markets

Rent Is Too Damn High

by Kathryn Ciano on October 20, 2010

in Property Rights, Regulation

Not much to add to this brilliant insight: The rent is too damn high!

Jimmy McMillan doesn’t get into details about what he intends to do about such high rent. The answer is clear: Let the markets go!

Sure it’s nice to live in a safe, high-rent neighborhood. Hopefully Jimmy McMillan understands that the problem with rental price caps (like rent control) and regulations (like banning food trucks) is that these policies create spikes and troughs across abutting rent districts. This artificially ghettoizes neighborhoods rather than permitting rents to rise and fall naturally to reflect the more nuanced actual rent prices people are willing to pay.

If he intends to fix the “too damn high” problem by mandating a maximum rental price, neighborhoods will suffer. From a 2004 CEI paper:

Price controls are, historically, a dismal failure; in the short-term they may produce a drop in prices, but they also destroy the incentives to produce more goods. Under rent control, housing stocks deteriorate[.] A survey of economists 20 years ago demonstrated that the destructive effect of price controls is more widely recognized by economists than is practically any other regulatory effect. As a Swedish(!) economist once noted, “rent control appears to be the most efficient technique presently known to destroy a city–except for bombing.”

Even that bastion of conservative thought the New York Times filled its latest article decrying the “disappearing rent-controlled treasures” with tale after tale of sad disrepair. The simple truth is that when housing boards prevent landlords from earning market price for the apartments they rent, landlords cannot afford to fix apartment problems as they arise.

After all, city-imposed rent control may keep the rent from getting too damn high, but the price of plumbing, masonry, flooring, repairing a leaky roof, bread for the landlord, plumber, et al–none of these fall under a price cap.

That’s how markets work, kids, in a nutshell. Prices aren’t pegged to anything; they simply reflect information.

Pegging one item’s price to an arbitrary number will either destroy the market for that item or it will require such extreme control over all related markets that even a Stalinesque dictatorship can’t keep it together. Only when the government lets go of price control entirely do prices correctly reflect what things are worth to the relevant market.

Rent is high. When rent is too damn high people move. Relate to your people all you want, Mr. Politician, but keep your hands off of price control!

The Social Evolution of Markets

by Marc Scribner on March 23, 2010

in Culture, Economy, International, Trade, Zeitgeist

Socialists and other collectivists frequently argue that markets are inherently “inhumane” and “unjust,” among other things. Free-market advocates generally dismiss these claims on their face as inconsistent with reality and human nature. Collectivists then often respond by making ridiculous appeals to tribalism and defunct ancient societies. (ED: Why did these societies fail?) Repeat, repeat, repeat.

A new study (subscription required) published in Science aims to shed light on this issue, and the authors come to a surprising (for some) conclusion: human society evolved to foster the sort of anonymous trust characterizing market interactions, and that this in turn enforces a standard of equity. Until about 10,000 years ago, human beings were organized in familial units or tribal societies where members were protected and cared for, but outsiders violently shunned. Treating non-kin badly was not just a common practice; it was necessary in order to sustain the primitive social order. Odds are that the outsiders were gunning for you just as much as you were gunning for them.

The researchers found that adopting markets and setting a wider playing field, so to speak, based on shared ground rules was vastly more successful than the tribal system, and it spread fast. Once people discovered mutually beneficial trade with strangers was possible, they tossed aside their previous norms because kin- or tribe-based social interactions were incredibly limiting. And because everyone shared a common set of basic values (reinforced by the spread of global religions and population growth), fairness as defined by the society increased.

This gradual process continues to this day, say the authors, which will likely lead to a more complex, yet still fairer society in the future.

Government health care monopoly–not in consumers’ interests

by Fran Smith on July 9, 2009

in Healthcare, Nanny State, Personal Liberty

dmvRegina Herzlinger, chair of Harvard Business School, in National Review takes on health care and the Obama Administration’s arguments that a government-run plan would increase competition, provide more choice, and lead to greater cost efficiencies:

But before we get swept away, let us remember that these health-insurance markets would be monopolies run by government, two characteristics that normally do not enhance consumer welfare. Picture the efficiency of your Division of Motor Vehicles, for example.

Also consider government-run monopoly liquor stores. Despite their ability as the single payer to extract better volume discounts from wholesalers than private liquor chains can, their prices are not lower than private stores’. Additionally, they slight consumers through shorter operating hours, inconvenient locations, limited brand availability, and inadequate advertising. By forcing consumers to adjust their shopping habits, they raise prices through loss of time. Although some advocates hope that these features limit liquor consumption, this is not the case.

The results attained by government-run health-insurance markets in Massachusetts and the Netherlands provide equally cautionary evidence: Such markets limit competition, do not control costs, discourage entrepreneurial efforts, and thus cause consumer dissatisfaction.




Good For Us Isn’t Good Enough: Broadband and the Real Money It Costs

by Jack O'Connor on July 6, 2009

in Stimulus to Nowhere, Tech & Telecom

The Commission must not only identify the most cost-effective approach for catalyzing broadband deployment but also ensure that any public funds spent are used in an economically efficient manner. A national broadband plan, therefore, must consider the possibility that spending any taxpayer dollars whatsoever on broadband deployment might be contrary to the public interest.
– CEI, in comments to the FCC

The debate over broadband subsidies has largely focused on whether the US is lagging behind other industrialized nations in the construction of broadband infrastructure. Subsidy opponents have attacked those claims, but the unfortunate implication has been that, if America is behind, something must be done about it. Last week, we penned a rather sarcastic treatment of that view, but today we want to explain more thoroughly why even a credible lag simply does not justify subsidies.

There are many goods, even luxury and high-tech goods, that Americans consume less per capita than our peers. The French drink more wine than we do, even though their per capita GDP is lower. The Japanese have more fax machines, despite the same disadvantage. Of course, none of that indicates any problem with the American economy. Rather, the French and the Japanese have different preferences in food and communication, preferences which are also reflected in their lower consumption of beer and personal computers. In precisely the same way, Americans might consume less broadband because we simply want other things more.

Proponents of broadband subsidies often point out that if Americans were better educated about the benefits of broadband and the Internet generally, we might demand more of it. This is true, no doubt; but it also holds true of practically any product. That’s the whole idea of advertising: the more we hear about a product, the more likely we are to buy it. Wine has plenty of health and culinary benefits, for example, but the suggestion of promoting wine through policy elicits a natural skepticism. Are we so sure that we’re underconsuming? Even if we are, do we trust the wine industry not to lobby the government and push us to overconsume? Is the potential gain worth the inefficiencies of taxation and subsidy? Practically no one would believe any of that about wine, but when it comes to broadband, we seem to be saying all three.

The essential fallacy in the broadband debate is the conclusion that, because Americans would benefit from more broadband, we should spend public funds on broadband. But that simply doesn’t follow. Broadband costs money, and if we want it to be more widely available then we’ll have to settle for less of something else. To justify accelerating consumption, we need to show not only that more broadband would be a good thing, but that it would be better than anything else we could have spent that money on. That’s exactly what underconsumption means, and it’s extremely difficult to prove.

That’s not to say there are no justifiable policies that would promote broadband in an efficient manner. The Universal Service Fund for instance, which inhibits broadband by subsidizing older technologies, should be reformed or eliminated. Our woefully inefficient command-and-control spectrum allocation system is also holding back wireless broadband and umpteen other technologies. But lavishing subsidies on telecom giants and stepping gingerly around the toes of entrenched interests is worse than doing nothing at all.

Actually, there is one guaranteed way to find out whether America is underconsuming broadband while benefiting consumers at the same time: Give back the money. Instead of spending billions more on infrastructure, tax billions less. If the taxpayers spent the difference on more broadband, then they were underconsuming. If they didn’t, they weren’t.

Suppose someone at the FCC called up a few rural and inner-city families and asked them what they’d buy with their share of all this money. Would the answer be broadband? No one could seriously suggest that OECD rankings predict the outcome of those phonecalls, but we’re about to spend billions of dollars on the tacit assumption that they do.