ฝึกพูดภาษาอังกฤษด้วยเทคนิค Shadowing จากวิดีโอ: What They Don't Want You To Know About Rent Control

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Last year we made a video about No Tax on Tips legislation, specifically how a majority of Americans like the policy while a majority of economists don't.

Well, that was just a minor disagreement compared with the Grand Canyon-sized divide over price controls.

According to surveys, Americans across the country overwhelmingly support the idea of the government setting legal limits on how much certain things can cost.

And yet, just like with no tax on tips, economists think Americans have this very, very wrong.

Economist Harold Demsetz said that using price controls to fight inflation is like trying to control the weather by smashing the thermometer.

Asar Lindbeck famously described rent control as, "...the most efficient technique presently known to destroy a city, except for bombing." And David Autor said,

price controls can of course control prices, but they're a terrible idea.

But in the last few years, price controls have become a tool that many politicians are seriously considering using again.

From New York Mayor Zoran Mamdani's rent freezes, to New Jersey Governor Mikey Sherrill's power rate limits,

to a bill co-sponsored by Bernie Sanders and Josh Hawley that would cap credit card interest rates at 10%.

Some say economists are exaggerating the dangers of price controls.

Others say that even if they're not, the situation is so dire that we should try it anyway.

economists may think if voters want something bad enough, they just might get it.

So let's look at the pros and cons of price controls.

The obvious argument for price controls is that they lower prices.

That's a real benefit to certain people.

If you lived in a rent-controlled apartment, you get to pay below market value and live in a neighborhood you probably wouldn't otherwise be able to afford.

If there's a cap on how much electricity costs in your region, that's money you can use for necessities or invest in your retirement.

But prices, say economists, are not just an arbitrary number that sellers pull out of thin air.

They are a signal of underlying conditions.

When prices increase sharply on a certain good, that usually indicates a shortage, either because the supply has dwindled,

perhaps due to a natural disaster or embargo, or demand has spiked.

Maybe because of a fashion trend or emergency need.

Either way, there's not enough supply to meet demand, pushing prices skyward.

Ideally, that high price acts as an incentive to producers, who will make more of the good now that it's more lucrative.

This is the main reason why economists oppose price controls.

If you don't allow prices to rise, you eliminate the incentive to produce more of it, and the shortage will continue, or get worse.

Today, no other good exemplifies the affordability crisis quite like housing.

Home prices have skyrocketed in the last few decades, and nearly half of all renters are now considered to be cost burdened,

meaning they spend more than 30% of their income on housing.

And the economic consensus is that these high prices are a result of a housing shortage.

Ever since the Great Recession, America hasn't been constructing enough new homes to keep up with growth, especially in desirable areas with good job opportunities.

But wait a minute.

If high prices are supposed to incentivize production, why isn't that happening with housing?

Shouldn't it be a great time to build houses?

Normally, yes.

Developers definitely want to build, but are being hindered by some non-market-related constraints like zoning and permitting.

Local governments have a lot of control over the what, where, and how of new construction.

Their decisions are heavily influenced by interest groups like unions, environmental organizations, historical societies, and neighborhood associations.

These groups, though across the political spectrum, tend to synchronize their pressure against the construction of new housing.

The cutesy name for this dynamic is NIMBYism.

Not in my backyard.

People worry about the noise, the traffic, and inconvenience that new construction brings.

Homeowners worry that new units will decrease their property values, while renters worry that development will make their area less affordable.

Even though almost everyone agrees that America needs more homes, it's almost impossible to find a voting block that wants to build them nearby.

According to economists, rent control can act as yet another constraint on supply.

Developers won't finance new apartment buildings if they think they won't be able to turn a profit from them.

And current landlords might opt to take existing units off the market if they can't afford to pay for renovations and upkeep.

This is what happened in 1994, when San Francisco passed a rent-controlled law that ultimately led to fewer units and therefore higher rents.

In 2023, Argentina repealed their rent control law, and the number of available units almost doubled, leading to lower rents for many citizens.

The same thinking goes for energy.

Demand for electricity has already shot up in many places, thanks to the proliferation of power-hungry data centers required for AI.

But if we cap the price of electricity, as some policymakers are suggesting,

it could disincentivize the construction of new power plants and transmission infrastructure just when we need it most.

Prices don't just act as a signal for producers, but consumers as well.

In a world of finite resources, there has to be some system of determining who gets what, and what you're willing to pay for something indicates the value you place on it.

If there is a gasoline shortage, for instance, those big numbers on the price board might make a retiree rethink a day trip out of town,

since it isn't really necessary.

That means there will still be gas available for the commuters who do need it.

If this formulation seems overly tidy, that's because it ignores a big complication.

Wealth inequality.

Some people are willing to pay higher prices not because they value the product more, but just because they can afford it.

Others may have a greater need, but simply can't pay the price.

There are also some categories of goods that price allocation as a theory doesn't map dwell to, like healthcare.

If you need a life-saving treatment, the value you place on it is virtually limitless.

And unlike buying a house, you can't really take your time to shop around or opt for smaller square footage.

This gives providers such a profound market advantage that many advanced economies do put caps on the prices of certain medical procedures.

But for more common goods, the last time large-scale price controls were attempted in the US was during the early 70s.

In response to rising inflation, the Nixon administration imposed price caps on certain goods like gas and food.

Voters supported the measure by about 75 percent, nearly the same number as today, because they hoped it would stop a problem that was escalating out of control.

But producers, like farmers and ranchers, still faced rising costs of feed and equipment.

Since they couldn't raise their prices accordingly, many opted not to produce at all, leading to widespread shortages.

So, if price controls have such a bad track record, why are we even considering them today?

Well, basically because voters want relief on affordability.

They want it now, not several years down the road, and price controls are really the only tool available to make that happen.

Some policy makers think they can offset the risks by making price caps temporary and pairing them with big incentives for construction.

In other words, freeze the rent for a few years while you build like crazy.

Some studies have shown that residents are more open to new construction

if they're also guaranteed that it won't raise their cost of living.

But economists warn that price controls once enacted are hard to undo.

Just like a tenant will cling to a rent-controlled apartment for as long as possible, voters will likely punish anyone who tries to take their price controls away.

We could end up in a situation where the small number of lucky renters

and consumers who benefit from price controls rigorously defend them, while the rest of us have to deal with the resulting shortages and price spikes.

I'd like to think that won't happen, but it seems more likely than politicians telling their voters that they're wrong about something they really want.

And that's our two cents.

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