Luis Garicano on Spain, Europe, and the Future of Work

Tyler Cowen (0:04)

Conversations with Tyler is produced by the Mercatus Center at George Mason University, bridging the gap between academic ideas and real world problems. Learn more at mercatus.org. For a full transcript of every conversation enhanced with helpful links, visit conversationswithtyler.com.

Hello, everyone, and welcome back to Conversations with Tyler. Today I am honored to be speaking with Luis Garicano. He is a Spanish economist, one of the best known and also best economists in Europe. He was also a member of the European Parliament. He taught at the University of Chicago Business School. He is now for the second time at London School of Economics. He has a new and excellent book out, as far as I know, the best book on AI and the job market. It is called Messy Jobs, and it is co-authored with Jin Li and Yanhui Wu. Luis, welcome.

Luis Garicano (1:02)

Thanks very much for having me. It's a really pleasure.

Tyler Cowen (1:05)

We will get to Messy Jobs, but first I have so many questions about Spain.

So why is it that Spain has become so NIMBY? Before the great financial crisis, there's so many homes being built, right? There's overbuilding, everyone goes crazy. Now it seems to be land of NIMBY. What's been the switch in the political equilibrium?

Luis Garicano (1:25)

There is part of it which is ideas matter. So Spain was pretty permissive about housing. There was a pretty elastic supply and people were building all over the place, up to 800,000 houses a year, which is a lot for our country.

What happened is that we got a housing bubble. It exploded. There was a lot of overbuilding at the time for many reasons, but basically there was a triangle between promoters and local politicians and the savings banks, a bit like your SNL crisis. People identified easy building with corruption, and people identified easy building with high prices, believe it or not. There really is a serious debate in the Spanish media. Maybe, I guess, you're not so surprised with Mamdami in New York, but there is a very serious debate on whether building more houses with lower prices, and there is people saying, no, it has nothing to do with how many houses you have.

People think that building wouldn't solve it, and they think that you need to restrict tourist flats and so on. There has been some of that. There's also been, after the bubble, a big restriction on the rights of municipalities to make decisions on land, which because it was supposed to lead to corruption. This is something that has happened in many areas, that you're trying to make people accountable, and you end up making people scared, and making people unempowering, and people who could make the decisions, and you end up with a completely rigid supply, which is what we have now, hundreds of thousands of immigrants per year, only a hundred less than a hundred thousand houses built per year. And indeed, as you said, no YIMBY movement at all. It's completely YIMBY. There is nobody in Spain, maybe just a very few people, including me, saying, hey, let's build more housing.

Tyler Cowen (3:10)

If you drive through Spain, which I'm sure you've done more than I have, but a lot of it is really quite empty, right? And you see those big billboards with the black ball and nothing else for miles. What are you going to do with all that land? What does that equilibrium look like? That simply people crowd into a few cities and the rest just dwindles?

Luis Garicano (3:28)

Yes. The current way that housing is built is basically very much by agglomerating in the center. So a very large share, I don't remember the exact number, but a very large share of the most dense census tracts in square kilometers in Europe are in Spain, in Madrid and in Barcelona, which is surprising for a country that is completely empty.

First, we are putting a lot of solar energy on that empty land. But second, there is a lot of restrictions on what you can do with it because of biodiversity. There's a ring around Madrid where you cannot build like around London. In Barcelona, people think you couldn't build, people think Barcelona is full. In fact, all the area around the airport is empty and it's agricultural land. But people in Barcelona are convinced it's impossible to grow the city. So a lot of it has to do with biodiversity regulations and effort to keep nature and so on. My other country is England, of course, where I'm working and living right now. England, the United Kingdom has this view that you touch any bird, that construction has to be completely stopped. Spain is not on that extreme, but all of those concerns matter a lot.