Sowellianism

6. Sowellianism “Economic policy needs to be analyzed in terms of the incentives they create, rather than the hope that inspires them.”

7. Sowellianismdeux “Economics is a study of cause-and-effect relationships in an economy. Its purpose is to discern the consequences of various ways of allocating scarce resources that have alternative uses. It has nothing to say about social philosophy or moral values…”

8. Price Controls

9. What Are Price Controls?

10. What Are Price Controls? • Imposed to keep prices from rising or falling to the levels they would reach in response to supply and demand via systemic causation

11. Systemic causation??

12. What Are Price Controls? • Imposed to keep prices from rising or falling to the levels they would reach in response to supply and demand via systemic causation • Economics is concerned with what emerges, not what anyone intended

13. What are price controls? • Can be a ceiling (limits how high) such as rent control

14. What are price controls? • Can be a ceiling (limits how high) such as rent control • Can be a floor (limits how low) such as commodity guarantees and minimum-wage laws

15. What are price controls? • Imposed to keep prices from rising or falling to the levels they would reach in response to supply and demand

16. The Iron Lady (aka, Margaret Thatcher) “The problem with socialism is that eventually you run out of other people’s money.”

17. Hello Venezuela

18. Why do prices rise or fall?

19. Why do prices rise or fall? • Prices rise when the amount demanded exceeds the amount supplied at existing prices: also known as a “shortage”

20. Why do prices rise or fall? • Prices rise when the amount demanded exceeds the amount supplied at existing prices: also known as a “shortage” • Prices fall when the amount supplied exceeds the amount demanded at existing prices: aka a “surplus”

21. Can there be a shortage and no less of the product?

22. Can there be a shortage and no less of the product? • Housing after WWII: lots of it, but landlords not willing to rent at artificially low rents, people used more housing than they needed, no new housing was built • In San Francisco, an estimated 10,000 units are currently kept off market by landlords because of rent control

23. Why does that happen under rent control?

24. Why does that happen underrent control? • People consume more at an artificially lower price than they would normally… singles moving into own pad, elderly keeping four-bedroom

25. Why does that happen under rent control? • People consume more at an artificially lower price than they would normally… singles moving into own pad, elderly keeping four-bedroom • People often don’t move out of rent-controlled apartments • Shortages are a price phenomenon

26. Other rent control fails

27. Other rent control fails • New York, San Francisco, Sweden, Toronto, Santa Monica

28. Other rent control fails • New York, San Francisco, Sweden, Toronto, Santa Monica • SF: 49% of rent-controlled apts occupied by one person; 75% of rental units 50 years old!

29. Other rent control fails • New York, San Francisco, Sweden, Toronto, Santa Monica • SF: 49% of rent-controlled apts occupied by one person; 75% of rental units 50 years old! • 25% of people with rent-controlled apartments in SF make more than $100,000/year

31. Other rent control fails • NYC: Turnover half of national average; 4x as many abandoned units as there are homeless people

32. Other rent control fails • NYC: Turnover half of national average; 4x as many abandoned units as there are homeless people • Melbourne: No new buildings erected

33. Other rent control fails • NYC: Turnover half of national average; 4x as many abandoned units as there are homeless people • Melbourne: No new buildings erected • Toronto: 23% of units pulled off market within three years of imposition of rent control

34. Lessons of Rent Controls

35. Lessons of Rent Controls • Policies intended to make affordable housing have opposite effect

37. Lessons of Rent Controls • Policies intended to make affordable housing have opposite effect • In housing, like all scarce resources that have alternative uses, less is supplied at a lower price than at a higher price

38. Lessons of Rent Controls • Policies intended to make affordable housing have opposite effect • In housing, like all scarce resources that have alternative uses, less is supplied at a lower price than at a higher price • Scarce resources go to commercial & luxury

39. Lessons of Rent Controls • Policies intended to make affordable housing have opposite effect • In housing, like all scarce resources that have alternative uses, less is supplied at a lower price than at a higher price • Scarce resources go to commercial & luxury • The affluent get more benefit from rent control than do the poor

40. Assar Lindbeck, Swedish economist “Rent control appears to be the most efficient technique presently known to destroy a city, except for bombing…”

41. But most of New York isn’t bombed! • Rent control has been loosened for new construction that is not rent controlled • Lots of new condos built • Few apartments for average income folks

42. Scarcity v shortage?

43. Scarcity v shortage? • Scarcity: not enough to go around • Shortage: not enough supplied at current prices… a price phenomenon

44. Then why rent control?

45. Then why rent control? • Politically effective: “I’ll stop the greedy landlords from gouging the working class with unconscionable rents.”

46. Price Control Failures: Gas Price Controls Remember: Intent vs Consequences

47. Gas price controls • The scene: 1973-74: Federal government keeps oil prices artificially low

48. Gas price controls • The scene: 1973-74: Federal government keeps oil prices artificially low • Intent: prevent “price gouging” when Middle East suppliers decreased supply

50. Gas Price Controls