I posted the beginning of a series summarizing Tucker’s Zoning, Rent Control, and Affordable Housing in July. I re-posted the first entry, and a new second entry. Here’s a summary of Chapter 3, “Mechanics of Rent Control.”
We don’t have rent control in Whitewater (thankfully), and there’s no local constituency for it. I’ve often wondered if someone might propose housing price control in Whitewater. It’s the sort of astonishingly stupid idea that must have been discussed, at least once, in town. One might expect car price control, food price control, gasoline price control, and beer price control quickly to follow.
There’s so little love for markets in Whitewater that I’m still waiting for a proposal that the goods people want should simply be regulated to a lower price. (Markets: the voluntary — uncoercive — exchange of goods and services at prices mutually agreed between buyer and seller. What markets offer voluntarily and efficiently government coercively takes or inefficiently supplies.)
Tucker begins Chapter 3 with an anecdote about political economics as recently as 1980: Senator Kennedy, while campaigning for the Democratic presidential nomination, advocated “price controls on major materials, energy, and medical services.” (Nixon had imposed wage and price controls in 1971, lasting far longer than the initially-promised 90 day period.)
What’s wrong with price controls? Virtually everybody knows. Ordinary, voluntary transactions take place at a market clearing price, where the price to supply goods matches the price buyers are willing to pay for them. Students learn about supply, and demand, early in life, usually while still in secondary school. (Although it’s nothing new for students, Tucker reminds readers that while Smith and other economists knew about the logical implications of supply and demand, mathematical models of supply and demand curves came only later, at the end of the nineteenth century.)
One thing’s clear: price controls don’t work, no matter how needed they might initially seem. A reduction in the price of a good leads only to its shortage, as suppliers will offer less. Rent control works this way: apartments cost less, but then tenants won’t move, and new apartments unprofitable to build. Builders stop building, and landlords re-convert for single family dwellings. A few get cheaper rents, but others go without accommodations.
Both buyers and sellers seek an advantage, a lower or higher price, respectively. They may look to a third party — government — to intervene, and strong-arm a result in their favor. For buyers, that’s price control; for sellers, it’s price supports. The request to government is short-term thinking — for a society, it leads to either too many, or too few, goods. Thinking only of immediate consequences is a big problem in Whitewater.
(The whole Whitewater neighborhood planning process, even with recent developments from Monday’s Planning Commission meeting — that I will address another time — is an example of this problem. Less restrictive in Whitewater is still too restrictive.)
Imposing restrictions on the free flow of prices, for labor, goods, or capital, is destructive to productivity and prosperity.
We’ve not tried restriction by price, but by land use, zoning, and so-called smart growth.
Next: Chapter 4, The Liberation of the Professoriate.