WHY MORE HUDs LIE AHEAD


             The Washington Post (November 26, 1989, p. C5) is perfectly

        right that there will be more HUD scandals.  But the explanation

        offered in the story headlined "Why More HUDs Lie Ahead" is all

        wrong.

             The subheadline laments "So Many Share the Scandal's

        Blame...And So Few Will Pay".  The Post blames Congress for its

        lack of oversight of HUD. Blame and punishment might make us feel

        good.  But that's all they can do.

             The real problem is a system in which bureaucrats are given

        responsibility for allocating goodies - in this case, spreading

        funds among suppliers of housing services.  The newly-announced

        Congressional plan to "plug loopholes" (December 1, 1989, p. A25)

        offers just band-aids, not a cure.

             So long as we focus on people rather than structure, we will

        have abuses and scandals.  But journalists and politicians are

        drawn to analyses of personal characteristics the way a moth is

        attracted to the flame.

             For example, in the Wall Street Journal of June 26, 1989, a

        front-page story talked about how Deborah Dean, 33, ran a shoddy

        operation involving billions of dollars at the Department of

        Housing and Urban Development.  The story referred to her and her

        associates as "young adults" and a "kiddie corps."  It asked:

        "Where were the grown-ups?"

             Two pages later, a headline spoke about "China's Old Men" in
        `a story about the transfer of power after the Tiananmen Square
        massacre and crackdown.  The story referred to the Chinese
        leaders as "old guys in their 80s".

             Both stories imply that the officials' ages are important

        determinants in their activities and decisions.  They suggest

        that if people of more "appropriate" ages were put into office,

        the public would be better served.

             These stories illustrate a recurrent fallacy in human

        thinking.  In a book entitled Human Inference, Robert Nisbett and

        Lee Ross review extensive studies showing that people are likely

        to err by explaining events by recourse to the characteristics of

        the actors instead of the structural conditions of the situation.

        In both China and HUD, the key element is the existence of a

        governmental entity which puts money and/or power at the disposal

        of officials.  As long as this condition exists, the likelihood

        of abuse exists.  Sometimes the public gets lucky and the

        officials are honest and humble.  But inevitably some officials

        will take advantage of the opportunities.

             Consider, for example, a current bone of contention - HUD's

        method of setting rents in HUD-subsidized housing.  A Washington

        state developer took HUD to court and won a suit charging that

        HUD's formula is unsound.  But any conceivable bureaucrat-set

        formula will favor some developers more than others.  This opens

        the door to a never-ending cycle of lobbying and bribery intended

        to alter the formula - no matter how the formula is set.

             The solution, then, is not to call for better officials --

        of the right age, say.  The solution is to change the system.

             A June 29 letter in the Washington Post agrees in laying the

        blame on the structure of the HUD program:  "What they are trying

        to clean up is inherently corrupt and corruptible."  But the

        writer offers a different solution of "direct construction of

        socially owned housing".  This is the Polish system.  Its

        results:  Polish couples register new-born babies for apartments,

        hoping that the children will reach the top of the list by the

        age of marriage.  And of course this "solution" provides huge

        opportunity for corruption.

             The only solution that does not create new opportunities for

        corruption is to put the market to work on both the demand side

        and the supply side.  On the demand side, this means giving poor

        people the sums of money they need, either as straight income

        grants or as money earmarked for housing.  The former is much

        better, but the latter is more politically palatable.  Like any

        change away from centralization and toward markets in China and

        the Soviet Union, however, such a program is opposed by the

        bureaucrats who owe the programs their jobs and opportunities for

        graft.

             The kneejerk objection to giving poor people money to pay

        for their needs, including housing, is that the recipients will

        use the money for drink and drugs instead of milk, baby shoes,

        and shelter.  Only the watchful eye of well-educated, properly

        moral bureaucrats and social workers can prevent such an outcome,

        it is always said.  Put aside the obvious self-righteousness and

        self-congratulation of this proposition.  It can also be

        understood as job protection for government workers.  A big chunk

        of the federal bureaucracy would have nothing to do if a program

        of straight grants to the poor cut the bureaucrats out of the

        welfare chain.

             The supply side of the solution is to provide a legal

        opportunity for developers to make money from low-income housing

        -- by building and maintaining homes that the poor will rent or

        buy.  One of the advantages of a market system is that people are

        enabled legally to make a wider variety of voluntary exchanges

        than in a system where prices are fixed centrally and where

        supply does not equal demand at the market price.  For example,

        Viktor Ivanovich Vishnyakov, once a deputy minister of

        agriculture in the U. S. S. R., is now serving 15 years in prison

        for (among other fixes) taking fees to obtain apartments for

        clients. In the U. S. he could operate as an honest broker.


             Indeed, sometimes the only difference is whether the society

        calls the activity legal and ethical or illegal and despicable.

        In the United States, a supermarket manager wins profit and

        praise for stocking delicacies and supplying them to customers

        who are willing to pay a handsome price.  In the Soviet Union the

        outcome is different. A few years back the director of Moscow's

        Gastronom No. 1 - a grocery store that sells gourmet foods to the

        elite - was put to death for selling delicacies like black caviar

        and wild boar out the back door.  In the U. S., he would get a

        bonus for his initiative, and he could use the front door.


             In addition to corruption, there is another cost of

        allocation by bureaucrats:  The wasteful misuse of valuable human

        talent.  It is interesting to wonder what Dean and Deng might

        have done if government jobs had not been available and if

        instead they had applied their talents and energies in other

        fields.  Deng might have clambered to the top of a huge firm in a

        swashbuckling industry such as ocean shipping.  And Dean might

        have started a bang-up temporary employment firm and franchised

        it across the country.  Both enterprises might have served the

        public admirably.  Perhaps I give both Deng and Dean too much

        credit on the business skills side.  But there is little doubt

        that the same people who choose the anti-social route in one set

        of circumstances will choose socially-beneficial activities in

        another set of circumstances.

             Jack Kemp knows that changing the structure is the only true

        solution.  Indeed, he might well be willing to preside over the

        closing down of all the HUD hand-out programs even if it cost him

        a job.  Unfortunately, such a solution -- please forgive the

        gross metaphors, but nothing else packs their wallop -- is as

        welcome in Washington as a turd in the punchbowl, and it has the

        political survival potential of a fart in the breeze.  The only

        less likely governmental action is a city council auctioning off

        a cable television franchise instead of presiding over a

        politically-based decision. And the only less likely event of any

        kind is journalists foregoing the game of hunting out the

        inevitable giveaway abuses  and then playing pin the blame on the

        appropriate donkey or elephant or even non-political civil

        servant.






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