In the last several weeks, we’ve heard what seems to be a genuine blast from the past, something so unworkable and destructive that most of us could hardly believe our ears. The last day has confirmed it. It seems that the Biden administration is on the verge of announcing some form of rent control.
No such authority to control rents around the country exists in federal law, so it is doubtful that such a thing could happen broadly. It is of course true that the CDC in 2020 imposed a rental moratorium on evictions. The Supreme Court, however, declared that rule to be unconstitutional. It’s likely that any such similar attempt would meet the same fate.
But what are we to say of rent control in general? It’s the same with all price controls. In an inflation, price control leads to a shortage spiral. Existing units fall into disrepair or change hands from high-end owners to “slumlords.” And new units cease production. If you cannot make a profit, and you cannot with such controls, no new units are built. Older units are eventually torn down as unprofitable to maintain.
Every first-year economics studied sees a graph that makes the point.
Federal policy has already made ownership impossible for most people. The absolute last thing we need is for the same thing to happen to rental units.
You might protest: But inflation is not running above 5 percent, is it? Sadly, we just do not know. It might be that. It might be lower, it might be higher. Very likely it is far higher.
Higher rents are always regrettable, as with higher anything. But this is absolutely not the fault of any landlord. It is the fault of dollar depreciation in general. Rent control does nothing but promote capital depreciation and shortages.
As to the real rate of inflation, consider this.
But there is a problem. The official rate of inflation since 2014 is only 30 percent, with only 20 percent since 2021.
True, that’s only one piece of one sector. The Consumer Price Index (CPI) measures everything right? Well, that’s not quite correct. It excludes most forms of insurance, interest, and even what most people think of as being the price of homes and rent. You can look that up yourself and find remarkable data locally and nationally. I tried this and found increases since 2019 exceeding 150 percent but your results will vary.
Now, overall, we have a serious problem. If every sector you examine in any detail shows remarkable increases of 30 to 100 percent and higher, while the official data still clocks at only 20 percent, we certainly need some means of reconciling them. But the Bureau of Labor Statistics does not do that. Yes, it revises numbers over time but not by much and often downwards.
Now, is this only about bean counting? Maybe it doesn’t matter after all.
It certainty does matter. Your raises at work are often dictated by the official inflation rate. If you are getting a 5 percent raise over several years, whereas your dollar is actually losing 10 or more percent per year, it means that you are, in reality, experiencing a dramatic pay cut.
The truth is that you know that you are. Unless you are fortunate enough to live entirely off stock market financials or earning exorbitant commissions of some sort, and instead live off wages and salary, you are likely being slowly ground down.
Meanwhile, even now, the mainstream media is forever celebrating the greatness of the American economic boom. You hear this and wonder if it is true. Surely they would not be saying this if it were flat-out false. Therefore all the problems of household finance must be your fault or your employer’s. That’s a rational conclusion.
But there is another way to look at this. Maybe none of the official data is really true. I have come to believe that it is not correct. We need only look at the reporting this past week. The CPI came in with a one-month decline and the major media trumpeted the end of inflation.
The very next day, the wholesale index arrived and showed continued re-acceleration. In fact, we are watching the largest increases in 15 months, even according to the official data. It turns out to be much harder to hide price increases in the Producer Price Index (PPI) than the CPI, due to the fancy statistical trick called “hedonic adjustments.”
Listen, if it were up to me, I would get rid of all this data-mongering completely. I don’t think a government that minds its own business, and with a money that is sound and solid and not inflated, needs to collect any data. But for the better part of a century, we’ve indulged in the fantasy of scientific economic planning. That absolutely requires data collection. That’s why they do it.
So long as they are doing it, my only plea is that they do it accurately.
Thus far in this inflationary bout, we have somehow avoided federal price controls. We were not so lucky in the 1970s, during which time controls on all forms of price increases led not only to long gas lines but also shortage of food and other basics. The disaster, which happened under a Republican administration, was later reversed.
One likes to hope that humanity would get better at course correction. Maybe. That anyone anywhere is speaking of types of price control today does not generate hope or confidence. Let’s please not go back. Inflation is a terrible man-made error. Let’s not make it even worse.
