PRICE CONTROLS IN THE SEVENTIES. I should qualify the criticism of Nixon yesterday. When he was President, price control issues became interrelated with the Arab Oil Embargo. A number of Democrats were arguing for the use of price controls before Nixon adopted them. Most importantly, throughout the seventies, economics journals were full of articles evaluating and arguing for price controls (or, as they were often known, income policies.) One of the changes in economics since the seventies is that the articles on income policies have disappeared. The experience of the seventies led to a belief that price controls may be popular in the short run, but lead to pain in the long run. What makes Nixon notable is the direct evidence that he pressed for expansionary policies timed precisely for the date of an election with the thought that adverse consequences might well occur after the election.
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For years I had heard you and Mom fondly mention your rent-controlled apartments of the past. Imagine my horror when I took that summer economics course with Professor Coe and found out what an abomination rent control is! (Coe hated it.) Is rent control related to price control at all? Their names indicate a relationship, but I’ve found that economists don’t always name their terms very descriptively.
I think that a lot of everyday people, not just politicians, live their lives with a similar attitude to Nixon’s, that the adverse consequences of their actions will probably occur after it’s no longer their problem. Take environmental issues for example.
My parents lived in a rent controlled three room apartment in the Bronx. When they left after about 30 years, the rent had gone up from about $30?? a month when I was a kid in the 40s to around $65 a month in the late 60s. that was done by raising the rent a bit for “improvements,” like a new fridge and stove. Some identical apartments in the same tier cost much more because you were allowed to put in all new appliances and raise the base about 15% when the apartment turned over. So if there had been quite a few different occupants, you could charge a much higher rent.
You may recall a cops film called “Fort Apache: The Bronx.” It was situated in the area in South Bronx where I took my driving test long ago. Rent control meant that landlords couldn’t cover their costs and simply let their properties decay. The result was the devastation that occurred as gangs and drugs ruled.
A better way to go might be state benefits for poor families and state allowances for children, such as you get in social democracies like Sweden. These assure that the housing is likely to be maintained by landlords who get a decent rate (and are also penalized if their properties don’t meet health and safety standards.)
I looked at my own post showing the bad outcomes of rent control. Then it occurred to me. Where would I, the son of an unskilled, non-unionized worker making $40 a week, have lived without it?
The abstract answer is that there would have been an increased supply of housing and you would have lived in one of the apartments that were never built. Kids, note that this is an abstract answer.
That’s very abstract indeed, exactly what Krugman criticizes in Friedman’s policy pronouncements. Rent control was a result of the depression and World War II. As Krugman noted, the money supply had increased without lowering unemployment until fiscal policy created some, but not enough, jobs. But then the war soaked up resources that might have been spent on needed expansion of housing. Without VA benefits or a scarce skill to to sell, my father couldn’t afford the Levittowns that were emerging, so that rent control, for him and others provided the margin of survival.
I wouldn’t dispute that rent control had long outlived its short-term usefulness when Philip Schaefer was renting in the Village. I also would argue that a negative income tax or child allowance, ala the modern social democracies, would have been a better solution than rent control.