Economics

Ive recently read two books by by Thomas Sowell, an economist.  Although that may sound like an awful way to spend time, his books are actually very approachable.

Whats really interesting is the way he explains how some things work quite the opposite of how you expect them to work.

For example, take Rent Control.  Now, on the surface, it would seem that rent control would gaurentee cheap rentals for everyone.  But, thats not what happens.  In fact, the cities that have rent control, such as New York, tend to have the highest average rental prices around.  Now, you might argue that New York is expensive because it is New York, and there is some truth to that, BUT.....

Sowells point is that there are literally thousands upon thousands of completely empty apartments in vacant buildings in New York.  In fact, there are more vacant apartments than there are homeless people in New York.

Why so many?  Why do they become abandoned apartment buildings?  Isnt Real Estate a money-maker?  Sowell says it depends.

Imagine you own an apartment building.  You charge what the market will support.  In other words, you charge the highest amount you can charge that will still allow you to keep every apartment filled.

You do plenty of maintenance and upkeep.  If you dont, people may move.  If too many move, youll have to raise rents to maintain your margins, and more may move out.  So, you keep the aprtments well-maintained, and you charge what the market will support.

Along comes Rent Control.  Now you can only charge what the law says you can charge - no more.  At some point, you COULD charge more for the aprtment, because the market would support it, but you CANT because the law says you cant.  However, the Rent Control law does not keep a cap on the cost of the materials you need to buy in order to keep your property maintained.

So, over time, you start skimping on maintenance.  Some tenants notice the skimping, dont like it and leave.  Others stay because the rent is cheap.  A few new people move in because the rent is cheap.

You continue this slide for awhile.  At some point, a major expense comes up that City Code compels you to fix.  The City Code sees no disparity between requiring you to spend money on your property, while not allowing you to pass that cost onto your tenants.

Maybe you pay the first big expense.  At some point though, you realize its no longer financially sound to keep pumping money into the apartment building.  You might close it and evict everyone, but its just as likely that you simply leave town.  Your building eventually becomes abandoned.

The point of Sowells books is that Free Markets work and legislating them does not.

If you have never read an econnomics book, I highly recommend Basic Economics by Thomas Sowell.  I personally feel it should be required reading for anyone who wants to vote.