Marc Comtois highlights another fascinating glimpse into the reasoning behind policy ideas that he and I agree are, well, in error. I’m speaking of this paragraph from Slate’s Matthew Yglesias:

… I’m especially enthusiastic about the mortgage part. Suppose homeowners in expensive coastal cities couldn’t deduct their mortgage interest, what would happen? Well, what would happen is that prices would fall. But nothing more dramatic than that. All the deduction does is encourage further bidding up of the price. In a normal market, that bidding up of the price might lead to additional construction. But the main reason those blue metro areas have such expensive houses is that zoning doesn’t allow demand to be matched with supply. No matter how expensive Georgetown or Harvard Square or Park Avenue gets they’re not demolishing the existing structures and replacing them with much larger ones. So you’d get some extra tax revenue this way with no real change in the amount of underlying economic activity.

Look, I’ve been known to make statements about the effects of policies that are arguably over-confident, but at this level of detail, human behavior has a definite x-factor of which policymakers (and policy-propounders) should beware.
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