Has Economics Failed?
It is especially painful for me, as an economist, to see that two small cities in northern California — San Mateo and Burlingame — have rent control proposals on the ballot this election year.
There are various other campaigns, in other places around the country, for and against minimum wage laws, which likewise make me wonder if the economics profession has failed to educate the public in the most elementary economic lessons.
Neither rent control nor minimum wage laws — nor price control laws in general — are new. Price control laws go back as far as ancient Egypt and Babylon, and they have been imposed at one time or other on every inhabited continent.
History alone should be able to tell us what the actual consequences of such laws have been, since they have been around for thousands of years. Anyone who has taken a course in Economics 1 should understand why those consequences have been so different from what their advocates expected. It is not rocket science.
Nevertheless, advocates of a rent control law are saying things like “this will prevent some landlords from gouging tenants and making a ton of money off the housing crisis.”
The reason there is a housing crisis in the first place is that existing laws in much of California prevent enough housing from being built to supply the apartments and homes that people want. If landlords were all sweethearts, and never raised rents, that would still not get one new building built.
Rising rents are a symptom of the problem. The actual cause of the problem is a refusal of many California officials to allow enough housing to be built for all the people who want to rent an apartment.
Supply and demand is one of the first things taught in introductory economics textbooks. Why it should be a mystery to people living in an upscale community — people who have probably graduated from an expensive college — is the real puzzle. Supply and demand is not a breakthrough on the frontiers of knowledge.
