12 Leaders The EconomistFebruary 15th 2020
2 predicted that low rates would cause “ruinous inflation” in the
early 2010s, when the unemployment rate was near 9%, to a dove
who wants the Fed to cut rates “expeditiously” today, when jobs
are booming. In principle this is no cause for shame. Central
bankers change their minds often, and some have undergone
similar wholesale transformations. But Ms Shelton’s change of
heart looks calculated to advance her career. In addition to want-
ing rate cuts, she now argues that the Fed should work “hand in
hand” with Congress and the White House and that it should
pursue a weaker dollar to help exporters—sycophantic echoes of
Mr Trump. Ms Shelton has even suggested that there should be
an international economic summit, in the spirit of Bretton
Woods, held at Mr Trump’s Mar-a-Lago resort.
Ms Shelton is right that the Fed’s independence is more prin-
ciple than law. But that is all the more reason to defend it, by op-
posing the appointment of cronies. The central bank alreadylooks vulnerable. If Mr Trump wins re-election, he could choose
to replace Jerome Powell, the Fed’s chair. If he loses, the new oc-
cupant of the White House may want to pick a fight with the Fed.
Bernie Sanders is now the front-runner for the Democratic
nomination (see United States section). He once sponsored leg-
islation designed to give Congress more control over monetary
policy, and in 2015 denounced an interest-rate rise as evidence of
a “rigged economic system”. Democrats and Republicans alike
have grown accustomed to the ballooning deficits that low inter-
est rates make possible. Washington will be in no mood for
tighter monetary policy if that proves necessary.
The Fed is one of the few parts of America’s government not to
have been afflicted by the country’s toxic partisan divides and
win-at-all-costs politics. The Senate must protect the central
bank by rejecting overtly political nominations to its board. It
should say no to Ms Shelton. 7T
he stakes are high. Along with getting married and choosing
a career, buying or selling a home is one of the biggest deci-
sions most people make. In America, especially, the sums are
vast. In total the country’s residential property is worth
$34trn—as much as the value of all its publicly listed firms—and
last year people traded properties worth $1.5trn. Yet compared
with other industries and other countries, buying and selling
property in America is cumbersome—and extraordinarily ex-
pensive. In an industry crying out for technological disruption,
the only revolutionary change over the past decade has been the
rise of celebrity estate agents who star in reality tvshows includ-
ing “Million Dollar Listing” and “Flip or Flop”.
The scale of the commissions extracted by the real-estate in-
dustry in America is jaw-dropping. Fees run at 5-6% of the value
of a property, three times the average level in
other developed countries (see Finance sec-
tion). In total they amounted to $75bn last year,
or 0.4% of gdp. Other marketplaces—for shares,
groceries, advertising and romance—have been
transformed by technology. But in property the
old ways persist. America still has 2m realtors.
Although online platforms such as Zillow
and Redfin have made some inroads, allowing
buyers to do much of the searching themselves, fees have not
budged. An inefficient property market has knock-on effects on
the economy. In the 1950s, 20% of households moved each year;
today only 9% do. The slowdown in labour mobility has many
causes, but in a country where most people own homes, high
fees do not help.
At the heart of the problem is a knot of obsolete practices that
seem to favour insiders rather than the buyers and sellers of
property. Unlike the practice in most countries, the seller usually
pays fees to both their own agent and the buyer’s. Agents acting
on behalf of buyers thus have an incentive to steer their clients
away from properties with low fees—one study has found that
such homes are 5% less likely to sell, the opposite of what you
would expect in a healthy market. Most transactions are listed on800-odd common industry databases, known as multiple listing
services (mls). The government worries that their rules and tacit
codes of behaviour might muffle competition, by prompting
agents to search for homes based on how high fees are, or by re-
stricting the distribution, sale or licensing of data. (The National
Association of Realtors, a lobbying group, argues that the indus-
try is competitive and mlss benefit consumers.)
What to do? America’s trust-busters last looked into the in-
dustry in depth in 2008, when they tried to ensure mlss were
open to internet-based firms. Now, after a decade in which fees
have not fallen materially, they are investigating again. The De-
partment of Justice has subpoenaed some of the private firms
that help run mlss to establish whether agents operating on
them are puffing up fees or steering clients towards properties
with higher fees, and whether access to mlsdata
is being unfairly restricted. Two big class-action
lawsuits are under way against the industry.
Boosting competition is a complex problem,
but the antitrust policemen are right to inter-
vene. They should seek to enforce two princi-
ples. First, that agents are genuinely free to
compete by lowering commissions—or by
abandoning the practice of requiring sellers to
pay two sets of fees. Second, that any firm which wants to gain
access to industry data can do so freely at reasonable prices. The
best tests of whether regulators succeed are whether commis-
sions fall towards levels in the rest of the rich world and the mar-
ket share of new entrants rises.
Plenty of entrepreneurs are keen to get involved. Some $6bn
of venture capital flowed into “prop tech” firms in 2019. Open-
door and Zillow have algorithms that crunch data to determine
the value of a home, and allow them to make “instant offers” to
sellers that are all cash and can be paid within days. Other firms
have developed tools to lift agents’ productivity, such as auto-
matic home-tour booking systems. Competition can make
America’s property market work better. If regulators lower the
barriers to entry, they will be knocking on an open door. 7The real-estate racket
Property brokers get a bad rap all over the world. In America they deserve itProperty in AmericaResidentialrealestate
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