RENT CONTROLS AND PRICE CONTROLS (COMMENT).

RENT CONTROLS AND PRICE CONTROLS (COMMENT). Annalisa asked in a comment about rent controls. A government can choose to control all prices, wages (price of labor), most prices or a few prices that are considered important (such as the prices of energy or of rental units—rent control). Controlling a single price provides a sharp contrast between short run and long run. Imposing rent control can be politically attractive in the short run. Because rents are not allowed to rise to encourage additional units to be built, shortages persist. If rents did rise, there would be short term political pain, but increased supply of rental units would make things easier in the long run. There is an amazing variety of rent and price control regimes which try to avoid these problems, and new regimes are being tried in Argentina, Iran and Venezuela as we speak. In the seventies, a variety of price control systems were tried in the U.S. Milton Friedman, who died recently, argued that controlling the money supply was the best way to fight inflation. On the whole, his arguments have carried the day for the last twenty-five years.