Homelessness as Market Failure?

By Robert Bernstein   |   December 7, 2021

My last article talked about the climate crisis as an example of market failure. “Free” markets in fact require a vast government infrastructure: Laws, enforcement, courts, established financial systems. And a system to rebalance extreme wealth inequalities.

Homelessness results from a lack of the latter mechanism. Wealth begets wealth. This can happen directly as wealth can be invested to provide returns in perpetuity. Wealth also provides access to opportunities to acquire more wealth. This can happen in a productive way through education and hard work.

Or it can happen unproductively when one wealthy person offers inside information to another wealthy person.

The contrapositive of “wealth begets wealth” is that lack of wealth begets poverty. Homelessness is an example. When the opportunity presents itself, I try to find out how someone who is down and out got that way. Very often, the person had a good education and a good job. But a single setback can end all of that in an instant.

In civilized countries, there is good infrastructure to get a person back on their feet after such a setback. But the U.S. lacks this. In many cases that I found, that setback was an injury or health problem. The person could not work and thereby lost their health insurance and housing. It is very difficult to get out of this downward free fall.

I have a good friend I will call “Ben” who became homeless due to accusations by a very scary housemate I will call “Maleficent.” Both were renting rooms from another friend I will call “Kevin.” The case ended up in court. A room full of people testified that Ben is a slightly quirky guy, but he is good hearted, generous, and would never hurt anyone. Kevin’s daughter was there to testify that she trusted Ben to babysit her child. Only one person testified for Maleficent, and she seemed to be paid to do so. I had previous experience with Maleficent as a gold digger. The judge in her infinite wisdom sided with Maleficent. Ben had done the gallant thing and moved out during the conflict. The judge ruled the “solution” was for Ben to stay moved out. Ben was now homeless.

Ben tried to stay at a local homeless shelter. It was a living hell. You had to be in early and out early. You had to endure religious indoctrination. Many absurdly strict rules. It is easy to see why many would prefer a tent in the bushes. And try finding a job when you have no real address.

But here is another story. I came to California alone as a teen, knowing no one. I faced a housing crunch and was lucky to find a room in a big old rooming house. People asked me what I was doing. When I told them I was studying physics I was often offered a “theory” of physics that was incomprehensible. I discovered half of my housemates were living on Social Security SSI for mental illness. Many of my housemates hallucinated imaginary beings and many did a variety of illicit substances. In the year that I lived there, I don’t remember a single visit by the police.

It seems that being mentally ill or being an illegal substance user does not inherently cause homelessness or conflicts with other people or with the law. Having a safe room to go to itself solves the problem. Unfortunately, Reagan later made it almost impossible to get on SSI. And the “war on drugs” kicked people out of housing for doing drugs that caused no harm to anyone else. Being homeless itself will drive most people insane and to use substances.

H. L. Mencken said, “For every complex problem there is an answer that is clear, simple, and wrong.”

But sometimes there is a problem that seems complex that really does have a simple solution: If people are homeless, give them housing. This is far cheaper than the absurd industry of arresting and jailing people for being poor and desperate.

Free markets only work if everyone has money to participate. The U.S. has such extreme inequality that millions have no place to live while others gobble up entire blocks of housing for real estate speculation. Libertarian economist Milton Friedman recommended the government provide a guaranteed income for all. Redistributing wealth is not a matter of charity – it is essential for markets to even function.


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