international data, too.

I ran this argument by Zarenski. As I finished, he told me that I couldn’t see it over the phone, but he was nodding his head up and down enthusiastically. “There are so many people who want to have some say over a project,” he said. “You have to meet so many parking spaces, per unit. It needs to be this far back from the sight lines. You have to use this much reclaimed water. You didn’t have 30 people sitting in an hearing room for the approval of a permit 40 years ago.”

This also explains why measured regulation isn’t necessarily determinative. Regulation provides the fulcrum but it’s interest groups that man the lever.

Some of this is expressed through regulation. Anyone who has tracked housing construction in high-income and low-income areas knows that power operates informally, too. There’s a reason so much recent construction in Washington, D.C., has happened in the city’s Southwest, rather than in Georgetown. When richer residents want something stopped, they know how to organize — and they often already have the organizations, to say nothing of the lobbyists and access, needed to stop it.

This, Syverson said, was closest to his view on the construction slowdown, though he didn’t know how to test it against the data. “There are a million veto points,” he said. “There are a lot of mouths at the trough that need to be fed to get anything started or done. So many people can gum up the works.”

Read the whole thing.