Why price control doesn’t usually work

by John Quiggin on August 26, 2015

Another extract from my book-in-progress, Economics in Two Lessons. You can find a draft of the opening sections here. To recap, the idea of the book is to begin with the idea that market prices represent opportunity costs for the households and business who face them (Lesson 1), and then go on to explain why market prices won’t in general equal opportunity costs for society as whole (Lesson 2). A lot of the book will be applications of the two lessons, and this section is an application of Lesson 1. The title of this section is self-explanatory, so I’ll throw it open for comments. Praise is welcome, useful criticism even more so.

Why price control doesn’t usually work

When the price of some important commodity or service rises rapidly, governments face pressure to do something about it. A variety of options are commonly considered.

Governments can, and often do, subsidize the supply of goods seen as vital, commonly including food and fuel. Such policies are popular, often cost relatively little at first, and are politically hard to remove. But who benefits and what are the opportunity costs?

Particularly in developing countries, such subsidies commonly benefit urban dwellers, and particularly the middle class, who tend to have more political influence than the rural poor. Subsistence farmers do not benefit from food subsidies. If subsidized food is imported, with the result that the domestic price falls, farmers are also likely losers. Fuel subsidies generally benefit those on higher incomes, who use more energy of all kinds. Again, this effect is particularly marked in developing countries where the rural poor may rely on collecting wood or dung for fuel, and on oxen, or their own effort, for energy inputs to food production.

The opportunity costs of food and fuel subsidies are not hard to find. Government revenue allocated to subsidies cannot be spent on services like health and education, or on income support for the poor. Even where funding for subsidies is notionally derived from cutting wasteful or unproductive expenditure, the true opportunity cost is the best use to which the funds released in this way could have been put.

Where governments lack the resources to subsidize prices, the simplest, and seemingly least costly, response to rising prices, is to legislate to fix the price at a ‘fair’ level, or to control the rate at which prices increase. Such policies have been tried many times, and have mostly failed.[^1]

The problem with price controls is simple when we think in terms of opportunity cost. If prices are fixed by law, they cannot tell us anything about the true opportunity cost of goods and services. Nevertheless, the logic of opportunity costs still applies to firms and consumers.

Firms will supply a good as long as the price they receive is less than the opportunity cost. If the price is fixed at a low level, then firms will supply only small amounts, or none at all.

People will be willing to consume more of a good as long as the opportunity cost is less than its value to them. The opportunity cost consists of the price, along with any other costs involved in obtaining the good. If the price is fixed at a low level, and the good is freely available, they will choose to consume a lot.

But there is a contradiction here. If the price is fixed at a low level, consumers will demand a lot, and firms will offer very little. So, the good will not be freely available.

One possible outcome is that consumers will spend time searching for supplies, or standing in line. The opportunity cost of the time they spend will make up the difference between the fixed price and the value of the good to the consumers concerned.

Another possibility is that formal or informal systems of rationing will be developed. For example, the government may estimate the needs of the average person (with some allowance for children), and issue each household with a corresponding number of ration coupons, allowing them to purchase goods at the legal fixed price.

Inevitably, once such a system has been in place for a while, a black market (or quasi-legal ‘grey market’) will develop, as in the systems of ticket scalping for sporting and music events. So, for a household, the opportunity cost of a good bought within the official system will be the legal price, plus whatever they could have obtained, in cash or favors, for passing the ration coupon to someone else. For someone buying black market ration coupons, the cost of the good again includes the legal price and the cost of the coupon, as well as the risk and difficulty associated with a black market transaction.

It’s easy to show that, if price controls are effective, and ration coupons are freely traded, the opportunity cost for consumers (the sum of the official price and the coupon price) must be higher than the price that would have emerged in the absence of control. That’s because producers will supply less of the good than in the absence of controls. The logic of marginal cost and benefit implies that the opportunity cost of the marginal item for consumers must therefore be higher under controls.

Price control with rationing produces both winners and losers. The main winners are those consumers and households who would not have consumed any more than the rationed allowance at the market price. They get the same amount of the good, at a lower price, and perhaps get some extra benefit from selling surplus coupons.

The most obvious losers from price controls are the suppliers of the goods and services subject to controls. In the case of food, this group includes farmers, farm workers, those engaged in food processing (flour millers, butchers and so on) as well as a wide variety of people (sometimes described as ‘middlemen’) engaged in transport, wholesale and retail trade and so on.

Another group of losers are consumers who would have willingly paid more, at the market price, for a higher quantity than they end up consuming under rationing. They must either do without goods they would willingly pay for, or pay both the fixed price and the cost of illegally acquiring extra coupons.

Sometimes, the gainers from price controls are, or are seen as, more deserving than the losers. From a social point of view, however, it is usually better to redistribute income directly than to attempt to stop price increases through controls or to offset them using subsidies. As we will argue in the next section, if you want to help poor people, give them money.

This way of posing the problem raises the question: what about minimum wages? On the one hand, as Hazlitt stresses, minimum wages are a kind of price control. On the other hand, since they raise the incomes of the poorest group of workers, increasing their ability to purchase all kinds of goods and services, minimum wages will almost always be a superior alternative to price controls. We will look at this problem in more detail later.

[^1]: The most extreme, and almost invariably unsuccessful example of price control is given by attempts to stop inflation freezing or controlling both prices and wages, as was done under the Nixon Administration in 1971. The controls, with the fateful exception of controls on gasoline prices , were abandoned by 1973. We’ll discuss this a bit further in Section …

{ 438 comments }

1

Peter T 08.26.15 at 10:40 am

Trouble with this style of reasoning in broad categories is twofold:

1. The empirical evidence is decidedly mixed; and

2. It treats both political and production coordination issues as side-issues, when both are in fact critical.

A price is a very simple signal and so does not tell anyone very much in itself. It could be due to genuine shortages, manipulation, panic or much else. And it may or may not be amenable to changes in supply or substitution. And prices impact different groups quite differently – if a rise in the urban price of bread is going to trigger riots or coups, then averting that is a gain offsetting the farmer’s loss (how much should the Iraqi state have paid to limit the support available to ISIS?). So the text needs to be sprinkled with qualifiers – “in the pure case”, “absent urgent political needs”, “ideally” and such-like. Followed perhaps by discussion of where and how rationing or price control can work (no shortage of cases).

2

engels 08.26.15 at 10:45 am

This way of posing the problem raises the question: what about minimum wages?

And rent control

3

Timothy Scriven 08.26.15 at 11:11 am

I think the case for rent-controls being different to most price ceilings is that in many places supply is extremely inelastic.

4

John Quiggin 08.26.15 at 11:43 am

When I say minimum wages work, I mean that it’s possible for new workers to get minimum wage jobs, where the minimum wage is higher than that they would get in an unregulated market.

As I understand it, that’s not true in NYC or other jurisdictions with rent control. Some established tenants get a benefit, but new tenants pay whatever the market will bear.

http://www.nycrgb.org/html/resources/faq/rentcontrol.html

Are there better examples?

5

Quite Likely 08.26.15 at 11:54 am

So price controls are best for situations where the consumers are people we want to redistribute to, and the producers people we want to redistribute away from, where supply is relatively inelastic. Rent control seems the ultimate example of this, where in the short term and even medium term the supply is pretty fixed, and landlords tend to be a lot richer than their tenants. The minimum wage is pretty similar – most busines

6

Quite Likely 08.26.15 at 11:54 am

So price controls are best for situations where the consumers are people we want to redistribute to, and the producers people we want to redistribute away from, where supply is relatively inelastic. Rent control seems the ultimate example of this, where in the short term and even medium term the supply is pretty fixed, and landlords tend to be a lot richer than their tenants.

7

Quite Likely 08.26.15 at 11:55 am

Whoops, double post, apologies

8

mdc 08.26.15 at 12:25 pm

I didn’t find the title self-explanatory, because it’s not obvious what the purpose of price-controls are, such that we can tell if they are working. The dynamic you describe could hold, and price-controls might still be effective in reducing the income of sellers, which could reduce inequality- right? I’m thinking of rent-control.

9

engels 08.26.15 at 12:30 pm

When I say minimum wages work, I mean that it’s possible for new workers to get minimum wage jobs where the minimum wage is higher than that they would get in an unregulated market. As I understand it, that’s not true in NYC or other jurisdictions with rent control. Some established tenants get a benefit, but new tenants pay whatever the market will bear

This seems an idiosyncratic criterion of success. Disadvantaging new entrants may be undesirable but I would have thought overall impact on efficiency and distribution were more important.

10

engels 08.26.15 at 12:46 pm

NB. ‘disadvantaging’ relative to established renters – I take it rent control doesn’t actually push up unregulated rents and might pull them down (interested to know what economists believe)

11

David Duffy 08.26.15 at 12:54 pm

What about Galbraith’s experiences with US price and wage controls during WW2? Aren’t there particular acute situations when controls are better than the alternative?

12

Watson Ladd 08.26.15 at 12:56 pm

Housing supply is extremely elastic. People can sublet bedrooms, developers can plan for higher density in new projects, and renovations can expand existing buildings. What isn’t elastic are the regulations prohibiting much of this new construction. Even when rent control is supposedly justified by a temporary dislocation, it lasts for a long time as existing tenants get to vote, while those who would move if it didn’t exist don’t get to vote. The same applies to zoning restrictions. That’s essentially the issue in the Bay Area, where what is a major urban area has only two regions of high density.

13

P.M.Lawrence 08.26.15 at 1:01 pm

This way of posing the problem raises the question: what about minimum wages? On the one hand, as Hazlitt stresses, minimum wages are a kind of price control. On the other hand, since they raise the incomes of the poorest group of workers [emphasis added], increasing their ability to purchase all kinds of goods and services, minimum wages will almost always be a superior alternative to price controls.

Beware survivor bias. The crucial group is not the poorest group of workers but the poorest group of people. To the extent that it is a sound argument that high minimum wages drive people out of work, testing gains to the poorest group of workers will omit those losses by the poorest people because they cease to be workers. Did you know that the average real wages of hand loom weavers showed steady increases throughout the nineteenth century?

Yes, I know there is much more to analyse and bring out in this area. Here, I was only addressing the choice of group to use when assessing the issue.

14

marcel proust 08.26.15 at 2:12 pm

Unless I am having a brain freeze, I think that in the line below, less is more (or at least should be):

Firms will supply a good as long as the price they receive is less than the opportunity cost.

15

Plume 08.26.15 at 2:37 pm

The “price as signal” is a romanticization of a basic economic function. Commodities are priced solely to maximize profit for business ownership. They have no other function. One can write books upon books, create mountains of jargon, refer to umpteen other economists on the subject, but it just comes down to one thing.

Simple math. How much can we charge for a commodity to maximize our own take. It’s not “benign” or “democratic” or a wonderful way of generating/collecting data. It’s simply the sweet spot for highest amount of revenue possible on the scale between fewest and highest number of unit sales — if chosen correctly. It’s simply the optimum number to allow business owners to generate the most unpaid labor possible at the best price point.

In short, it’s fiction about a fictional system that people have willingly agreed to, acquiesced to, consciously or unconsciously, almost always because they don’t think there is any other way to do things. But there are. There are countless better ways to organize society and economics in general.

And the way to make “price controls” work? Sever the connection between the sale and the stream of revenue. Sever it absolutely, as if it never existed, wiping out even the tiniest remnant of the failed, old ways.

Make that revenue stream 100% separate from all sales, 100% divorced from them, 100% publicly owned, and we can lock down prices and wages . . . and for the first time in history, make sure people are paid enough to afford those prices, within an egalitarian structure.

Money, capitalism, the entire edifice of our economics . . . . are all fictions. Why not create a fiction that actually benefits all of us, instead of clinging to fictions which benefit the few at the expense of the many?

16

cassander 08.26.15 at 2:59 pm

@peter T

>A price is a very simple signal and so does not tell anyone very much in itself. It could be due to genuine shortages, manipulation, panic or much else.

That’s precisely the genius of prices, that you don’t need to understand the background. Say you mildly prefer cotton socks to wool, but a cotton blight in china destroys 20% of this year’s cotton’s crop. You don’t know that, you don’t really care, all you need to know is that the price of cotton socks is now high enough that you’d rather wear wool. Even better, though, your cousin, who’s allergic to wool, can still buy his cotton socks, because all the people like you, with a mild preference, switch to wool. All of it functions perfectly well without a single sock buyer knowing anything about cotton prices.

17

Chris Mealy 08.26.15 at 3:04 pm

Has anyone read Galbraith’s “A Theory of Price Control?” It’s on my to-read list, but I’d rather read an interesting comment about it than the whole thing.

18

Plume 08.26.15 at 3:09 pm

“Genius of prices”?

You make my point for me. You’re just putting lipstick on the proverbial pig, dressing up a very basic, self-serving, incredibly selfish tool . . . and trying to make it into something it’s not. All it is is a blunt instrument to enable personal wealth accumulation, which must always come at great cost to workers, consumers and the earth.

Stop romanticizing a fictional system of real oppression, Cassander. It makes you look ridiculous.

19

Plume 08.26.15 at 3:17 pm

JQ,

As you know, when conservatives do economics, they tend to only look at it from the business owner’s perspective. And they don’t do that very well, either. Higher wages actually increase demand, which means those business owners make more money for themselves.

But, because the system itself is completely irrational, and almost always at cross-purposes, you have a case of “After you, Alphonse,” with no individual business owner wanting to increase wages first, just because it will indirectly benefit him/her and their fellow owners. It becomes a kind of NPR funding drive thing . . . where most people hope someone else donates so they can keep listening to Car Talk without pitching in.

If the system were rational, ownership would pay at least enough to keep demand high, at least enough to keep the economy booming . . . . instead of acting selfishly, which may benefit an individual owner in the short term, but hurts the overall economy always. This dynamic is in constant play. And it parallels the Keynesian idea of “the paradox of thrift.” Belt tightening might be great for the single family, but it’s almost always terrible for the economy as a whole, at least if it’s struggling. Keeping wages low is like that. And we seem to never have learned this obvious fact.

20

nickj 08.26.15 at 4:13 pm

I’m not expending much intellectual energy on this (or could it be a simple lack of intellect!), but the way this series is working out for me is that the concept of opportunity cost is crystallising out of the various stories you’re telling about it.

so, for me, the initial presentation of the OC concept makes me nitpick on (probably phony) theoretical points: telling me stories about the economy where the reveal is “the concept you need here is opportunity cost” packs a pedagogical punch. the story motivates the theoretical approach, and motivation is important for me. I mean, I’ve got the opportunity costs of reading and responding to these articles to weigh up!

particularly enjoyed this one about price controls and rationing.

21

david 08.26.15 at 4:14 pm

If the Lesson One portion of Two Lessons is intended for the JB DeLongs or Matt Yglesiases of the world, well, they probably already grasp the argument. If it’s intended for the Plumes of the world (sorry, but you are a handy example), then it’s not doing enough to dismantle their position.

As per #19, there’s a pop-Keynesian/Kaleckian reading that asserts the core intuition of the book (viz., “market prices won’t in general equal opportunity costs for society as whole”) and winds up concluding that the means of production must be nationalized and removed from the price system, rather than deducing moderate third-way-neoliberal social democracy. This chapter isn’t doing enough to distinguish its case.

Pre-emptively bringing up minimum wages is alienating to every kind of reader. It’s a topic where many people have strong opinions; whether or not you conclude that they work or don’t work, people become guarded and defensive with the rest of your argument.

It’s not the only obvious question, too. There’s also rent control, anti-gouging measures, anti-scalping measures, and collective bargaining agreements. These may become the hotbutton issues du jour by the time the book hits the press, rather than minimum wages; they come around every now and then (remember the media coverage of Uber and its price surges?).

22

Chris Bertram 08.26.15 at 4:19 pm

In the UK, the government has introduced fees for universities (tied to loans) which are currently set at a maximum of £9000. If it were a proper market, then elite universities could certainly charge a lot more, but nobody charges less because doing so would signal an inferior product. Despite the protestations of university leaders, it seems likely that £9000 more than covers the cost of some degrees, whilst falling short in the case of others. I don’t know if JQ has any reflections on the somewhat unusual “market” in HE, but I’d be interested to know where it sits with the OP above.

23

Jesús Couto Fandiño 08.26.15 at 5:07 pm

If you need real world examples you can just do a chapter on Venezuela right now.

Not that it will change their mind on the issue – they are convinced is all “economic warfare”.

Which it is, only is the goverment fighting himself and the country.

24

Stephen 08.26.15 at 5:30 pm

Price control is one thing, rationing is another. When there is a genuine shortage of essentials for reasons beyond the government’s control (I am old enough to remember postwar food rationing in the UK) is there any realistic alternative to rationing?

25

cassander 08.26.15 at 6:19 pm

@Stephen

> (I am old enough to remember postwar food rationing in the UK) is there any realistic alternative to rationing?

Those shortages were caused by rationing. You should compare the situation in post WW2 UK to Germany. Germany suffered much more during the war, had the massive dislocation of being divided in two, and yet ended rationing, and thus shortages, much sooner than in the UK.

Strict rationing makes sense if is essentially impossible to increase the supply of the good in question. If there’s only so much fresh water on your life raft. It might even have made sense during the war, where food imports were restricted by the success of the submarine war and shipbuilding. But in any other circumstance, rationing prevents its own solution, expanding supply of the good in demand.

26

Robespierre 08.26.15 at 6:29 pm

Hypothesis re minimum wages:

Firms have no idea how much a given worker is marginally worth to them, or even a category of workers.
However,
1) Some categories, being better organised or higher in the hierarchy, can demand raises
2) If the overall level of costs is too high, firms will, in fact, stop expanding/layoff people/raise their prices, depending on market conditions

So that minimum wages might mean a more equitable distribution of wages between workers, though not a higher labour share.

27

Robespierre 08.26.15 at 6:34 pm

Separately:

A market economy will have unemployment.
We do want the unemployed to have an income.
This probably requires that they must accept job offers at some point.
We want those job offers to be above certain minimum requirements.
This includes wages.

28

mrearl 08.26.15 at 6:44 pm

With Marcel P. at 14, my brain is similarly frozen. I think of oppo cost as the foregone gain from doing something else, which suggests “price is less” should be “price is more,” but I’m willing, even eager, to be educated otherwise.

29

Scott P. 08.26.15 at 8:10 pm

“Make that revenue stream 100% separate from all sales, 100% divorced from them, 100% publicly owned, and we can lock down prices and wages . . . and for the first time in history, make sure people are paid enough to afford those prices, within an egalitarian structure. “

Not at all sure what you mean here. When the Soviet Union eliminated prices, the result was economic confusion.

Let’s say there is a firm that produces washing machines and refrigerators, and it takes the same amount of raw materials and labor to produce each. It has the capacity to produce 5000 units a month. How does one decide how much of each to produce without prices?

30

Bruce Wilder 08.26.15 at 8:14 pm

My basic position on Lesson 1 is that it is wrong and deceptive. (Its usefulness for ideological deception is why Hazlitt promulgates it.)

Most prices are controlled. This is normal and universally expected. Which, I suspect, is why the untutored (practically everyone except economists and Matthew Yglesias) find price controls a plausible policy. What’s not normal is controlling a price by fiat alone, while controlling nothing else. So, somehow, the explanation of why price controls “do not work” has to take better account of the fact that most prices are controlled, and it seems to work unremarkably well enough, most of the time.

Apple has little trouble controlling the prices of iPhones, and they do so for reasons not very different from Chris Bertram’s example of higher education fees — that is to say that control of the price fits in with a complex set of supplier and vendor agreements and financing arrangements. Until quite recently, iPhones were mostly sold thru carriers, which financed part of Apple’s revenue thru their service fees. The amounts invested in some aspects of the phone’s design and manufacture are staggering. (There have been some mildly interesting stories circulating recently about the Chinese lady optics magnate, who makes the glass that covers the screen.)

Contra Cassander, it is actually unusual for natural events affecting commodity production from working itself very far down the production-supply chain to show up in price. Retail gasoline is the most salient example. Fluctuations of even fresh produce prices at the supermarket are significantly dampened relative to prices at retail. In the U.S., potatoes and bananas have “psychological” floors under them, as supermarkets fear that prices that are too low will be misinterpreted as quality signals.

Competition among networks of producers and vendors do affect price, of course, but not in the fine-grained way Hazlitt’s facile story-telling imagines. Prices are often fixed in some way, precisely to dampen what might otherwise be “destructive” competition. The prices of theatrical movie tickets are controlled, for example, to channel the competitive efforts of theatre chains and movie distributors (and the studios the distributors represent) along predictable lines. And, yes, predictable distortions result, as in the prices for popcorn and soda. But, the financing of movies is very complex, huge expenditures are made to promote a theatrical release, and a whole chain of releases into pay-to-view/on-demand, basic cable, broadcast, DVDs, Netflix, etc. is already set in motion, before anyone buys the first ticket. Talk about your sticky prices!

Rent control is the most notorious example trotted out by economists. But, rents are controlled, even when it is not the government doing the controlling by fiat. Living somewhere is the stable anchor of most people’s lives. We could hardly put everything into a backpack every morning and visit the spot market for AirBnB rentals. In ordinary circumstances, landlords by custom let long-term tenants accumulate an implicit stake, as rent increases lag for them. The rationale is the cost of turnover.

A city where rent increases are galloping is experiencing significant social stress and disruption. A high degree of transiency can mean that residents are little invested in their temporary neighborhoods, with all kinds of destructive behavioral implications.

My point is not to argue for or against a particular rent control statute, beyond allowing that rent control in some form can be a sensible, and yes, efficiency-enhancing policy response to particular circumstances. My point is to argue against Lesson 1 as Hazlitt presents it, as a descriptively accurate worldview supportive of a default to laissez faire policies.

On the minimum wage, Hazlitt has two gambits — one of which may surprise some, who haven’t read his pamphlet. The first is familiar: it is the lie of “market economy” scrawled in crayon. He says, if you set a minimum wage too high, some people, who cannot generate and sell labor services that valuable, will not be able to find work. Implicitly, he’s imagining a “labor market”, where people sell labor services. And, some people, their labor services are not that valuable.

Here, in the real world, not very many people are in any kind of “labor market” recognizable as a “market” from day-to-day, no matter how far you stretch the metaphor. What most people do, is they get jobs in bureaucratic organizations at some more-or-less fixed wage or salary. Once they are hired, they are removed from the “labor market”. They are still in an economic exchange relationship with the employer, but the details of the deal are important: they are paid, basically, to do as they are told to do, and to work effectively within a system, where their productivity is jointly determined with the product of the whole system. How productive a worker at McDonald’s is, is a matter of how productive the McDonald’s system makes her.

Labor economists have investigated the minimum wage empirically, as is well-known, and what they find, to the ideological horror of right-wing economists, is that a minimum wage may serve to increase employment as well as incomes. The explanation for this paradoxical result offered by economists is a combination of a market explanation — monopsony power exercised in the form of take-it-or-leave it offers to potential employees, which tends to significantly depress wages even where there are apparently a lot of potential employers — and something called “efficiency wages”. “Efficiency wages” tie the wage to the command-and-control production system in which people work, and to the training requirements and turnover costs. Basically, people, who are trained and conform to the requirements of the system (they show up on time, follow direction) are more productive in the system. To get behavioral conformity in the absence of coercion, the wage has to be high enough to make losing the job costly to the employee, and to make investment in training worthwhile, turnover has to be reduced.

In the conservative view, if a minimum wage actually was pareto-improving, profit-maximizing employers would already be paying higher wages. This is the kind of argument offered by the likes of Mankiw. (And, though I am not going to unpack it in this comment, I think it would be a great thing if Quiggin found occasion to confront it in an appropriate passage of his book — please, please!) In real life, just as a price can be too high, a price (or wage) can be too low. Lesson 2, yes?.

My point here, though, is that the worldview of Lesson 1, with its “market economy” is deceptively poor as a description of the actual economic system and its dynamics — particularly its administered prices and wages, with the large component of economic rent return on sunk cost capital and financial “insurance”.

Hazlitt does have an interesting aside about the minimum wage: he acknowledges that there might be a problem in some places and times that results in too low a wage offered. He recommends unionization over a minimum wage. (Of course, the next chapter explains why unions mostly do not work to raise wages.) It is an interesting concession. There are people, who do work, basically, as day laborers, and they are never far from something like a market for labor services. The number may be increasing, in the brave new world of the sharing economy — Uber and so on. In the U.S. day laborers, some of them undocumented hispanics, sometimes gather near Home Depot or lumberyards or U-Haul. Sometimes, the spectacle is too much for the tender sensibilities of people passing in their SUVs, and resentments are expressed, and even restrictions are placed on street-side solicitations. Occasionally, clever Catholic (they are mostly Catholic) social workers and do-gooders have intervened to create a more organized situation — something more like the hiring halls once organized by labor unions for day labor. And, guess what? The wage can increase markedly. I’m not going to google up links — someone else may be familiar with an example and can provide a better guide.

The myth of the market economy often gets in the way of thinking through the actual details of how prices and wages get determined, as the facts of what the government actually decides — quite aside from pure fiat price controls. The price of pharmaceuticals, for example, is tied up, not in any kind of recognizable “market” process, but in complex bureaucratic rules governing intellectual property, drug approvals, imports, reimbursement by insurance (including government directly or at one or two removes) and so on. One of the more interesting cases of “price control” and its effects might be the story of how Japan ended up with cheaper medical equipment in a number of areas, including I believe MRI machines.

31

engels 08.26.15 at 8:35 pm

Since our host seems to have temporarily left the party could someone please explain what the standard economist’s beef with rent control is? It can’t just be that it’s ‘unfair’ on new tenants can it?

32

Brett Dunbar 08.26.15 at 9:15 pm

Rent control limits the incentive to increase supply. Housing is pretty inelastic in the short term but is pretty elastic in the longer term. If prices are allowed to rise in line with demand that creates an incentive for owners of vacant properties to convert them to residential uses for landowners to build on their land, e.g. converting old mews into flats, building on gardens &c. Secondly if rental increases are capped the expected long term performance of owning a rental property drops. That is the long term income is lower than it would be in a market.

33

cassander 08.26.15 at 9:26 pm

@bvruce wilder

>Contra Cassander, it is actually unusual for natural events affecting commodity production from working itself very far down the production-supply chain to show up in price. Retail gasoline is the most salient example.

The price of retail gas has fallen dramatically in the last year or so. Not quite as much as the price of oil, but that is equally true for price rises as well as declines. Obviously, the price of primary commodities moves around a lot more than that of finished goods.

>Here, in the real world, not very many people are in any kind of “labor market” recognizable as a “market” from day-to-day, no matter how far you stretch the metaphor

Pointing out that markets do not function perfectly does not prove that they don’t function than the non-existence of massless, frictionless planes disproves Newtonian mechanics. We do not engage in the housing market on a day-to-day level either, yet you have no trouble believing that rising demand can still, in the long run, result in raising prices for a given neighborhood. The same is true of wages.

>Labor economists have investigated the minimum wage empirically, as is well-known, and what they find, to the ideological horror of right-wing economists, is that a minimum wage may serve to increase employment as well as incomes

The word “may” is doing an awful lot of weasel work in that sentence. Most minimum wage moves are not so large, and thus most studies of them do not produce very strong results in either direction. There is universal agreement that if minimum wages were raised very high, e.g. to 50 bucks an hour, the result would be mass unemployment/inflation. To paraphrase Churchill, we aren’t discussing if it’s possible for minimum wages to raise unemployment, we’ve already agreed it can, the only question is if the small changes most people actually talk about will.

34

Plume 08.26.15 at 10:01 pm

Scott P. @28,

I never said that we would get rid of prices. I said we’d get rid of their use as revenue stream. All revenues for all funding, including public works, benefits and wages, would come from electronic public pools — digits publicly stored and owned, publicly managed. It wouldn’t matter how many units you sold of X at each store. Wages and community funding would no longer come from those sales, directly — or indirectly through taxation. There would be no taxation. The “money” for wages and funding 0f public works would be allocated from an absolutely separate source, making taxation obsolete . . . . making sales irrelevant when it comes to funding what we need.

Sales numbers would only matter in the sense that they would tell us what we consume, how much we should produce, and how we should set wages to match those prices. As in, no longer would we organize the economy to optimize personal wealth accumulation for business owners and the rich in general. We would organize the economy to fulfill the needs of 100% of the population, without exceptions. It would shift radically from business-owner-centric to citizen/worker-centric.

No profit. No private ownership of the means of production. The economy would be fully democratized and optimized for the society as a whole.

Capitalism is a fiction. Money is a fiction. The entire edifice of scholarly work done on their behalf is fiction on behalf of fiction. It’s time to agree to fictions which actually make life really good for everyone, except for just a few. It’s time to agree to completely new fictions which actually work for all of us.

35

Plume 08.26.15 at 10:18 pm

Quick follow-up. Prices in our current system have a huge job. For the vast majority of businesses, they contain profits for the business owner, compensation for that owner and their employees, overhead beyond labor costs, plus taxes, etc. etc. Some businesses also invest, but prices/sales are crucial there, too. They’re obviously fundamental to the works.

In the new system I’m talking about, they wouldn’t have that burden. Compensation would no longer come from prices/sales at all. No more taxes, so that’s gone, too. Overall overhead comes from the separate source I mentioned above, so that’s gone as well. Prices/sales would be stripped of pretty much all responsibility, other than to tell us how we need to structure wages to afford those prices, and as a means to document the consumption/production loop. Prices and wages would be structured synergistically . . . not as a kind of roundabout bi-product and virtual happenstance, depending upon conditions, contingencies and myriad variables. We’d make them work together first and foremost. Mesh, etc, proactively.

No more capitalism, profits, M-C-M and exchange value. It would be use-value and 100% of the population would have access to all the fruits of society . . . . No more debt, taxes, or delayed production for necessities. If we need them, and we can produce them, we do it. Now. And no more wild volatility, as we’ve seen recently in the stock market. Steady state, sustainable, eco-friendly, humane, logical and entirely rational.

36

Waiting for Godot 08.26.15 at 10:49 pm

“Capitalism is a fiction. Money is a fiction. The entire edifice of scholarly work done on their behalf is fiction on behalf of fiction.”

Out here the great unwashed masses wait for a critical analysis of this statement that experience tells is as true as “the emperor has no cloths”.

37

engels 08.26.15 at 10:55 pm

So in short Brett: 1 there’s less incentive to build, or let vacant, homes & 2 landlord’s make less money? 1 seems dubious in the city I know (London) & 2 I’m not greatly exercised by tbh (that’s an understatement…)

38

Brett Dunbar 08.27.15 at 12:18 am

Land prices in London are fairly high, due to it being a big city with highly restrictive planning and little land available for development. All rent control would do is create a bias for selling rather than renting out properties. Landlords making less money reduces the incentive to provide rental properties, conversion or construction that would be a sound investment without rent control becomes a poor investment so resources that might have gone into that are invested elsewhere.

39

John Quiggin 08.27.15 at 12:27 am

@30 As regards leaving the party, I’ll remind you that I am on the other side of the planet.

On the bigger question, the NYC case suggests that rent control is only feasible as a one-time surprise. It was, in effect, a wealth levy on people who owned rental property in 1945 or thereabouts with the benefits going to their sitting tenants. The effect for everyone entering the market after that was to raise rents, not lower them. So, as I said way back, rent control isn’t really a price control.

Considered as a wealth levy, rent control looks pretty badly targeted in both directions. Shareholders and bondholders get off scot-free, while the gainers aren’t, in general, particularly poor. A general wealth tax, at a lower rate, with the proceeds going to general revenue, is obviously superior.

40

Peter T 08.27.15 at 1:18 am

Monty Python sketch:

“market prices represent opportunity costs for the households and business who face them”, except where they are distorted by
– tariffs,
– professional licensing,
– corporate controls,
– social custom,
– intellectual property rights,
– regulation,
– law,
– personal relationships,
– collective needs

and more. But the system would function much better if all of these went away…

41

david 08.27.15 at 1:30 am

A general wealth tax, at a lower rate, with the proceeds going to general revenue, is obviously superior…

Huh. It seems a few years too late to be writing “but $_alternative_policy would be superior at progressive redistribution” Yglesiasesque growth-and-redistribution love letters. Between Corbyn and Sanders, the “liberaltarian moment” where third-way intellectuals rush to prove their neoclassical chops seems to have passed

with regards to rent control I refer you to the ongoing political dramas in SF or London, where “higher rents reduce housing supply” is an idea that is not only taken seriously, but is a third rail amongst a wide demographic. In a zeitgeist where supply curves slope downwards, you cannot say “… is obviously superior” without some explication.

42

John Quiggin 08.27.15 at 2:19 am

@20 As you imply, my target audience can arranged (broadly speaking) on a spectrum from Brad DeLong to Plume. Most people in the audience will find some bits of the argument more palatable than others. Looking at your examples, I’m not minded to expand my set of exceptions. I’ve already said my piece on rent control.

I think the description of the operation of price controls I gave in the OP is pretty accurate as regards anti-scalping measures, which I referred to. When I lived in the US, it was taken for granted that if you didn’t book tickets well in advance you got them from a scalper outside the venue.

As regards anti-gouging, I’ll be clearer that controls can work to stop gouging in response to temporary shortages.

43

ZM 08.27.15 at 2:48 am

“Another possibility is that formal or informal systems of rationing will be developed.

Inevitably, once such a system has been in place for a while, a black market (or quasi-legal ‘grey market’) will develop, as in the systems of ticket scalping for sporting and music events. So, for a household, the opportunity cost of a good bought within the official system will be the legal price, plus whatever they could have obtained, in cash or favors, for passing the ration coupon to someone else. “

I think with current technologies rationing could be more flexible and smart so as to discourage the growth of a sizable black market.

For instance you could have participatory or deliberative budgeting and rationing. You would have to structure it to not be too time consuming for citizens though.

Deliberative budgeting and rationing would be easy to describe to everyone who read Enid Blyton books when they were children, as Enid Blyton was very forward thinking and deliberative budgeting is used in her Naughtiest Girl in the School books as the school in those books was based on the Summerhill school in England. The students have to give their allowances to the common budget, and everyone gets one penny a week or something like that, then if they want an extra purchase they have to bring it up at the deliberative budgeting meeting and justify the extra purchase.

So incorporating deliberative budgeting with rationing and modern technology would work quite well in my view.

“It’s easy to show that, if price controls are effective, and ration coupons are freely traded, the opportunity cost for consumers (the sum of the official price and the coupon price) must be higher than the price that would have emerged in the absence of control. That’s because producers will supply less of the good than in the absence of controls. “

As global production and consumption is too high at present to be physically sustained, this shows that rationing and price controls is a clear winner in reducing production of goods :-)

44

david 08.27.15 at 2:59 am

the DeLongs will object – your defense of minimum wages is misleading. As you might say, there are policy alternatives that are obviously superior. The anti-BDLs will object – you have conceded that minimum wages are essentially Hazlittian in their behaviour as price controls, when instead labour demand curves slope upwards (or somesuch other non-neoclassical reasoning)

(and, needless to say, the Hazlitts will object too, since you are defending minimum wages at all, and are noticeably evading the canonical opportunity-cost-of-policy impact-on-marginal-labour critique of minimum wages, after spelling out the logic for the whole chapter)

it’s a terrible topic to be flippant about, since most people (even laypeople) have An Opinion, and some loose economic reasoning for it picked up from a columnist somewhere. There’s just no point cheesing readers off by repelling their politics (even by just failing to fully confirm it) before they get to the substance of Lesson Two. This isn’t a journal, nobody’s obliged to finish your text before they reject your argument.

you could move the on-one-hand-on-the-other-hand discussion to a box, or move to to the Lesson Two section – just don’t bring it up in the body of this chapter at all.

(the same applies to ticket-scalping, incidentally; there is no shortage of readers who think that scalpers, and the people who buy tickets from scalpers, are evil subhumans. Likewise there is no shortage of readers who buy tickets from scalpers and regard them as a useful service to those too busy to queue. It’s best to just mention scalping as a phenomenon in passing… but that’s already what your draft does)

45

Terence 08.27.15 at 4:17 am

With regards to fuel subsidies being better spent on health and education in developing countries, yes but…the assumption is that the government revenue saved from removing the subsidies (which probably benefit a wider range of people than you give credit) will make it to front-line services. This may happen, but can’t be assumed to be the case. Indeed, one of the reasons that removal of fuel subsidies often leads to riots in developing countries is, I suspect, the fact that–in a context of poor governance–subsidies much easier to deliver successfully (in a way where people can see tangible results), than are public services such as health and education provision.

In an ideal world my vote is definitely with the provision of health an education; in the less than ideal world of development policy I’m not so sure.

46

TM 08.27.15 at 4:18 am

30: In the U.S., potatoes and bananas have “psychological” floors under them

Slightly off-topic (or maybe not): Does anybody have an explanation why in the US, bananas are cheaper (by weight) than potatoes? In fact, I find (at my TJ’s) that whatever the season, bananas are cheaper than any other fruit or vegetable. It boggles my mind.

47

Omega Centauri 08.27.15 at 4:31 am

Subsidized prices are almost always misunderstood by the population at large. For instance fuel subsidies in poor countries. Even though they are regressive subsidies by John’s argumentation, try to cut them and there are usually riots as the poorest segments consider that the only break they are getting is being taken away from them. And look at how the political system in the US responds to an increase in the price of imported oil -the politicians are stepping on top of each other trying to eliminate the state oil/gas tax to mollify the consumers. So rather than doing the efficient thing (increase the oil/gas tax), so that demand will be suppressed and the resultant decrease in import prices will be at the expense of foreign exporters, the exact opposite is proposed. Economic logic of that sort will never be understood by the populist masses.

48

Harold 08.27.15 at 4:33 am

Rents are regulated in almost every city in the world. If they were not and people’s rents could be raised every week without warning, it would result in intolerable social instability. Well designed rent controls are desirable and essential. I am astounded that John Quiggin would be opposed to them.

49

cassander 08.27.15 at 4:35 am

@Terence

>Indeed, one of the reasons that removal of fuel subsidies often leads to riots in developing countries is, I suspect, the fact that–in a context of poor governance–subsidies much easier to deliver successfully (in a way where people can see tangible results), than are public services such as health and education provision.

There’s little in the world easier, organizationally, than delivering money to everyone in the country, particularly given how prolific cell phones are. that governments and voters tend to prefer more complicated and less effective subsidization schemes speaks volumes about the wisdom of believing that politics is a reliable method of solving problems.

@TM

> Does anybody have an explanation why in the US, bananas are cheaper (by weight) than potatoes? In fact, I find (at my TJ’s) that whatever the season, bananas are cheaper than any other fruit or vegetable. It boggles my mind.

the fact that half the banana’s weight is taken up with its own packaging, perhaps?

50

Brett 08.27.15 at 5:25 am

@Engels

I’ll add to what the Other Brett said by adding that rent control (and often other price controls) also tend to contribute to some rather ugly forms of rationing. Think landlords being incredibly selective about potential tenants, favoring family first and people with high incomes next, to the detriment of poor folks. It’s why New York City has been trying to build in “affordable apartment” mandates if you get subsidies for construction from the city – they’re trying to get around that factor.

As for the minimum wage, it’s important to keep in mind that the studies predicting little to no harm were all for relatively modest increases. We have no idea what the effects of a major increase will be (like the recent plans to roll-out $15/hr levels in Seattle and Los Angeles). My guess is some disemployment, but the workers who have jobs will have boosted incomes and possibly productivity levels if employers put more work into training them.

The poor tend to benefit the most from directly provided public services, run efficiently. Subsidies tend to be the most politically vulnerable and expensive, and price controls tend to leave most of them worse off because they disproportionately bear the weight of search costs and other forms of rationing. Those services can work pretty efficiently, too, when they’re managed right and exist amidst a broader market economy they can work with so they can focus on their core purposes (think libraries contracting for office supplies, buying books from private publishers, etc).

@ Plume

That doesn’t sound like you’ve solved the issue that was pointed out, which is that your prices now don’t actually give you any useful information about what to produce anymore. Instead, you’re back to the Command Economy set-up of the 20th century again, trying to guess necessary production levels and sales through a state planning apparatus (and relying on extensive black markets to ease the burden of mismatches in planning).

@ Cassander

that governments and voters tend to prefer more complicated and less effective subsidization schemes speaks volumes about the wisdom of believing that politics is a reliable method of solving problems

I think of it as the contrast between giving someone a gift card as a gift versus giving them a physical gift. You know exactly what you’re getting with the former, whereas the exact value of the latter is more ambiguous – it might seem more valuable. Plus it might be harder to steal gasoline in a corrupt country than to steal the money for the subsidy program.

51

John Quiggin 08.27.15 at 6:55 am

I’d appreciate suggestions for a successful example of rent control, that is, one that has made more affordable rental housing available on a continuing basis. My suspicion is that such a program could only work (if at all) in a rental market where public housing played a dominant role, but I’m happy to look at any examples people suggest.

52

John Quiggin 08.27.15 at 7:02 am

@41 and others: I’m struck, in discussions like this, by the defeatism of (what I take to be mostly) US commenters. The idea that it would be possible to achieve anything substantially better than the status quo in terms of redistribution through the tax-welfare system is dismissed, implicitly or explicitly. The result is that every existing regulatory intervention, no matter how half-baked or potentially perverse in its effects is defended as if it were a major bulwark against poverty.

In Australia, while we’ve lost ground in plenty of ways in the past 40 years or so, there have been enough wins that it makes sense to argue for better policies, rather than defending the status quo at all costs. Maybe that’s liberaltarianism in the US context, but that’s not how it looks from my POV.

53

Sebastian H 08.27.15 at 7:49 am

I’m surprised by the continuing hard leftist resistance to the fact that most of the cities with strongest rent controls 30-50 years ago continuing into the present also have the highest rents.

Where do you think rent controls have been good at keeping down city-wide rents?

54

novakant 08.27.15 at 10:07 am

I’d appreciate suggestions for a successful example of rent control, that is, one that has made more affordable rental housing available on a continuing basis.

How about examples of what happens when rent control is abolished: the average rent in London for a room is £700 and for a flat £1500 (x1.5=$).

55

Scott Martens 08.27.15 at 10:43 am

I’d appreciate suggestions for a successful example of rent control… such a program could only work (if at all) in a rental market where public housing played a dominant role

Singapore.

New York’s rent control policy may be bad and lead to perverse outcomes, but it’s a radically different kind of policy than Singapore’s. In New York, there is an interdiction on raising rents for tenants in privately owned residential buildings; in Singapore, housing is essentially socialized – the state is landlord (or condo manager) for some 90% of the population – and enforces a sliding-scale price based on income, racial integration targets, and other policy goals. Now, you can argue that Singaporean rents aren’t really price controls since the state takes control of both the supply and the allocation of housing directly – that it’s more like Soviet-style central planning than market management – but then you risk a No-True-Scotsman fallacy.

As for other cases…

When applied to the sale prices of commodity goods – food, gasoline, whatever – I think you have it basically right. It would be better to give people money than to fix prices because of the distorting effects it leads to. But would you say the same for state controlled purchase prices? I’m thinking of institutions like the Canadian Wheat Board, or the way Ocean Spray acts as the effective monopoly buyer of all American cranberries, fixing prices and providing a form of income insurance for farmers. The record there is not without successes. Although forgotten now when global market grain prices are high, the Wheat Board was once a boon beloved by farmers, and it kept my grandfather’s family alive in bad years. That is definitely price control.

I do think you can make a case that labour is a special commodity along the same lines as the case that money is a special commodity, and therefore subject to different rules. If the incomes of widget makers goes down, they make fewer widgets. If the incomes of labourers goes down… they do what exactly? Paying a wage below the actual cost of living is a tacit subsidy to low-wage employers from everyone else who ends up paying out of their pockets to keep the minimum wage labourer from dying. Walmart does not deserve my charity, and its existence in its current form is profiteering on people’s basic moral unwillingness to just their neighbours die off.

And yeah, you have identified a problem in American political psychology. I wish it was only America that suffered from it. Data showing that the cheapest, most efficient, most effective solution to poverty is giving poor people money is ample and the conclusion is well established even in the most conservative and orthodox kinds of economic theories. But the idea is something even traditionally income redistributionist Germans can’t get into their heads, as the Recent Unpleasantness in Greece shows all too well. It is so contrary to people’s basic ideas about economics as moral philosophy that few people even in long-running social democracies can ever get their heads around it.

56

casmilus 08.27.15 at 10:47 am

I’m glad 2 other people are having trouble with this line:

“Firms will supply a good as long as the price they receive is less than the opportunity cost.”

Surely it should be “more than”?

57

James Wimberley 08.27.15 at 11:18 am

Plume in #13: “Commodities are priced solely to maximize profit for business ownership. They have no other function.”
It normally takes two to make a price. The advertised prices for luxury yachts say are just openers in haggles. Conversely, the one TV in the January sales priced at $50 is a come-on of a different type. Most of us would limit “price” to values at which transactions actually take place. It’s true we live since 1800 in a world of mass production and generally fixed offer prices, that buyers either take or walk away. But not for upscale hotel rooms or second-hand anything, where the pre-modern haggling rules of the souk or bazaar still hold. And company stores may exploit workers with limited alternatives, see the Truck Acts.

I’m curious. Since buyers can usually walk away, don’t you think they have some impact on the prices set by say WalMart?

58

Zamfir 08.27.15 at 11:41 am

Scott Martens says: that it’s more like Soviet-style central planning than market management – but then you risk a No-True-Scotsman fallacy.

Singapore might well be the closest example we have left of Soviet-style central planning, or at least of government-managed common ownership of the means of production.

It ties into Bruce Wilder’s points above. Most prices in the economy are controlled, with only a faint resemblance to the spot price mechanisms of economics textbooks. But it’s rarely only the price that is under deliberate control. Price controls from the government become a problem if that government limits itself to price control, without much further involvement.

59

ZM 08.27.15 at 11:49 am

“I’d appreciate suggestions for a successful example of rent control, that is, one that has made more affordable rental housing available on a continuing basis. My suspicion is that such a program could only work (if at all) in a rental market where public housing played a dominant role, but I’m happy to look at any examples people suggest.”

Forms of rent control are being considered in Melbourne and Sydney at the moment. There is little enthusiasm for city-wide rent control, so the rent control measures being proposed are public-private partnerships and “inclusionary zoning”.

As an example of a public-private partnership, the City of Melbourne owned some land and in the process of selling it to the developer put conditions in about affordable housing and green space.

Inclusionary zoning is similar but of a greater scale. The idea would be to survey what land in the city boundaries is currently owned by the State and zone it as inclusionary zoning and make it available to developers with the understanding that the inclusionary zoning conditions will be met — such as affordable housing, housing for essential workers, housing for the disabled etc.

The scope of inclusionary zoning could be extended to land owned privately but not being developed. Then the government could add steeper taxes for land in inclusionary zoning areas which was not being developed and this steeper taxation would discourage land banking and open up more land for development within the existing city perimeters.

60

Brett Dunbar 08.27.15 at 11:53 am

London has a shortage of supply, this means that prices are going to be high. It has very restrictive planning laws which artificially limit construction and conversion. NIMBYism is a real problem, existing owners a strong incentive to resist further building as that reduces the value of their assets and planning is controlled by local government. London is also built on clay which makes building tall structures rather difficult; which limits density.

61

reason 08.27.15 at 12:10 pm

“On the other hand, since they raise the incomes of the poorest group of workers, increasing their ability to purchase all kinds of goods and services, minimum wages will almost always be a superior alternative to price controls.”

But inferior to directly subsidising the poor (e.g. via a “National Dividend”).

62

TM 08.27.15 at 12:27 pm

Regarding rent control, it should be noted that NYC style rent control – whatever its merits – isn’t the only approach. You can’t make sweeping generalizations about “rent control” based on that one experiment. We’d need to at least see an empirical study of the outcome of rent control from different jurisdictions.

One important intervention in the rental market that isn’t precisely rent control but affects rents is municipally owned housing rented at below “market” rent. It is often conflated with rental subsidies but in fact, the rent doesn’t have to be subsidized to be below market. The market rent in big cities is much higher than the actual maintenance cost (and older buildings should have been amortized long ago). Berlin for example owns 16% of the city’s housing stock (http://crookedtimber.org/2015/05/16/is-the-uk-benefits-system-a-cdo/#comment-629478) and that should have an effect on the market.

63

engels 08.27.15 at 12:37 pm

London has a shortage of supply, this means that prices are going to be high

It has a supply which is utilised in an extremely inefficient because it is so unequally distributed and which used for purposes that have nothing to do with housing city’s workers and inhabitants (eg. frequently vacant second homes of foreign businessmen, speculative investment by offshore funds).

64

Alex 08.27.15 at 12:40 pm

“If prices are fixed by law, they cannot tell us anything about the true opportunity cost of goods and services”

Except free market prices don’t tell you anything about that either, since such prices are administered, they don’t freely float in the way you imply:

http://socialdemocracy21stcentury.blogspot.co.uk/p/there-is-mountain-of-empirical-evidence.html

65

Trader Joe 08.27.15 at 1:39 pm

@46 re Bananas
“Slightly off-topic (or maybe not): Does anybody have an explanation why in the US, bananas are cheaper (by weight) than potatoes?”

The weight isn’t really the main driver, its perishability. There is essentially a 2-3 day window to clear every acquired box of bananas. The price has to be set where you have the best chance of accomplishing that in the first 1-2 days otherwise (as no doubt you’ve seen) the third day the price will be at least halved (to the benefit of those who enjoy their bananas a bit spotted). Potatos, by contrast, have a comparatively longer shelf life and if stored properly can usually last much longer at full price (though they usually don’t).

You’ll also find that buyers are much more particular about which bananas they will take (some only buy green, some yellow, some will take lightly spotted), whereas apart from obvious blemishes, really every potato has about an equal chance of being sold at full price.

I think this fits very directly with the OP inasmuch as perishability is one of the biggest opportunity costs for sellers in certain industries….concert and sports tickets were mentioned, but airline seats, hotel rooms and restaurant sittings are likewise perishable which is why all of these industries have highly variable pricing for essentially no difference in product (most everone has probably had the experiencing of paying more for a cramped middle seat on a flight than someone who got a cheap ticket and is on the exit row aisle).

66

steven johnson 08.27.15 at 1:49 pm

Physically, provision of utilities such as water and sewage is “rent,” at least from the renter’s perspective. Provision of these things at controlled prices would be relevant to the analysis, then, I think. Perhaps the OP should look at Hanoi.

67

Marc 08.27.15 at 2:30 pm

Rent control meant that my great-aunt, who was well-off, paid rent ten times less than her neighbors. It seems bizarre to choose this as a hill to die on. If you want to make things more egalitarian, you’d think that you’d tie this to directing benefits to people who are actually poor or struggling in some way – for example, with public housing or mandates for affordable housing set-asides. Why defend things that are so poorly targeted?

68

JoshM 08.27.15 at 2:33 pm

I’d like to see an introduction to economics that recognizes right from the start the difference between descriptive and prescriptive economics, is dynamic rather than static, and that acknowledges the implications of behavioral economics, and the policy implications of “elasticities” as a central feature and not an afterthought.

The picture you’ve drawn is going to be more accurate wherever both supply and demand are relatively elastic, and markets move quickly toward equilibrium. Tinkering with prices will be a more potent policy tool — for good or for ill — in those circumstances.

But wherever either supply or demand are relatively inelastic, and wherever markets are “sticky” and slow to move toward equilibrium, price signals become a less salient policy lever.

And this includes many of the markets we care about — e.g. labor markets, housing markets which are very slow to adjust to price changes — and has a bearing on many of the issues we care about — e.g. the relative effectiveness of resource taxes.

There is no reason for policy makers to focus exclusively on price signals, while assuming that the “elasticity” of either demand or supply is a brute fact that no one can do anything about. To say that demand is “inelastic” is to say that people either don’t want to change their behavior, or else they have no alternative. And it’s possible to work with people to change either their motivations or expand their range of options.

For example, if you want people to drive less, it’s a purely empirical question whether you get more bang for the buck by levying a gas tax, or by introducing car pool lanes, or even educating people about the reasons they should drive less. It depends on whether people are driving because it’s cheap, or because it’s customary, or because they have no choice.

69

TM 08.27.15 at 3:17 pm

Thanks for your ideas 64 but it seems counterintuitive. If the produce market worked like in the econ textbook. the retail price should be production cost plus transport plus a slim profit margin. Perishability should raise, not lower the cost. Potatoes are easy to store and transport; transport cost for bananas is certainly higher. I can’t believe that production cost should be higher for potatoes and in any case, farmers probably get paid only a fraction of the retail price.

When I grew up, potatoes were the cheapest staple food. Now, in the US, it’s almost a luxury to cook your own potatoes. I suspect that almost all potatoes in the US are grown for industrial buyers (processed potatoes are still cheap). At TJ’s, they sell bananas for 19c a piece and organic ones for 29c. About 3 bananas make a pound. I never see potatoes (or really any fruit or vegetable) at 1$ a pound or less and sometimes they sell them piecewise for almost a dollar. It doesn’t compute. It seems bananas are loss leaders but why? Why not apples or potatoes?

70

engels 08.27.15 at 3:20 pm

“it seems bizarre to choose this as a hill to die on”

Good thing noone did. (A hill I would happily die on: opposing ‘progressive’ neoliberal BS about how if government intervention benefits anyone who isn’t sufficiently poor it should be abolished, to make way for properly targetted programmes which oddly never seem to actually appear.)

71

engels 08.27.15 at 3:36 pm

Fwiw my own preference would be nationalisation of land. Failing that, public housing, land tax, regulation of landlords, windfall tax on recent gains, etc

72

Brett Dunbar 08.27.15 at 3:40 pm

I think I see where you are going wrong. For transport purposes bananas are effectively non-perishable. Bananas have a very low transport cost. You buy them green and stick them on a ship. They ripen in transit. Sea transport is ridiculously cost effective. It emits less carbon shipping a container round the world than transporting it across the UK by road. Essentially the additional shipping for bananas uses very little fuel and occurs when you would have to be keeping them in storage anyway. Basically transport costs are only very slightly higher production costs roughly the same so the price largely reflects production costs.

73

Trader Joe 08.27.15 at 3:55 pm

@68 TM
“Perishability should raise, not lower the cost. Potatoes are easy to store and transport; transport cost for bananas is certainly higher. I can’t believe that production cost should be higher for potatoes and in any case, farmers probably get paid only a fraction of the retail price. “

I understand better where your question comes from now. You are certainly right about the impact of industrial farming – but I would disagree with your assumption on perishability – it changes the equation about being a price taker or a contractor.

Because the industrial potato farmer can store his product for up to 10 months, he can plant his volumes differently and doesn’t have to be a price taker at all times. Potato farming is capital intensive, with most of it done using heavy equipment and sorting facilities (potatos are harvested by simply scooping up dirt and tuber, the dirt is later sifted out and returned to the fields). Equally in most of the world where they are grown, potatos have a season, so production is done to a contract and then stored to meet demand constantly. The storage raises the producers cost. The contract nature of production sets a floor for both producer and all potential users (grocers being just a fraction of the market, so also often less able to demand best price).

By contrast, in all the world there is basically one type of banana, they ripen constantly and are mostly grown in economically disadvantaged areas (potatos are mostly, but not exclusively a 1st world crop) – banana producers are constantly price takers because they can never store. The process is far more labor driven and labor costs are low. Perishability is a problem for producer, middlemen and end user so all need to keep cost low to keep demand high, the cost differential to shipping is not great. Both are shipped by bulk rather than weight and since bananas are more easily damaged the boxes they are shipped in our subtantially the same as potato boxes, just less densely packed.

There is possibly some level of loss leadership on bananas relative to standard potatos but neither are usually items that grocery stores really make any money on (specialty potatos and plantains are more profitable to the grocer on a unit basis but do far less volume).

74

TF79 08.27.15 at 4:35 pm

Regarding the title: “Why price control doesn’t usually work” – it may be helpful to clarify what is meant by “work.” If the goal of rent controls is for Marc’s great-aunt (@66) to pay 1/10th the rent of her neighbors, then it seems to have worked just fine. Nixon’s price controls on gasoline worked just fine, in the sense that people paid the price ceiling at the pump.

75

L2P 08.27.15 at 4:49 pm

“Housing supply is extremely elastic. People can sublet bedrooms, developers can plan for higher density in new projects, and renovations can expand existing buildings. “

That’s actually showing INELASTIC supply. We wouldn’t say the supply of farmland is elastic because we can split one 100 acre farm into two 50 acre farms; the amount of farmland is the same. Not a single square foot of housing is created by subletting. Ever.

Renovations and new developments take years, or decades. We don’t call a supply “elastic” if there’s a decent chance someone could die before supply is increased…

76

engels 08.27.15 at 5:01 pm

‘Not a single square foot of housing is created by subletting’

No, but new dwellings can be created and more people housed (and by division of large properties into smaller ones, which is preferable). London has generally moved in opposite direction, cf. Dorling above

77

Bruce Wilder 08.27.15 at 5:33 pm

The problem with these speculative analyses of the cost of bananas relative to potatoes and apples and other fruits and vegetables are that they use the technical to eclipse the politics. In the real-life organization of production systems, politics leads. The promotion of a book by Dan Koppel occasioned a number of thoughtful articles on bananas several years ago. A Google search will lead to many links. Here’s what Koppel wrote (as quoted in a Freakonomics column),

That bananas have long been the cheapest fruit at the grocery store is astonishing. They’re grown thousands of miles away, they must be transported in cooled containers, and even then they survive no more than two weeks after they’re cut off the tree. Apples, in contrast, are typically grown within a few hundred miles of the store and keep for months in a basket out in the garage. Yet apples traditionally have cost at least twice as much per pound as bananas.

Americans eat as many bananas as apples and oranges combined, which is especially amazing when you consider that not so long ago, bananas were virtually unknown here. They became a staple only after the men who in the late 19th century founded the United Fruit Company (today’s Chiquita) figured out how to get bananas to American tables quickly — by clearing rainforest in Latin America, building railroads and communication networks, and inventing refrigeration techniques to control ripening. …

Once bananas had become widely popular, the companies kept costs low by exercising iron-fisted control over the Latin American countries where the fruit was grown. Workers could not be allowed such basic rights as health care, decent wages, or the right to congregate. … Over and over, banana companies, aided by the American military, intervened whenever there was a chance that any “banana republic” might end its cooperation. … Labor is still cheap in these countries, and growers still resort to heavy-handed tactics.

The final piece of the banana pricing equation is genetics. Unlike apple and orange growers, banana importers sell only a single variety of their fruit, the Cavendish. There are more than 1,000 varieties of bananas — most of them in Africa and Asia — but except for an occasional exotic, the Cavendish is the only banana we see in our markets. … By sticking to this single variety, the banana industry ensures that all the bananas in a shipment ripen at the same rate, creating huge economies of scale. The Cavendish is the fruit equivalent of a fast-food hamburger: efficient to produce, uniform in quality, and universally affordable.

The term, banana republic, is no misnomer. The creation of banana plantations did permanent damage to the politics of countries like Honduras and El Salvador, which is still killing people at a remarkable rate in political violence. According to Wikipedia, “Honduras saw insertion of American troops in 1903, 1907, 1911, 1912, 1919, 1924 and 1925” and there’s a permanent American presence there now, keeping watch on neighboring countries (Nicaragua and El Salvador in particular). The CIA has sponsored campaigns of murder by the local security forces.

I don’t bring up any of this up, intending it to be read necessarily as coming from a socialist or radical viewpoint. I am just saying that the technical can not be so neatly divorced from the technical, the political from the economic. I’ll let Plume fulminate.

In my abstract way, I sometimes stress that private enterprise in a money economy organizes itself around sunk-cost capital investment, and the return, if any, on that investment is an economic rent. One implication is that the enterprise, to earn an economic rent (I never say, “profit” which is a more problematic and ill-defined term) depends on politics: on rules-of-the-game and property rights. A lot entrepreneurial innovation is about changing the rules to accommodate a new scheme for organizing the production system. These are just things I encourage people to notice.

There is something wrong with an economics (and Hazlitt’s One Lesson is a prime example) that teaches people to not notice, or to believe in the political null of laissez faire, that there’s some possibility of having no rule, or having political systems emerge “naturally” and unconsciously (something Hayek advocated, arguing that conscious planning was always going to go wrong).

My view on the politics is a liberal one, that political conflict is legitimate. The workers in Honduras have the right to organize politically, to have the political rules revised in their favor, to organize a union and strike, to vote for a democratic government and so on. The pernicious undercurrent of economics in the One Lesson mode is a thinly disguised authoritarianism, the idea that “what works” is always and everywhere the outcome of a laissez faire, where the powerful are able to do as they will. Pareto efficiency is a variation on “what’s mine is mine and what’s yours is negotiable”. Political measures to redress an imbalance of power in the economy, which is how I view rent control and related measures regulating rental housing, or a minimum wage, are treated as illegitimate or necessarily self-defeating. (Price control usually doesn’t work — everyone knows that, case closed.)

78

David Brown 08.27.15 at 6:03 pm

In the paragraph beginning something like “A firm will supply a good…” you say words to the effect “as long as the price they receive is less than the opportunity cost…” I think you meant to say “more than” rather than “less than”.

79

Trader Joe 08.27.15 at 6:11 pm

@76
Excellent points. I’d add, since you didn’t, that there are few political and economic tools that haven’t been utilized by similarly situated food commodity producers (see also the well known histories of sugar and pineapples).

Although it must be said that the economically and politically powerful J.R. Simplot company has had its own share of shennanigans despite using Idaho rather than a banana republic as a base.

80

Luke 08.27.15 at 6:34 pm

Who deregulates the deregulators?

Regarding the minimum wage, doesn’t it matter rather a lot how minimum wage earners are employed? In developed countries, where the ‘jobs fleeing overseas’ horse has already bolted and minimum wage work is almost invariably sevice work, increasing the minimum wage is simply increasing the wages paid by locals to locals. Until the vernae are replaced with robots, I don’t see employment dropping because of it.

81

Zamfir 08.27.15 at 6:46 pm

Some raw data about potatoew and bananas:

Equador has a state-set minimum price of 6.55 USD/box of 43 pounds, or
Banana spot price “FOB in US ports” hovers around 950 usd/ metric tonne. I can’t find spot prices in Equador

Current spot prices in the Netherlands for potatoes are 12 ect/kg for low quality “chips quality to around 20 ect /kg for “table qualities”. These are consider good prices, I have seen historic prices as low as 2ct

82

Plume 08.27.15 at 7:01 pm

Brett @50,

Instead, you’re back to the Command Economy set-up of the 20th century again, trying to guess necessary production levels and sales through a state planning apparatus (and relying on extensive black markets to ease the burden of mismatches in planning).

JQ debunked the myth of the efficient market in his excellent Zombie Economics. He could have added another zombie myth. That the only alternative to American capitalism is 20th century style state capitalism, a la Russia and China, etc. There are hundreds of different alternatives, and it’s another zombie myth that “the left” favors state command and control.

Riffing off the writings of anarchist communists like Kropotkin, Morris and Reclus . . . . what I’m talking about is true decentralization, back to the community, where orders for goods and services would be taken in democratic town meetings. Orders taken, orders met. Which is a thousand fold more efficient than our current system of mass overproduction in hopes of future sales, pumped up by debt in various forms. Nothing could be less efficient than what we do right now. For example, Americans through away literally half of the food they buy. Our landfills attest to the mountains of goods thrown away soon after purchase. “Planned obsolescence” has only increased in the last few decades. And anyone who has ever worked in retail knows how many items are sent back to be “remaindered” in one form or another. If “price signals” really worked as well as the cheerleaders say they do, we wouldn’t produce so much waste and pollution . . . . and if the system worked even remotely as well as those same cheerleaders claim, the allocation of that overproduction wouldn’t be concentrated at the top . . . . . leaving most of the world’s population without even basic necessities.

I should have added one more aspect to price in the capitalist system. It also contains the cost of unsold merchandise or services. Obviously, the consumer receives no added value for this . . . . for the extra markup involved in waste, pollution, insurance, the unsold, etc. etc.

83

Plume 08.27.15 at 7:02 pm

Bruce @76,

Very good points, and it would apply to JQ’s other thread on opportunity costs as well.

84

Plume 08.27.15 at 7:15 pm

James @57,

Yes, the consumer’s choice is a factor. Of course. But only insofar as it factors into maximizing ownership’s profit/compensation. They’re not doing it to empower the consumer. They have to find that sweet spot that leads to Yes, rather than No. But this doesn’t mean the buyer is on equal footing in any of these transactions, or that he/she is part of some “democratic” process.

The buyer is virtually always the loser in any capitalist transaction. If they aren’t, the seller can’t make their profit/accrue personal wealth, etc. etc. They must come out on top, at least in the aggregate. And the consumer has nothing more than the illusion of choice. What they get to choose from is forced upon them, with mass production meaning very little real difference between products and services. Kind of like our political system.

Those “choices” bring to mind the scene from The Hurt Locker when the protagonist comes back from Iraq and goes grocery shopping. Not sure if the director intended this as a comment on the illusion of consumer “choice,” but it struck me as exactly that.

85

Harold 08.27.15 at 7:28 pm

Bananas are a monoculture and it is only a matter of time before the crop collapses and they become a rarity, if not extinct. http://www.naturalnews.com/034243_monoculture_bananas.html (link chosen at random from search “bananas monoculture” — much in the news these days. Historically, monocultures (such as potatoes, e.g.) lead to famines.

86

Harold 08.27.15 at 7:30 pm

forgot to close parens. after “days”.

87

Harold 08.27.15 at 7:31 pm

@&6 Bruce Wilder. Well done (as virtually always). Also Plume.

88

Brett Dunbar 08.27.15 at 8:13 pm

Naturalnews has negative credibility as a source. Mike Adams is a dangerously irresponsible anti-vaccine loon.

A recently evolved strain of Panama Disease is threatening the Cavendish the way an older strain wiped out the Gros Michel by 1960. This meant that the entire industry shifted from one monoculture to another in about a decade. Due to different ground conditions the Panama Disease fungus didn’t spread to Thailand or Malaysia which still cultivate the Gros Michel, mainly for export to China and Japan. Banana growers have had to deal with this before.

89

Sebastian H 08.27.15 at 8:23 pm

“JQ debunked the myth of the efficient market in his excellent Zombie Economics. He could have added another zombie myth. “

Whoa, whoa, whoa. You’re using “efficient market” in a far different way than what he debunked, (the EFH concept regarding financial markets). Further, you have repeatedly made the mistake of taking evidence of market inefficiencies as automatic evidence that non-market measure will be better. As we see through rent control measures from San Francisco to New York to Sweden, the alleged cure often leads to even more of the disease.

Market imperfections aren’t any more of a sign that markets need to be abandoned than asthma is a sign that it would be good to cut your lungs out. Which isn’t at all to say that inhalers can’t work.

90

Plume 08.27.15 at 8:50 pm

Sebastian H@87,

From his Foreign Policy Article:

The Efficient Markets Hypothesis: the idea that the prices generated by financial markets represent the best possible estimate of the value of any investment. (In the version most relevant to public policy, the efficient markets hypothesis states that it is impossible to outperform market valuations on the basis of any public information.)

There is nothing in the way I “used” the term that goes against the above. I think you’re reading that into your critique.

And this?

Further, you have repeatedly made the mistake of taking evidence of market inefficiencies as automatic evidence that non-market measure will be better.

I never tried to make that particular connection, and I showed why an alternative would be better. Not just because it’s different from our current system — and radically so — but the way it’s different. Again, because it would be “produce to order,” rather than produce in hopes of future sales, which always results in waste, loss, pollution and debt. It would be truly democratic, directly connected to the citizen/buyer, would present actual choice for once, and would no longer be business-owner-centric. It would be citizen-centric. All of us would benefit, instead of a tiny percentage of the population. This would be true “empowerment,” for 100% of the population.

Radically decentralized, linked directly to actual need (and use-value), egalitarian, democratically structured, the lowest possible amount of waste, pollution, loss, etc. etc. . . . and no need for debt. For starters. It’s not just better because it’s different. It’s better because it’s simply far more logical, rational and humane.

91

engels 08.27.15 at 8:50 pm

“As we see from rent control measures from San Francisco to New York to Sweden, the alleged cure often leads to even more of the disease”

‘More’ compared to what? Lived in London recently?

92

Plume 08.27.15 at 9:01 pm

Also, the reason why our system needs to be abandoned are legion. Perhaps the most important: Capitalism generates massive inequality, massive waste and pollution and is obviously incapable of allocating resources or compensation in an even remotely adequate way. It has never, ever “worked” for more than a small percentage of the world. Its history is one of endless carnage, theft, resource depletion, the destruction of eco-systems, cultures, “the commons,” etc. etc. And whenever its cheerleaders talk about it, they talk as if it never has recessions and depressions, mass business failures, endless bailouts by taxpayers, etc. etc. As in, they talk as if its real world effects don’t exist, and that it actually functions according to sanitized theory. They talk about it just like slavery was once depicted in American textbooks, especially in the South.

It’s waaaay past time to stop believing in the fiction of capitalism, and fictions about capitalism. We won’t survive as a species if we don’t move beyond them.

93

Layman 08.27.15 at 9:20 pm

“Capitalism generates massive inequality, massive waste and pollution and is obviously incapable of allocating resources or compensation in an even remotely adequate way. “

These things are generally true about capitalism, but they seem to be true of anything else we’ve tried. Large societies lead to states, states gather power and promote renters, leading to inequality and waste and pollution. Making state functionaries answerable to the public helps a bit, strong institutions help a bit, and the rule of law helps a bit; but there’s a natural tension between the tendencies of states and elites and the good of the people. And it isn’t clear to me that you can prescribe a way of governing a large society without this natural tension. Can you?

94

Harold 08.27.15 at 9:27 pm

Dunbar @86
As I said, that link was at random; there are plenty of others. I originally heard it on NPR:

http://www.npr.org/2011/07/22/138610585/yes-we-do-have-bananas-for-now

http://www.popsci.com/article/science/has-end-banana-arrived

95

John Quiggin 08.27.15 at 9:36 pm

Coming back to my point about giving money to poor people, it seems to me that the problems we see in London and New York arise from the general increase in inequality over the past 30 years and the fact that the wealthy are concentrated in these and similar cities. That drives up the price of anything that’s inelastically supplied, from land to sports tickets.

I don’t see rent control as a plausible solution. Nor do I think we’ll get far by holding down the price of tickets to Yankees games, and trying to ban scalping.

We need to look at causes not symptoms.

96

Mdc 08.27.15 at 9:40 pm

Wouldn’t rent control reduce inequality, just by among landlords poorer?

97

L2P 08.27.15 at 9:44 pm

“No, but new dwellings can be created and more people housed (and by division of large properties into smaller ones, which is preferable). London has generally moved in opposite direction, cf. Dorling above”

You’re not creating new dwellings by subletting anything. Literally, you’re not. Having two people share a sleeping bag doesn’t creating new sleeping bags.

You can argue that it’s BETTER to have people share sleeping bags, but it doesn’t create new sleeping bags for them to share.

98

novakant 08.27.15 at 9:53 pm

I don’t see rent control as a plausible solution.

Why on earth not? There certainly is public support:

http://www.independent.co.uk/news/uk/politics/almost-nobody-in-the-uk-is-opposed-to-rent-controls-for-housing-9955679.html

And how else would you fix the problem, that you simply cannot afford to live in London anymore on an average salary:

http://www.londonrents.org.uk/

99

engels 08.27.15 at 10:31 pm

L2P if my basement has water, entrance, etc and I sublet it then I have indeed created an extra dwelling for someone (compared to keeping it as part of my own home for guests etc). Not sure I follow the analogy with sleeping bags.

100

hix 08.27.15 at 10:34 pm

Id say the german rent control system before the recent reforms ( you cant increase rents above market rate ) is a minimum control level that does increase supply ( renting is much more desirable for the better off if the us style risks of renting are avoided, making the business in turn more attractive ) and makes life easier for everyone.

101

JW Mason 08.27.15 at 10:35 pm

I don’t see rent control as a plausible solution.

John, what do you think are the best empirical studies of the effects of rent control laws in practice?

102

UserGoogol 08.27.15 at 10:39 pm

Plume: The profit motive isn’t the only reason why businesses create things in advance of consumer demand. It takes time to make things. Obviously you can’t grow crops the moment someone wants to eat a sandwich, you need to do things in advance. Having people make their consumption decisions in advance is one way to address that, but there’s a cost in not allowing people to change their minds.

103

Sebastian H 08.27.15 at 10:41 pm

I know I shouldn’t engage you Plume, but “The Efficient Markets Hypothesis: the idea that the prices generated by financial markets represent the best possible estimate of the value of any investment. “

This is a criticism of stock and bond prices and the like, not a criticism of the price of an pear or a blanket or gasoline. It also doesn’t suggest that your estimate is going to be better.

104

hix 08.27.15 at 10:45 pm

Not shure what extend of regulation is considered rent control in this context. Either way a regime that simply bans increases for long term tenants above some ceiling that is below market rates is not crazy either in terms of a targeted subsidy/mandatory insurance against the social cost of a used environment change. I tend to think constraints on kicking people out are still to lax for some high moving cost groups e.g. people above arround 67 or with some mental health issues.

105

jgtheok 08.27.15 at 10:49 pm

I believe a couple of earlier comments on food/fuel subsidies have touched on this, but perhaps it should be made more explicitly. The policy may “work,” in that the underlying motivation is not to fine-tune resource allocation, but is part of a package intended to mitigate some uncommon but nasty failure states. In which case, abstracting those states out of the argument feels more than a bit artificial. To bring up some classical history, what level of opportunity costs are involved in sending the Urban Cohorts to put down food riots?

106

Sebastian H 08.27.15 at 10:51 pm

“Why on earth not? There certainly is public support:

And how else would you fix the problem, that you simply cannot afford to live in London anymore on an average salary:”

There is public support for getting free unicorns, but that doesn’t provide unicorns.

If you want people (in some general sense as opposed to just the people who live there right this second) to be able to afford housing in a specific area, you need to either build more housing, incentivize building more housing, or give them more money. Any of those three are plausible solutions. The reason rent control is not a plausible solution is:

A) it ties you to a particular location so you can’t afford to ever move;
B) if you don’t allow the rents to go up even after a move (to avoid the problem of [A]) you cause the new building market to collapse, and you cause landowners to never want to improve or fix up properties;
this causes
C) even tighter rental markets which means MUCH more expensive housing for anyone who wants to move around in the area or move into the area.

Would you support a 20 year moratorium on poor people moving to London? If not, the rent control is much worse idea than just giving poor people money for rent, and is also a much worse idea than spurring a massive building effort (which is what San Francisco needs for example). San Francisco is fascinating because it tries to ram progressive politics and NIMBY anti-building rules together, and look what happens–the poor are essentially expelled from the city even though they have very strict rent control laws.

107

engels 08.27.15 at 10:57 pm

“There is public support for getting free unicorns”

There is?

108

Sebastian H 08.27.15 at 10:58 pm

Yes. Look it up on google.

109

engels 08.27.15 at 11:11 pm

You live and learn.

110

John Quiggin 08.27.15 at 11:22 pm

As an aside, subletting is a huge problem for rent control. If sublets aren’t regulated, then the official tenant effectively takes the place of the landlord, charging what the market will bear. If they are, then you need multiple determinations for the same property.

111

Harold 08.27.15 at 11:39 pm

Unfortunately, you need to regulate hotel rates, too.

112

ZM 08.28.15 at 12:44 am

Sebastian H,

“If you want people (in some general sense as opposed to just the people who live there right this second) to be able to afford housing in a specific area, you need to either build more housing, incentivize building more housing, or give them more money. Any of those three are plausible solutions.”

As I said above types of rent control are currently being considered by urban policy makers for Sydney and Melbourne.

I went to a talk by the Lord Mayor in Melbourne (Robert Doyle who is former Victorian Liberal party leader but as head of the City of Melbourne council he is now a very strong voice for good urban planning) and he was bemoaning unaffordable house prices in the Eastern suburbs as it meant his daughter had to move to the Inner Western suburbs away from their family. As well as for the general population, unaffordable housing is a great problem for “essential workers” i.e. people who are teachers and nurses and cleaners and paramedics etc.

The problem of unaffordable housing in the established suburbs is made worse due to the newer interface suburbs not being provided with sufficient government and commercial infrastructure. As well as a lack of public transport and civic centres etc there is, for instance, a lack of nearby places to have bar mitzvahs.

“The reason rent control is not a plausible solution is:
A) it ties you to a particular location so you can’t afford to ever move;”

If the government applied inclusionary zoning then there would be more affordable houses overall and so a greater choice of housing for people who wanted to move. Renters typically move frequently in Australia unlike in Germany where renters have to put in their own kitchen cupboards and so on so they stay longer.

Australia has a much lower share of public housing than the UK and in public housing here there is less of a problem of “residualism” (this is when people stay in public housing for a very long time and even over generations).

“B) if you don’t allow the rents to go up even after a move (to avoid the problem of [A]) you cause the new building market to collapse, and you cause landowners to never want to improve or fix up properties;”

The benefit of utilising a statutory tool like inclusionary zoning is that is gives certainty to developers.

You would stage the implementation of inclusive zoning, have a period of consultation with the community and developers etc, then you implement the inclusionary zoning and all developers have to comply as it is the new condition of the market.

I spoke to a project manager from Arup last year about how to get developers to build more sustainable buildings, and he said the government needs to make the developers assess the environmental and social costs of their proposed developments in the planning stages.

If this social and environmental costing analysis was mandated to be done before planning permission could be granted for a development then inclusive developments would be favoured and developments that are not inclusive might never get planning permission.

113

TM 08.28.15 at 12:45 am

Zamfir’s numbers at 81 confirm that bananas should cost far more than potatoes. So it’s clear, as i said earlier, that there must be something at work that is not consistent with “market mechanisms” but still I don’t see a good answer. If bananas are sold below production cost, somebody must absorb the loss, but who and why? (I’m aware that bananas are a genetic monoculture but I don’t see how that explains anything.) If potatoes cost a few cents per pounds to grow and are sold at much more, why is it that potato sellers can extract these high prices and why is nobody undercutting them? I’m interested in the actual mechanisms at work, not in a vague hand-waving “it’s all political” story. It’s just something that I’m really curious about. Plus, the bananas and potatoes story seems another case of US exceptionalism. Would Europeans tolerate being charged more for home-grown potatoes than tropical bananas?

JQ 95: “I don’t see rent control as a plausible solution.” That is a bit weak tea. There are many policies that we know won’t on their own “solve” the problem of inequality but we still support. I would like to reiterate that nobody here has offered empirical evidence justifying the sweeping claim that “rent control doesn’t work”.

114

John Quiggin 08.28.15 at 12:58 am

@113 It’s hard to prove a negative. Rent control in NYC has clearly failed the test I set out @4, namely making it possible for New Yorkers in general to rent apartments at affordable rates. And, while political outcomes aren’t proof, the original version of rent control is just about dead and (AFAICT) no one suggests reviving it. De Blasio has a bunch of ideas, but they don’t include going back to old-style rent control. So, that’s an example of failure

OTOH, with the exception of Singapore’s public housing system (definitely not a true Scotsman), no one has offered an example of success in response to my invitation @51.

115

Harold 08.28.15 at 1:11 am

According to this website, if I read it right, potatoes cost 59 cents per pound and bananas cost 53 cents per pound *with the skins* . So in actual fact potatoes are *much* cheaper than bananas. There goes that theory. Of course if you are buying specialty or organic potatoes at Trader Joe’s you can expect to pay 40 cents more per pound.

http://www.bls.gov/regions/mid-atlantic/data/AverageRetailFoodAndEnergyPrices_USandMidwest_Table.htm

116

Doctor Memory 08.28.15 at 1:45 am

I want to believe that it might be possible to design a rent control system that was not hideously biased in favor of incumbent tenants and against newcomers, but it would clearly need to be paired at the hip to a massive and permanent increase in the ability and will to build new housing (whether private or state-owned and probably both) regardless of its effect on existing property values. In theory this could be done, in practice I don’t see anyone — very much including most advocates for rent control — agitating for it, so I remain pessimistic.

A shift to land-value taxation, combined with plowing the money thus raised back into public housing, seems like the great un-touched arrow in the dusty quiver of urban housing policy these days.

And in passing, I will note that Plume’s vision of “orders for goods and services would be taken in democratic town meetings” is possibly the most nightmarish idea I have heard in the last few months. Say what you will about the failings of capitalism (and there is much to say), but at least I do not presently need to submit my grocery list to a vote by my neighbors a month before I make dinner.

117

philofra 08.28.15 at 2:13 am

Why is this an issue?

118

Plume 08.28.15 at 2:36 am

Sebastian H @103,

Yes, I know what it is. And I didn’t say it was a criticism of “an pear a blanket or gasoline.” You just read the first sentence and assumed the rest of the post was still referring to it. Throughout.

And I already showed you why it would be better. Because it would be direct order taking. Repeated. Which do you think more accurately reflects need?

A marketing campaign, followed by production of X items, in hopes of future sales?

or

A democratic town hall meeting, where citizens of that particular community, (among other things) bring their lists of needs with them?

Think of a small workgroup. It’s lunch time. A person takes a food order. Fills it. Is that not much more efficient than someone just buying a bunch of food, without asking anyone what they want or might consume, etc. etc.? Extend that outward to a community, federate the communities, throw in pattern-recognition software used to track, chart and enhance those lists. Democratic meetings throughout the year, data collection running parallel to those meetings, communities sharing that aggregate data, rather than keeping it secret from one another, as capitalist businesses do when they collect data.

The real “sharing economy.”

It’s obviously going to be more efficient to take and fill orders, rather than produce and market in hopes of future sales.

119

Plume 08.28.15 at 2:40 am

Doctor memory,

It’s not “present a grocery list for a vote.” It’s finding out what everyone needs in order to produce the right amount, instead of massive overproduction which leads to massive waste, pollution and maldistribution. Again, we Americans throw out half of our food each year. Literally. Billions and billions of dollars thrown away.

The concept would be used to match actual use, actual need, with actual production. Instead of trying to guess at how much people might want, and hope your ad campaigns generate enough interest.

120

Plume 08.28.15 at 2:45 am

JQ,

Is the profit margin a factor in the success or failure of such price controls, in your scenario? It makes sense that an industry with fat margins would have far less trouble with those controls than one with is a tight margin. And by that I mean the actual profits, not the differing profit margins corporations often give, depending upon their audience in that moment.

Another factor has to be the time frame for those controls. It makes sense that caps on housing rents would work for a specified period of time, but not if they’re kept indefinitely. Finding the right length of time would be key as well.

121

Doctor Memory 08.28.15 at 2:47 am

Plume: Oh dear. I refer you to Cosma Shalizi on the optimization problem, and otherwise wish you the best of luck in your endeavors while devoutly hoping I never have to live in a world in which I need to meet with my neighbors to collate our grocery orders.

122

Plume 08.28.15 at 2:56 am

Doctor Memory,

Oh dear. The Soviet Union as cautionary tale again. Please read Kristin Ross’s Communal Luxury, Chomsky on Anarchism, google Parecon, Richard Wolff’s WSDEs, or Gar Alperovitz on the subject.

I’m talking about something 180 degrees removed from the Soviet system. Day to their night.

123

Harold 08.28.15 at 2:58 am

John Quiggin, @114. Rent control cannot work without control of speculation in real estate, such as exists in Germany. NYC is not a good example because housing there (or here, since I live here) has become monetized, causing prices to be artificially high.

124

Plume 08.28.15 at 3:10 am

Btw, are you okay with our current system? Do you think it “works”? Not only do we throw half of our food purchases away. We have tens of millions of hungry people living here. Millions die of hunger worldwide each year. Millions starve to death, can’t get the medical attention they need, the education, the safe environments, etc. etc. While we in the developed world throw away trillions of dollars worth of necessities each year. We toss them, without much thought about it. They fill up our landfills to the bursting point . . . to the point where we export even that to already impoverished nations.

And if meeting with your neighbors is something you’d rather avoid, at least when it comes to groceries . . . modern technology provides all kinds of ways to work around that. You wouldn’t have to be physically present, if you didn’t want to be. The data shared would be enough to match need with production. It happens in our current system, too, but it’s far flung, depersonalized, labyrinthine, radically detached from the local and never accurate because of that.

What I’m talking about is localizing it again, bringing it back to the old ways of doing things, with the community providing for the community, as much as possible and sustainably. Small is beautiful, local production for local consumption, etc. Old ways, with new technologies.

125

Plume 08.28.15 at 3:13 am

Harold,

That makes sense. Laissez Faire aspects of the system conflict too much with rent controls. But, as mentioned above, couldn’t it be done for short periods of time? Slowing down the hikes, rather than trying to stop them 100%?

126

Harold 08.28.15 at 3:30 am

As other people have said, one would have to look and see how other countries manage successful regulation. Speculation also is clearly harmful for society and ought to be curbed. Decent, affordable housing is a human right.

127

Collin Street 08.28.15 at 3:44 am

A shift to land-value taxation, combined with plowing the money thus raised back into public housing, seems like the great un-touched arrow in the dusty quiver of urban housing policy these days.

Making london housing more expensive won’t fix the problem of london housing being too expensive. It’s an employment supply-side issue, but the fix to that — increasing the burden on employers of putting their jobs in london, through a differential payroll tax or wage structure — is… a thing that has elements.

[regional english devolution would help, here. But again.]

128

UserGoogol 08.28.15 at 3:45 am

Plume@122: That link isn’t using the Soviet Union as a cautionary tale, it just mentions the country because the discussion was inspired by the book Red Plenty. It’s just the basic mathematical problem: to run an economy you have millions of different goods people might choose to buy, which then have to be factored against the millions of inputs you could use to produce such goods. High-dimensional optimization problems can’t be solved just by having people talk what they’d prefer, the scale is simply too big for human beings to consider all the options explicitly.

Capitalism doesn’t exactly do a perfect job doing the calculation either, but just saying that your system will reduce waste from excess inventories (which I’m skeptical of for other reasons, but whatever) doesn’t really address the problem.

Now all your talk about small is beautiful does point at a solution: if we simply optimize over a much smaller set of possible options, then we can arrive at a reasonably efficient option much more easily. But it does that by radically taking options away from people. Food is one thing, people can eat perfectly tasty and nutritious food locally. But what about computers? Or hell, what about pencils? So much of modernity depends on pulling together resources which cannot really be plausibly be sourced in one small area. Giving that up, even if it guarantees that nobody actually starves, that’s a rather big price to pay.

129

ZM 08.28.15 at 3:58 am

There is no reason why you need centralised price control and rationing done with one big super computer program like Red Plenty. You just decentralise the price control and rationing and have different computers and departments and logistics people working it out. Logistics people already do this now except with more waste.

I think you can even apply this to the private sector without bothering to nationalise the whole economy.

130

Plume 08.28.15 at 4:15 am

@128,

It would radically reduce the scale of inputs, shrinking it both in number and geography. Logically, when producers live in the same community they produce for, you’re going to sync up a great deal more easily. When they produce to order, you take yet another step closer to a match of production and actual usage. Federating these communities, as was the goal of anarchist communists like Morris, Reclus and Kropotkin, keeps the input scale small, while radically extending the pool of knowledge, tests for variables, contingencies and so on. It would also bring in more choice for each community. The sharing of community data with all communities would sustain the syncing up, the matching of usage and production. And because there is no profit, and no private ownership of the means of production, there is no need to “compete.” There is no need to hide the knowledge one community gains.

In our current system, each individual business has a vested interest in keeping its knowledge base secret from its competitors. That greatly degrades the overall accuracy of the already atomized data collection. Businesses don’t “share” that kind of information, typically, except if they make their money via its sale. So “price signals” are heard often third or fourth hand, metaphorically speaking, instead of how it could be — directly. In a federation of communities, the signals would be immediate, open to all, flow freely throughout the federation, with no fees attached and no additional costs. “Knowledge” wouldn’t be yet another commodity to be bought, sold, hoarded or hidden. It would be shared equally among everyone.

Yes, it would be far more efficient, far less wasteful and radically more inclusive.

131

Brett Dunbar 08.28.15 at 4:20 am

Markets rather directly punish overproduction, the punishment is making a loss. Businesses that routinely fail to accurately predict demand lose money. Capitalist systems are very good at limiting waste, trying to beat a market at this is unlikely to work. Supermarkets are very good at logistics.

132

Plume 08.28.15 at 4:45 am

Brett,

That’s not true at all. The amount of waste created by the capitalist system is astronomical. Again, the proof is buried in our landfills, our oceans, the air, etc. etc. We produce so much waste in America we’re exporting it to places like India and Malaysia. We have too much of it to keep here now. And, as mentioned above, the prices of goods and services factor in that waste and those unsold units. It’s built in. No value is added, obviously, for the consumer. But he/she has to pay for what is thrown away or unsold.

And overproduction has an aesthetic element to it as well. Our stores want to show a surfeit of goods. They want to show “plenty” too. They need to do that for aesthetic and psychological reasons and to make sure consumers can get what they want without waiting. If it’s not on the shelf when they’re in the store, they’re going to go elsewhere, usually. And they won’t shop in a place with empty or near-empty shelves. It doesn’t look right. We always produce far more than we need for those reasons and more. Capitalism isn’t a produce to order system. It’s future and debt oriented. And its modern, electronic age form, especially, is all about marketing in hopes of future sales.

Again, companies don’t typically share data on consumer patterns. They keep their data collection secret, for internal use only. It would be far more accurate if they did share with one another, but they want to keep their particular competitive advantages, so they don’t. And in globalized capitalism, the distance between consumer and corporation can be thousands and thousands of miles. All of this plays into the ungodly amount of waste, pollution and overproduction inherent in the system.

133

John Quiggin 08.28.15 at 4:46 am

The discussion is getting somewhere I think. At least a fair number of commenters agree on these points:

1. There are plenty of policies that affect the purchase price of land and houses, and these effects will, broadly speaking, flow through to rents.

2. Policies that seek to control rents, while allowing for land and house prices to increase substantially, are unlikely to work well or for long.

134

Sebastian H 08.28.15 at 5:58 am

“You just decentralise the price control and rationing and have different computers and departments and logistics people working it out.”

You could decentralize it all the way to the level of individual consumers!

135

novakant 08.28.15 at 6:36 am

#114

Germany

136

novakant 08.28.15 at 6:37 am

#114

UK before Thatcher

137

Harold 08.28.15 at 6:55 am

It is simply counterfactual to say that rent regulation does not work (NYC’s rent controls were instituted in 1920, BTW):
https://en.wikipedia.org/wiki/Rent_regulation#Theory

Price controls remain the most controversial element of a system of rent regulation. Historically, economists such as Adam Smith and David Ricardo viewed landlords as producing very little that was valuable, and so regarded “rents” as an exploitative concept. Modern rent controls were intended to protect tenants in privately owned residential properties from excessive rent increases by mandating gradual rent increases, while at the same time ensuring that landlords receive a return on their investment that is deemed fair by the controlling authority (which might, or might not be a legislature). Sometimes called rent leveling or rent stabilization, rent regulation is argued to promote social stability by slowing displacement in booming economic cycles.

It is argued by a number of neo-classical and libertarian economists [6] that some forms of rent control creates shortages and exacerbate scarcity in the housing market by discouraging private investment in the rental market.[7][8] This analysis targeted nominal rent freezes, and the studies conducted were mainly focused on rental prices in Manhattan or elsewhere in the United States. These studies were criticised on the basis that poorer standards in housing conditions were also seen in states which had no rent controls, and so the evidence was inconclusive in demonstrating a causal link.[9]

Evidence based studies, particularly conducted by American economists in the 1990s that new methods of regulation, allowing for nominal rent increases in defined situations (for instance, linked to inflation or behind wage rises) were “so different, they should be evaluated largely independently of the experience with first-generation rent controls” studied in the 1970s.[10] The view at the time was that “a well-designed rent control can be beneficial”.[11]

138

Sebastian H 08.28.15 at 7:11 am

Harold, which cities are you offering as your counterfactuals? You appear to be quoting a single journal article, published in 1995 which hoped that “well-designed” rent control would be effective. We are 20 years since that article, surely the well designed rent controls should be working? Your comment on New York is instructive. Even destructive rent control like SF or NYC are almost impossible to get rid of once implemented.

139

david 08.28.15 at 7:26 am

as causes go, whilst it is plausible that the US or UK can redistribute wealth from their wealthy so as to pre-empt the pecuniary quasi-externality on urban housing prices, it’s not clear they can do anything about Saudi or Russian or Chinese wealth

rent control: if the political mandate is to protect incumbent residents of a locality, rather than serve a canonically individualist-liberal aggregate welfare, then rent control that effectively annexes the rise in asset value to a single cohort of incumbent tenants arguably achieves the intended mandate. It’s a one-off transfer from one generation of landlords to one generation of tenants.

Singapore: Singapore’s fabled public housing rests upon the Land Acquisition Act of 1966, entitling the state to seize land at sub-market prices for public housing (with the explicit intention of excluding the rise in value of the improvements to be built from the landowner). As the state acquired more and more land for public housing (and the price of land began rising), in 1973 it amended the act to restrict compensation to prices extant in 1973; these elements were only gradually lifted in 1986, once the state had acquired most of the land in the country (in typical Singapore fashion, this was pragmatically staggered to 1986-1993, 1993-1995, and only finally restored to market-value-less-improvement in 2007, due to the 1997 AFC). That is, the state’s solution to increases in the price of underlying land was to nationalize the increase, without market compensation.

140

engels 08.28.15 at 8:18 am

Berlin’s rent control system appears to avoid the ‘but it’s unfair on the newbies’ slamdunk

http://www.citylab.com/housing/2015/07/berlins-brand-new-rent-control-laws-are-already-working/398087/

141

Brett Dunbar 08.28.15 at 12:25 pm

Supermarkets waste very little it costs them money and the operate on very narrow margins so cannot afford waste. Most losses in groceries are at the ends of the distribution chain. Either not harvesting crops that wouldn’t sell, e.g. lettuce during cold weather when people don’t tend to eat much salad. That kind of external shock is unaffected by the economic system. Or waste at the consumer end, this is somewhat over-counted as it includes edible parts that are disposed of during preparation of some meals, such as potato peelings in mash as well as genuine waste.

Overall the UKs entire food production chain has loses of about 30% which is roughly the same as India. India’s problem it that distribution in the hands of small scale inefficient wholesalers, much of the loss occurs during distribution with produce rotting in warehouses. Some years ago a number of UK supermarkets wanted to enter the market seeing a big opportunity in their greater efficiency. Lobbying by the incumbent small locally owned distributors eventually blocked the deregulation proposals foreign-owned supermarkets are still prohibited from entering the market.

142

Harold 08.28.15 at 5:03 pm

You can’t make a blanket statement that rent control doesn’t work when it obviously works in Germany and other places. Plus, I get rather irritated when people say things like “rent control doesn’t work” when there are so many things in our society that “don’t work”: our healthcare system, our criminal justice system, our infrastructure repair system, our educational system, our public transportation system, our prison system, our pension system, our foreign policy, our financial system, the intellectual underpinnings of the “discipline” of economics. And on and on.

We ought to be saying, rent control ought to be improved so that it helps the people it was intended to help, namely the citizenry at large that is in need of proper shelter. Other countries can do it, why can’t we?

By the way. John Kenneth Galbraith had a bee in his bonnet about price controls and was always writing articles on the topic. He believed they worked. I suppose John Quiggin will address his arguments in his book, at least in passing.

143

Plume 08.28.15 at 5:15 pm

Harold @142,

That’s a good argument for not writing it all off. And, it’s very true that so many things “don’t work” in this society. The system itself being the most obvious. So I get your frustration and I share it.

Further frustration comes in the form of much, much higher standards for any proposed reform, and impossible standards for actual replacements. Even though our current system is an unmitigated disaster, it seems like all potential changes to it must pass the perfection test before even being considered. Like gun safety measures which suddenly must end allviolence, everywhere, or we apparently can’t do anything at all.

If, for instance, alternatives to our current economic system don’t absolutely fix every single problem in the world, including those caused by the current system, then we just have to stick with the status quo . . . even though those alternatives, while far from perfect, would be radically better. The test becomes perfection or bust. No such test, no such impossibly high standards, of course, are ever applied to that status quo. It gets to skate from that kind of scrutiny.

144

Harold 08.28.15 at 5:19 pm

It also depends on what you mean by “not working”. Because the article cited in wikipedia stated that while rent control was problematic in NYC, cities that didn’t have rent regulation were in much worse shape. Now that we have gotten rid of rent control, we have one third or more of the apartments in NYC shuttered/ uninhabited at any given time — would you call that “working”? I wouldn’t.

145

Sebastian H 08.28.15 at 5:37 pm

“You can’t make a blanket statement that rent control doesn’t work when it obviously works in Germany and other places.”

Berlin’s experiment is now almost 3 months old, I believe it is a bit early to call that “obviously works” since the negative building effects and decreased upkeep effects certainly can’t show up in that period. Berlin’s experiment is in direct response to the fact that rent control measures in Germany haven’t worked in the city and have in fact caused shortages and skyrocketing prices. So you seem to be using evidence that rent control doesn’t work as if it were evidence that it does.

Remember the title is “price control doesn’t usually work”. If you want to argue that some possible rent control procedure which is hyper-aware of the negative effect such measures usually have on the building supply over the long term, and is also excellent at mitigating them could work I’m on board. The Berlin plan doesn’t look that promising to me, because the building side looks woefully inadequate but at least it is a plan which tries to deal with the problem.

The problem with rent control specifically is that it belongs to a class of solutions that provide weak short term relief while strongly reinforcing the long term problem it claims to fix. It does so while creating a strong insider/outsider effect which makes creating adjustments as needed almost impossible from a political standpoint.

John’s repeated point is that while a complicated scheme might be able to mitigate these very strong problems, more direct methods give more relief AND don’t cause as many bad side effects. You seem to be interpreting “rent control doesn’t work” as “skyrocketing rent isn’t a problem” or “we should just let the poor be priced out of all the big cities”.

From my reading of his work, I’m certain he doesn’t mean either of those two things.

146

Sebastian H 08.28.15 at 5:43 pm

“Because the article cited in wikipedia stated that while rent control was problematic in NYC, cities that didn’t have rent regulation were in much worse shape. “

No, even the wikipedia paraphrase of the single sourced 1995 study doesn’t suggest that other cities were in worse shape. If you believe it, you should try naming the cities for which you believe that is true. It is very difficult to name US cities with worse rental markets than NYC–arguably Washington DC, San Francisco, Seattle. Which non-coincidentally are the large cities in the US with the most restrictive rent control.

“Now that we have gotten rid of rent control, we have one third or more of the apartments in NYC shuttered/ uninhabited at any given time”

NYC hasn’t gotten rid of rent control. They just call it rent stabilization. You’ll have to give me statistics on 1/3 of the rentable apartments being shuttered. I’m not clear on what you’re talking about. As far as I can tell the vacancy rate in NYC is in the 3-4% range, not the 33% range.

147

Brett Dunbar 08.28.15 at 5:47 pm

Plume when I suggested on a previous thread actually trying these alternatives you were highly resistant to the very idea. There is nothing preventing running a non-profit business in a capitalist system. For example the UKs sixth and seventh largest supermarkets are the Co-op and Waitrose (part of the employee-owned John Lewis Partnership). You want to outlaw running a business for profit I oppose that.

The previous attempts at a non-capitalist system have uniformly been worse. It’s North Korea that is a totalitarian despotism with regular famines and South Korea that has democracy personal freedom and obesity. Capitalism is clearly far more effective at feeding people, it is also far more compatible with rule of law and democracy. Non-market systems tend to mean either some sort of command economy or Somalia style anarchy and looting. There is no market as the strong see no reason to pay for things when they can simply take them.

148

david 08.28.15 at 5:58 pm

to get back on-track – if the Two Lessons chapter degenerates into a literature review of the bleeding-edge empirics of minimum wages or rent control, it’s already gone wrong somewhere

149

Harold 08.28.15 at 6:06 pm

Plume — posts crossed! I agree with @ 143.

Does this “work”???? http://www.nytimes.com/2015/08/29/nyregion/new-york-relies-on-housing-program-it-deplores-as-homeless-ranks-swell.html?hp&action=click&pgtype=Homepage&module=second-column-region&region=top-news&WT.nav=top-news&_r=0

And in my neighborhood they are busy construction huge private “hotels” for the purpose of sheltering homeless people. Wouldn’t rent control be better than that?

150

Harold 08.28.15 at 6:13 pm

constructing!

151

Brett Dunbar 08.28.15 at 6:21 pm

I’m not convinced that artificially keeping low paid work in expensive urban areas is a good idea. A low wage employer should re-locate to areas with low living costs and cheap housing. For example house prices where I live are pretty low as the council has been willing to grant planning permission for large housing and industrial developments, most notably the Northern Gateway scheme on the site of the former RAF Sealand plans to create 1,100 houses and 5,000 jobs. If you want to keep prices down you can either boost supply or reduce demand but

152

Harold 08.28.15 at 6:33 pm

@150. To tell the truth I am agnostic about price controls. But “artificially” keeping prices high to benefit exploiters and speculators with no stake in the community is not a good idea either. I am pretty certain of that.

153

Harold 08.28.15 at 6:33 pm

And the enablers of that have been professional economists.

154

Sebastian H 08.28.15 at 6:39 pm

I don’t understand what you are trying to show with that link Harold. It doesn’t show a 33% vacancy rate. The timeframe it quotes is all time under which NYC had rent stabilization laws. When you ask “does this work” you are asking about a very big city THAT HAS very restrictive rent controls. So your answer would appear to be “No, rent control does not work”. But I don’t think you mean that, so I don’t understand.

155

Harold 08.28.15 at 6:39 pm

with their dogmas and obiter dicta.

156

engels 08.28.15 at 6:51 pm

“A low-wage employer should relocate to areas with low living costs”

Good idea. Let’s just move low-wage employers like bars, hotels, shops, cleaning services, childcare services, schools, hospitals, public transport systems, water and sewage systems out of London. Wait. Duh. Maybe you didn’t think this through?

157

Harold 08.28.15 at 7:19 pm

Rent control in NYC has been replaced by rent stabilization, which is rather easier to game.

158

Brett Dunbar 08.28.15 at 7:26 pm

Well I did suggest increasing building. Severe restrictions on construction are largely responsible for the high prices. I live in an area where prices are pretty low due to it being relatively easy to build.

If housing costs are high then employers might have to pay their employees more if they cannot relocate the business. Basically housing should be priced into pay, it isn’t an externality.

159

Sebastian H 08.28.15 at 7:34 pm

The only difference I know between rent control and stabilization in NYC is the amount of increase per year allowed (none vs a very small percentage). What differences in easiness to fame are you alluding to?

160

Brett Dunbar 08.28.15 at 7:37 pm

Employers could also provide accommodation themselves. Again ultimately the cost of employing a person in a high cost area should fall on the employer.

161

Harold 08.28.15 at 7:45 pm

Cost of construction. Yeah, right. Right now builders are getting huge tax breaks to build luxury developments which will be rented to non-tax-paying non-residents as pieds-á-terre and which stand vacant most of the year.
phttp://gothamist.com/2015/03/18/how_can_we_stop_luxury_developers_f.php

http://therealdeal.com/blog/2014/10/25/half-the-homes-in-one-of-nycs-priciest-nabes-vacant-most-of-the-year/

162

Harold 08.28.15 at 7:47 pm

http://gothamist.com/2015/08/27/wait_landlords_did_what_now.php
Excerpt:
The state Attorney General’s office says nearly 200 city landlords are illegally charging tenants market-rate rents on units for which they received significant tax breaks, which is news that is far less surprising than it should be.
Indeed, according to a release sent out yesterday, about 2,400 units in NYC have not been afforded the rent-regulated leases they are entitled to under the state’s 421-a property tax exemption program—the majority of these units are located in Williamsburg, Greenpoint, Bedford-Stuyvesant and Astoria, though the AG’s office notes that the violations are spread citywide. Initially, these units were designed to be condos, thus exempting them from the rent-regulation requirement—when the economy slumped in 2008, the apartments were rented out at market rate.

163

Sebastian H 08.28.15 at 7:57 pm

Harold, what are the easily gamed components of ‘stabilization’ that aren’t easily gamed under ‘control’. My understanding in NYC is that the difference is only in rate of change (a few percentage points a year vs. zero). Do you understand differently? Can you explain what is easily gamed under stabilization that is different under rent control?

164

engels 08.28.15 at 8:33 pm

Employers could also provide accommodation themselves.

Yes, let’s go back to the days of the company town

165

Metatone 08.28.15 at 8:37 pm

I think the discussion between Sebastian H and Harold highlights one of the problems here. Very often “price controls don’t work” but at the same time (as we might see comparing NY to London) the alternatives approved by the mainstream economic consensus don’t work either.

Which brings me to something I’ve been spending a lot of time with this summer – developing countries and fuel and food subsidies.

The problem here is much like that regarding comparative advantage. Food and fuel subsidies don’t make sense – they privilege city dwellers over the rural and often (as with many things) the richer you are, the more total benefit you get. (Although not necessarily percentage benefit.)

However – developing countries are in a bind, because their most pressing question is not “how do we most efficiently allocate resources” it is “how do we most efficiently allocate resources with the constraint of building a nation, infrastructure and cities that approach developed world standards in the ways necessary to get us out of being poor, effectively indentured, workers on agricultural products (e.g. bananas) and into parts of the world economy where you can make enough money to actually develop.”

As such, it’s no surprise that food and fuel subsidies privilege the urban population, because urbanisation (rightly or wrongly) is seen as a major enabling feature of economic development. And if that view of urbanisation is correct, then the subsidies (subject to the usual questions about stability, affordability, etc.) probably have a role.

166

Metatone 08.28.15 at 8:39 pm

One of the reasons in my last comment I mention comparing NYC to London is that comparing it to most US cities doesn’t take account of geographical constraints. In Dallas or Atlanta, you just blatt out some more suburbs – rather reminiscent of Sydney too…

167

engels 08.28.15 at 9:15 pm

For anyone who doesn’t know the city, this article is a reasonable introduction to the real-world science-fiction nightmare Londoners now inhabit, thanks to the free market

168

Harold 08.28.15 at 9:33 pm

Don’t look at the oligarchs– look over there, it’s all the fault of the unions raising construction costs and unworkable rent controls.

169

Jason Weidner 08.28.15 at 9:58 pm

For what it’s worth, here are the local (Mexico City) prices for bananas (grown nationally) and potatoes (no idea where they’re from):

Bananas: 10 pesos /kg
Potatoes: 20 pesos /kg

(As of today, 17.5 pesos = 1 USD)

170

Brett Dunbar 08.28.15 at 10:00 pm

The problem is that a lot of people have an intuitive belief that there is a fair price for property. This is well below the actual value of the property.

London has a housing market that bears little resemblance to the rest of the country. For example a far higher percentage rent and prices are massively higher than the rest of the UK. For example Labour’s mansion tax proposal it was calculated that it would affect just 96 properties in Wales. High prices in London should lead to investment in cheaper parts of the UK and more house building in London. At the moment what is happening is that poorer parts of the UK are subsidising low-wage employers in the richest part of the UK. Rather than high costs pricing employers out of London, which is what should happen.

Given that the flats in that development have already sold they may actually have been under priced at £711,000 for a studio flat. Contra that article it seems rather unlikely that you would pay that much unless you intended to use the flat fairly regularly rather than use a hotel. By way of contrast near here Top Y Fron Hall an 18th century grade II* listed seven bedroom mansion with 20 acres of land failed to sell for £775,000 in 2013. The owner is rather a hoarder, it was the house featured in the first episode of series four of obsessive compulsive cleaners on Channel 4.

171

Bernard Yomtov 08.28.15 at 11:40 pm

Now that we have gotten rid of rent control, we have one third or more of the apartments in NYC shuttered/ uninhabited at any given time — would you call that “working”?

Whence this figure? Not in the article you link.

172

Collin Street 08.28.15 at 11:58 pm

Rather than high costs pricing employers out of London, which is what should happen.

Except that they don’t bear the cost, do they? It costs the employers the same to pay for a person in Leeds or London; it costs the employee more if they’re working in London, but that’s not the employer’s problem.

Getting differential employment cost requires either differential wage rates or differential payroll tax rates and that pragmatically requires english regional devolution. In the interim I’d be moving to scotland or wales.

173

Harold 08.29.15 at 12:19 am

Bernard: http://therealdeal.com/blog/2014/10/25/half-the-homes-in-one-of-nycs-priciest-nabes-vacant-most-of-the-year/

http://nymag.com/news/features/foreigners-hiding-money-new-york-real-estate-2014-6/

“30 percent of all apartments in the quadrant from 49th to 70th Streets between Fifth and Park are vacant at least ten months a year.”

174

Bernard Yomtov 08.29.15 at 12:21 am

It costs the employers the same to pay for a person in Leeds or London;

I don’t know about Leeds vs. London, but it certainly does not cost the same to hire someone in NYC and Peoria.

175

JanieM 08.29.15 at 12:39 am

It costs the employers the same to pay for a person in Leeds or London

Seconding Bernard.

I have spent most of my working life in a field that is entirely based on the fact that that isn’t true.

176

Collin Street 08.29.15 at 1:03 am

I don’t know about Leeds vs. London, but it certainly does not cost the same to hire someone in NYC and Peoria.

I actually originally had a note on how this manifested in the US with the southern industrial-policy wage-rates stuff, but deleted it because the southern US industrial policy wage-rates stuff also has nasty tie-ins with union-busting and racism that aren’t directly relevant here.

The solution to the london problem remains english regional devolution.

177

Harold 08.29.15 at 2:03 am

http://www.nycrgb.org/html/research/html_reports/collins.html
Excerpt:

Contrary to a common perception that rent controls are a vestige of New Deal liberalism government correction of market imbalances is a practice that is over 500 years old. Medieval theologians developed the concept of a “just price” for the necessities of life and persuaded the English Parliament to regulate the price of bread, meat, lodgings and other staples of life for centuries. In the American colonies similar laws followed the English tradition. Many of those laws continued long after the American Revolution. In fact, New Jersey enacted a statute regulating the amounts Innkeepers could charge for food and lodging in February of 1791 – just fifteen months after it ratified the U.S. Bill of Rights. Throughout the 19th and 20th centuries various price regulations were challenged and upheld as constitutional exercises of government’s power to protect public health and welfare.

Even if rent and price controls are within our historical experience and national traditions, hasn’t the “free market” addressed our housing needs throughout most of that history?

The sad fact is that free markets in New York City have rarely produced an adequate supply of decent and affordable housing. The horrors of open market housing were well documented by Jacob Riis in the nineteenth century. Rising rents and evictions led to extreme public unrest, rent strikes and mass protests at the turn of the twentieth century and into the 1920’s when the City first experimented with rent controls. The Rent Laws of 1920 lapsed in 1929 because a growing economy led to a building boom which reduced the need for controls. During the Depression of the 1930’s poverty forced many families to double up. Overcrowding, along with a deflationary economy kept rents in check. When state officials met to revise the State’s Multiple Dwelling Law in 1946, they noted that a housing shortage began to appear as early as 1936 but that the Depression had forced many families to double up which concealed the shortage. …

178

Sebastian H 08.29.15 at 2:19 am

Again, the fact that rising rents can be a social problem does not at imply that rent control is a good solution. Can you explain how NYC and SF have such horrible housing shortages and some of the most strict rent control? The normal explanation is that strict rent control causes housing shortages. You apparently believe something else is going on, but you won’t tell us what.

179

Harold 08.29.15 at 3:40 am

Strict rent control does not *cause* housing shortages. This is the baseless propaganda of the real estate industry. Strict rental controls are enacted to protect citizens rights in response to gouging, hoarding, and speculation *caused by* housing shortages.

Meanwhile, in cities other than London and NYC more rent controls are being enacted:
http://www.france24.com/en/20150801-rent-control-law-paris-france-effect-regulations

Paris makes rent cap regulations a reality

Excerpt:

Other European countries, including in Germany, Sweden, the Netherlands and Switzerland already implement similar rent control laws.

180

Sebastian H 08.29.15 at 4:10 am

Ok, if you don’t want to be reality based I can’t help. Look up Sweden wait times for housing if you do though.

181

Sebastian H 08.29.15 at 4:17 am

Swedish Housing Problems

Fun quotes: “The service’s 2014 review suggests that the waiting time for an apartment in Norrmalm in central Stockholm for example, is now 20 years – twice the wait in 2006. The average waiting time for the whole inner city is now 13 years – over a year longer than in 2013.”

Note that the wait time is more than a decade AND is getting longer.

“Those who make it to the top of the waiting list are given what is known as a ‘first hand’ contract, which usually lasts indefinitely. As a result, renting ‘second hand’ is common in Sweden’s big cities, with many tenants forced to take short term contracts, and some switching properties several times a year.

That isn’t good.

” But she admitted that “insecurity” was rising due to existing housing troubles in the Swedish capital.

“Some people are looking for a very specific kind of apartment, but not in a rush to move out, and register,” she explained. “Then, you have about 50 percent of the registry made up of people who are thinking of it as some kind of insurance, in case their situation changes and so on.”

“It’s a sign of a bigger crisis.””

Sounds like Swedish rent control is causing some very serious side problems.

182

Plume 08.29.15 at 4:51 am

Sebastian H @179,

You’ve locked onto one possible variable, ignore everything else and claim victory. It’s quite similar to conservative nonsensical views on tax cuts. If the economy happens to do well after they go into effect, no other variable matters. It’s all on the tax cuts, apparently. And if things fall apart? The government did that. Which boils down to: you opened your umbrella, it starts to rain, therefore your umbrella caused it.

Rent control is one possible variable, one possible factor among many. To prove it’s the cause of housing problems in Sweden, New York, San Fran or anywhere else, you have to do process of elimination, find a control group and deal with all relevant factors. You haven’t. You’ve chosen your magic bullet and see nothing else.

183

Zamfir 08.29.15 at 6:01 am

High prices don’t ‘solve’ the problem of waiting lists. They just splits the list in two – people who can rent without much wait, and people who can never rent. The problem is only solved if you ignore the latter group.

And rent control doesn’t solve the problem of too little houses. Its main successes are people who are not chased out of their house in a property boom.

184

John Quiggin 08.29.15 at 6:12 am

Harald @177 mentions ” “just price” theory. As ought to be obvious, the OP is arguing that just price theory is wrong/unworkable, a view shared by nearly all economists, notably including Marx, for whom exploitation (= unjust prices) is inherent in capitalism and can’t be fixed by well-meaning regulation.

For readers still paying attention, is it worth making the link to “just price” theory, or is this too obscure to bother with? If I do it at all, it will probably be in an optional section, similar to the ones I’ve done regarding Pareto and Wieser.

185

Harold 08.29.15 at 6:27 am

Professor Quiggin, @184. I merely quoted a linked essay that mentioned the “just price” theory. I don’t know anything about it, but I don’t think Mr. Market is necessarily a better guide. Zamfir is exactly right. Which is better, long lines or families sleeping in the gutter?

186

John Quiggin 08.29.15 at 7:03 am

@Zamfir: Rent control creates three groups. Those who are grandfathered in, those who can pay the (higher than they would be otherwise) rents in the unregulated market and those who can’t pay (or more realistically must pay a lot for something substandard).

The third group under rent control are worse off than the second group in its absence.

187

Peter T 08.29.15 at 7:23 am

Yeah, but a free market in housing typically creates a few upmarket premises at exorbitant rents, a small number of reasonable dwellings at high rents, and a mass of substandard housing at low rents. The latter, in turn, create a lot of health and safety issues, many of which persist for decades and are very difficult to remediate (lead, sanitation etc). So if you are arguing for some middle course (eg, a large public housing sector, heavily subsidised, coupled with regulations designed to shift industry and demand out of the major cities), you need to be more upfront about this.

188

Sebastian H 08.29.15 at 7:31 am

Peter T, that is only typical when the government sharply restricts the np total number of units to well below growth levels.

189

david 08.29.15 at 7:44 am

JQ@184

“just prices” themselves are too obscure as a label, I think, but you need some way to persuade the Harolds of the readership of your case for allocation through relative prices rather than political organization.

I don’t think that characterizing the latter as “just prices” in disguise, and then attacking just-pricing theory, is at all pedagogically helpful (even though one might accurately regard it as revived just-pricing). A reader will reasonably feel that they don’t particularly sympathize with a strawman Thomas Aquinas, even if they feel uneasy when prices change “unfairly” in some sense.

If you want a sympathetic neoclassically-informed attack on unjust prices, I think @183 neatly identifies the purpose of rent control as primarily to control a pecuniary externality in the presence of incomplete contingent-claims markets (on the anticipated future path of rental prices). Since contingent-claims markets are intuitively almost always incomplete, there is scope for convincing a reader that their vague feeling of unease when efficient prices “go wrong” is a disguised market failure. Cue the Lesson II trumpet.

190

Peter T 08.29.15 at 7:54 am

Sebastian @188: as in Sheffield, Birmingham, London, New York, Chicago, Sydney and many others in the C19?

191

Zamfir 08.29.15 at 8:14 am

@JQ, I don’t see your point about substandard houses. If the third group moves into the houses of the first group, then the displaced people have to move to the substandard houses. The rent control doesn’t solve the lack of standard houses, and it shouldn’t be judged by that standard. It only prevents people from being priced out of their house of many years.

For comparison: think of someone who bought a house in location that becomes expensive afterwards, but doesn’t sell because they want to stay put. That creates the same division, with people who would like to move to the fashionable area but can’t because of the stubborn people who won’t sell.

I don’t hear people decry this as a failure of the concept of home ownership. It’s taken for granted that home owners get this discretion, even if it leaves others in substandard houses.

But many people can’t afford to buy, to put so much of their savings into a single risky object. Rent control gives a bit of ‘ownership’ control to people who cannot afford to buy. It’s not a fix for housing shortages, and shouldn’t be judged as such.

192

novakant 08.29.15 at 9:11 am

Considering the rather boneheaded but fervently defended “arguments” against any sort of rent regulation I wonder if “rent control makes matters worse” is some sort of conservative meme with a long history or an economics 101 textbook example.

193

novakant 08.29.15 at 9:20 am

And here’s an interesting article about the Thatcher government’s role in creating the English housing crisis:

http://www.theguardian.com/society/2015/aug/26/right-to-buy-margaret-thatcher-david-cameron-housing-crisis

194

engels 08.29.15 at 12:06 pm

“Can you explain how NYC and SF have such horrible housing shortages and some of the most strict rent control?”

Doctor can you explain how the patient has such a horrible case of cancer and is on one of the strictest drug regimes?

195

engels 08.29.15 at 2:57 pm

& I note that my invitation to contrast New York with London has not been taken up. Compared to London NY’s a renter’s paradise ime.

196

Plume 08.29.15 at 3:09 pm

JQ,

I get a lot of what you’re saying in the OP about the contradictions created by rent control on supply. But I think you suggest, without actually saying so, all kinds of ways out of those contradictions. First off, there isn’t an unlimited supply of families in need of affordable housing. There is a finite number. Not only because people already own/rent homes, many of whom are happy with them, but also those below a certain income threshold are also finite. So if the government — local and federal — were to contract for new housing, at fixed rents, and build them according to census data/application numbers — to order, in effect — you don’t have the issue of lines, rationing, supply and demand screwups. It’s a specific program to solve a specific problem, which doesn’t occur (and won’t ripple) throughout the entire economy.

This would also be done in a non-profit manner, which removes another trigger for supply/demand changes. Residents could send their monthly rent checks to local governments, which don’t have to make profits, and don’t have to please shareholders, and the rest of the ripple effects that come with that. Builders of said units would know, going in, they’re not going to make a killing on these projects, either. This would probably attract smaller builders, looking to create portfolios, rather than killings on individual projects . . . . and this also wouldn’t ripple outward. It would be a specific problem, targeted with specific redress, using a limited supply chain, for preset rationales. To the degree possible, in would be its own enclave, literally and metaphorically — as “closed” as can be within the larger capitalist structure.

In short, saying that “rent controls” don’t work, when surrounded by all the variables working against them, “naturally,” is kind of like saying “dieting” doesn’t work when surrounded by 24/7 smorgasbords. Change the variables and the context to the degree possible and you change the results.

197

Sebastian H 08.29.15 at 3:31 pm

Engels I’m not sure what you mean. The Guardian’s reporting is ridiculously unclear, but as far as I can tell the <a href="http://www.theguardian.com/money/2015/aug/24/rent-increases-uk-london-housing"average rent for a one bedroom apartment is somewhere in the 1,200 pounds range as of August. At current exchange rates that is about $1,850. In NYC the average for a one bedroom is about $3,000 as of July.

198

Bruce Wilder 08.29.15 at 3:35 pm

david @ 189: “just prices” themselves are too obscure as a label

Less obscure, and more apropos, might be an explanation of the concept of economic rent, a concept closely related to opportunity cost. (Indeed the Paretian variation is defined in relationship to opportunity cost, as a return over and above opportunity costs, or the normal return necessary to keep a resource in its current use.)

The logic of a market economy directs income to economic rent, which, as the classical economists observed, is “unearned”. Some highly productive activity brings people together in a city, and mutatis mutandis, it is not the skilled workman or the entrepreneur or the visionary city planner that ends up earning the big bucks from all this productivity, it is the drone, the landlord, whose only contribution is owning an abstraction, a location. All the expected return on investment in education, or in building a business, or the infrastructure of transportation, power, public health et cetera is drained away in higher rent.

This is not the economics of virtue, where unregulated price solves all problems and everyone is better off. The landlord is better off. With no particular virtue or social contribution matched to his gain. If the business he rents to succeeds, he raises the rent. If successful business attracts a large concentration of employees and pays them well, the landlord raises the rent. The landlord doesn’t produce more land. The landlord doesn’t produce land. The landlord doesn’t produce the location, or the productivity of the location. That’s largely a matter of city planning and business development. The landlord doesn’t produce the productivity of the business or the workers that drives their incomes higher, or the streets that makes his location accessible and central; he just drains those incomes away into his own pocket.

It is not necessary to reach back to medieval musings on just price to tell a normative story that calls into question the social logic of economic rent. It is right there in the history of economics itself, and the key reason for the concept of opportunity cost, economic rent.

199

Plume 08.29.15 at 3:47 pm

Bruce @198,

All of that is well said. You often nail the problem and the crisis points. But what is your answer to this? What solves this problem?

As mentioned above, all too often in these discussions, any talk of actual change, actual alternatives, is instantly met by a wave of impossible standards and overwhelming scrutiny. The new alternatives become subject to the kind of questioning and skepticism they would never think to apply to existing structures. The new alternative must solve all problems, absolutely, or it can’t even be considered . . . . whereas the status quo, which generates the necessity of change in the first place, is clung to like a dying wish.

In short, the knee-jerk critics of change raise their skeptic’s meter to full tilt for the new, but turn it off when it comes to existing systems. It’s not just “double-standards.” It’s abject complicity in an oppressive system that forces these debates endlessly.

How would you solve the issue of “economic rent” . . . . and, perhaps, the tougher slog, the autopilot resistance to any and all alternatives?

200

Sebastian H 08.29.15 at 4:10 pm

Novakant, what do you consider bone headed arguments? You aren’t being clear. Does 15-20 year waits for rent controlled apartments with sub-let tenants being forced to move every year or so (Stockholm, one of the rent control ‘success’ cities) really not give you pause at all? Would you care to strongly distinguish your non-contributed ideas against SF and NYC, both of which have some of the longer experiences with rent control?

Instead of speculating whether or not the actual effects of rent controls are well investigated (and assuming that they are not), you could have used google scholar.

“An econometric analysis of rent control” EO Olsen 1972.
“Residential Rent Controls” Downs 1988 by that definitely not Repbulican Brookings Institute (interesting side analysis on how UK rent controls caused the collapse of private rental units between 1950 and 1986).
“Rent Control and Rental Housing Quality” Gyourko and Linneman 1988
“Equity and Efficiency Aspects of Rent Control” Gyourko and Linneman 1989 (showing especially that after a generation, rent control ended up not particularly helping poor families more than middle class and rich ones due to grandfathering effects).

The effects of rent control on housing are one of the more empirically well investigated questions in economics. Which I suppose might be damning with faint praise. ;)

201

Plume 08.29.15 at 4:21 pm

Sebastian H@200,

The Brookings Institute is just as Republican as Democratic. From its Wiki page:

Brookings states that its staff “represent diverse points of view” and describes itself as non-partisan,[1][5] while the media most frequently describe Brookings as “liberal-centrist” or “centrist”.[6] An academic analysis of Congressional records from 1993 to 2002 found that Brookings was referenced by conservative politicians almost as frequently as liberal politicians, earning a score of 53 on a 1–100 scale with 100 representing the most liberal score.[7] The same study found Brookings to be the most frequently cited think tank by the U.S. media and politicians.[7]

It’s very much an “establishment” think tank, center-right when it comes to economics, and certainly far, far from being even “liberal” on the issue of capitalism, despite the knee-jerk beliefs of conservatives.

And you’re still falling for the “correlation is not causation” fallacy. You’re ignoring all the other possible variables, because you really, really want it to be an issue of rent control. You’ve locked onto that as being the only possible cause, and ignore everything else.

202

engels 08.29.15 at 4:24 pm

Okay. Perhaps I’ll let the London-NY comparison go but personal experience was that apart from Manhattan (non-rent-controlled) NY compared quite favourably price-wise (I understand things like protection from eviction are generally worse across US).

203

engels 08.29.15 at 4:27 pm

‘outside of Manhattan, non-rent-controlled apartmentments in NY compared favourably’

204

Sebastian H 08.29.15 at 4:30 pm

The average I quoted was for within 10 miles of NYC.

205

Sebastian H 08.29.15 at 4:31 pm

But actually I don’t believe it, I suspect it is 10 miles of the center of NYC, but bad reporters are bad.

206

Richard M 08.29.15 at 4:44 pm

On apples versus bananas, to a consumer neither is a plausible substitute for the other, and I don’t think the same agricultural land can ever be used for both. So there is no market-based reason why they should have the same price, consequently they don’t. Don’t know if there us any more to it that that.

On the other hand, renting is a plausible substitute for buying, building a house is a plausible substitute for literally any other form of investment. So all those things are coupled together by market dynamics, which means that anything that interacts with one interacts with all. Consequently, any argument for a proposal that ignores those interactions and proceeds directly from cause to effect is only going to right by coincidence.

207

novakant 08.29.15 at 5:21 pm

Look Mr Holsclaw: you don’t even acknowledge the problem, which is usually the necessary prerequisite to finding a solution (“market imperfections”, really?) furthermore you argue in bad faith and ignore sources that contradict your position. Instead you present us with a preconceived “solution” (“the market”), that is as boneheaded as it gets. So remind me, why should I engage with you?

208

Plume 08.29.15 at 5:40 pm

novakent @207,

Conservatives tend to be oblivious to the gross illogic of their own stance. That “the markets” are the answers, always, to something caused by “the markets.” And then to go further into la la land, they think it makes sense to let the very people who drove the economy into the ditch (and keep doing so) — business owners — to have even more freedom to do it again. Boiled down, it’s a combination of “blow up the city to save it” and “let arsonists run the fire department.”

209

Bernard Yomtov 08.29.15 at 5:57 pm

Harold,

Data from the Census Bureau’s 2012 American Community Survey reveals that, 285 out of 496 apartments, or 57 percent, in a three-block stretch of Midtown, from East 56th Street to East 59th Street, between Fifth Avenue and Park Avenue, are vacant at least 10 months a year. From East 59th Street to East 63rd Street, 628 of 1,261 homes, or almost 50 percent, are vacant the majority of the time.

New York is actually somewhat larger than the part of Manhattan between East 56th and East 63rd.

Your claim that

we have one third or more of the apartments in NYC shuttered/ uninhabited at any given time

is in no way supported by this data.

And by the way, I don’t see how rent control would prevent wealthy people who want a part-year home in NYC from buying one.

210

Sebastian H 08.29.15 at 6:12 pm

Novakant (how far did you have to dig to get the last name, I haven’t used it in comments anywhere on the internet in about 5-6 years. I’d think you of all people would understand pseudo-anonymity norms). Talk about bad faith argumentation.

Which problem don’t I acknowledge? Skyrocketing rents absolutely can be a problem, which is why I propose attacking the supply side and give direct housing support on the poverty side. I can’t speak to the whole world, but in the US the cycle is restrictive building zoning, rent control, NIMBYism by rent controlled people and property owners combined to make even more restrictive building zoning (London also suffered from that cycle).

In New York and London particularly, the fact that the financial markets capture nearly all of the profit from the productive economy is an enormous problem which also fuels the skyrocketing market. That is a problem which should be dealt with which is well beyond the scope of this post, but certainly speaks to my ‘acknowledgment’ of the problem.

The effect of price controls in causing (yes causing) shortages is well known. The effect of rent control particularly in causing shortages is well documented. Even those economists who think that different types of rent controls should do better admit that it is well documented. The fact that London is discussing “NYC-style” rent controls suggests that the political direction of rent controls may not be in line with even the VERY few economists who think that “well designed” rent controls maybe could work. NYC-style rent control is definitely NOT what those very few are proposing. The fact that Sweden can’t significantly change their controls despite 15-20 year waiting lists in its biggest city suggests that the danger of lock-in is very real. The distributional effects of rent control (middle class and wealthy people quickly begin to capture the rent controlled apartments–probably because they can afford to not move when they get hit with problems) are also very well documented.

John Quiggin isn’t a right-wing hack, and the fact that you strongly suggest that believing rent control very likely causes shortages–directly in the face of one of the most researched empirical questions suggests that I’m not the one arguing in bad faith.

So, to sum up. Skyrocketing rent can be a dangerous and bad thing. One of the best ways to deal with it is to allow MUCH more building in cities that lots of people want to live in–places like SF and NYC haven’t done that. Another way to deal with it is to attack the stranglehold that the financial sector has gained on profits in the real economy. Yet another is to provide direct rent support to the poor. Rent-control is much worse than any of those things.

211

novakant 08.29.15 at 6:56 pm

I’m not convinced.

Regarding your surname, I didn’t “dig to get it” at all. I think most old timers here and at ObWi know it and I didn’t intend any harm, but my apologies anyway.

212

Harold 08.29.15 at 7:20 pm

Destroying the built environment that makes cities attractive for short term profit does not “work” either. It is a version of slash and burn. Rent control works for what it is designed to do, protect tenant rights. Housing shortages will not be fixed by building junky high rise condominiums any more than by building junky McMansions. The so-called “free-market” is what doesn’t work and the arguments of the free marketeer-speculators and their bought-and-paid-for shills is collapsing of its own weight.

213

novakant 08.29.15 at 7:35 pm

214

Brett Dunbar 08.29.15 at 8:06 pm

Building more houses will reduce market prices. I am very dubious of the assertion that building more housing wouldn’t reduce prices. It is utterly in contradiction to all established economic theory. Making an area less attractive reduces demand which may also reduce prices, depending on what part of the demand curve is affected.

215

Plume 08.29.15 at 9:44 pm

Housing vouchers for the poor isn’t the answer. It’s just another neoliberal scam designed to pad profits for the already rich. A far better idea is to build solid, safe, durable housing for those in need, within a totally non-profit context, detaching it as much as possible from the for-profit market. The for-profit markets are what are failing. They are what caused the housing crisis in the first place. It makes zero sense to keep pounding away, within the same failed context, with a few tweaks here and there. And, of course, those tweaks, when offered by conservatives, tend to always wind up in the pockets of the rich. Which is the whole point. Monetize the failure. Privatize the gains, after socializing all the risk.

Why not try a different way? Why not try no profit, no privatization, no “free markets” for once? Socialize the benefits for those in need, not for those already sitting on their pots of gold.

216

engels 08.29.15 at 9:59 pm

Another way of looking at the middle-class capture issue is that under RC some middle-class people rent (whereas without it they’d have bought property). The political effects of this seem likely to be positive (renters aren’t a politically voiceless underclass, as in UK).

217

Harold 08.29.15 at 11:20 pm

Non-profit housing is tried and true, viz. ILGWU housing in NYC, Finnish co-ops, Queensview, and others like it. The problem is that when co-operative ventures look like they have the potential to be profitable, the vultures circle around and try to take them over.

218

Bernard Yomtov 08.30.15 at 1:41 am

It’s hard to think of anything less attractive than Plume’s world, where we all wear the same clothes, live in the same basic functional apartments, and work at jobs assigned to us by some collective.

Nightmare.

219

engels 08.30.15 at 1:32 pm

It’s hard to think of anything less attractive than Plume’s world, where we all wear the same clothes, live in the same basic functional apartments, and work at jobs assigned to us by some collective.

Indeed. The only possible contender would be Bernard’s world, where we all wear elf suits, live on the North Pole and work at toy-making tasks assigned to us by Santa Claus.

220

Plume 08.30.15 at 1:59 pm

Bernard @218,

It’s hard to think of anything more ridiculous than your strawman vision. It’s not my world. It’s far, far from my world. It’s just your silly projection of your own ignorance and biases onto an alternative you truly don’t understand.

Ironically, what you describe isn’t that far from our current reality under capitalism. Right now, people wear the same basic clothes, with very little difference. It’s mass-produced, mass-marketed, and tens of millions of people have the same exact stuff. “The collective” is the corporation, and you do the job it chooses for you. Though, in the capitalist version of collectivism, unlike left-c0llectives, you have zero say in the matter. The collective works for the boss, not itself. It’s autocratically arranged. There is no democracy. There is no choice.

As for housing — or clothes, or anything else, for that matter. It’s pretty strange to think that a non-profit, fully democratic and locally controlled economy would have to produce “sameness.” There is no logical reason why it would. In fact, as mentioned above, with millions of different communities, federated but autonomous, there would be far more diversity than we have now. Radically more. Instead of having autocrats a thousand miles away telling you what to wear, building your McHomes and your McClothes, which you get from your McStores, individual artisans and artists would produce quality, excellence and use value, not junk and planned obsolescence for profit. Our goods and services would last and last, and would get to show off the individual craftmanship, the individual genius, of the men and women behind them . . . . rather than the one-size-fits-all corporate model.

221

Plume 08.30.15 at 2:04 pm

Oh, and btw:

Visit any suburban subdivision, where homes are built by corporations, slapped up via a tried and true prefab formula, with the same shapes and sizes. Tell me, honestly, if you don’t see “sameness.” And cities have their neighborhoods with the same style homes everywhere as well. You’re deluding yourself if you think capitalism produces “choice.”

222

Plume 08.30.15 at 2:34 pm

Another irony: The inherent structure of a truly left-collective society of autonomous but federated communities . . . would all but guarantee diversity. The structure itself. The radical change from a top down, severely hierarchical model to a horizontal, fully democratic one would do this. And for me, one of the great reasons for changing to this, aside from issues of morality, ethics and ecology, is to smash the sameness of our present system. It is to return to the potential (untapped) force inside individual artisans, artists, craftspersons, unleashed from capitalist modes.

William Morris is a great guide for this, as were Reclus and Kropotkin. Individual excellence unleashed, because there is no longer any corporate apparatus crushing the life out of it. Individual artisanship and craftsmanship unleashed, because there is no need to obey corporate masters, make profits, or make sure your production breaks down quickly enough to force new purchases. We would make things beautiful again, and beautiful things that last — without worrying about the next quarterly report, shareholder complaints, debt, markets being flooded by cheap knockoffs, etc. Produce the highest quality goods and services possible, without capitalist restraints, which are legion. The biggest being, perhaps, that it costs too much to build excellence into each and every product, if profit and high executive compensation are the goals. Which is why mass production took hold in the first place. Producing the same thing endlessly, using the same factory/structure, radically reduced business costs, thereby wildly increasing profits and comp for executives/ownership.

That would go the way of the dodo bird in “my world.”

223

Cranky Observer 08.30.15 at 3:05 pm

= = = Plume 08.30.15 at 2:34 pm
Another irony: The inherent structure of a truly left-collective society of autonomous but federated communities . . . would all but guarantee diversity. The structure itself. The radical change from a top down, severely hierarchical model to a horizontal, fully democratic one would do this. = = =

Ursula K. LeGuin is an intelligent and educated person; I would have to assume she did research on past attempts at building Utopia prior to writing “The Dispossessed”.

224

Brett Dunbar 08.30.15 at 3:28 pm

Mass production reduced the price to the consumer. Businesses are in competition with each other and one way of doing that is on price. You cut your prices relative to competitors cutting your margin in order to increase sales. Your competitors do likewise and soon you are operating on rather narrow margins and the consumer has captured much of the gains. Your scenario applies only in a monopoly or cartel situation with high barriers to entry. If barriers are not high then if you attempt to extract monopoly rents outside businesses will see a large opportunity to profit by entering the market and undercutting the incumbents. One function of the state in a capitalist system is the prevention of monopolies in order that the market can actually function correctly i.e. the state needs to protect capitalism from the capitalists. Every business aspires to be a monopoly; capitalism requires competition.

Morris was a reactionary snob like the rest of the arts and crafts movement. They claimed to be socialists but opposed anything that made quality products available at a price affordable to anyone but the rich.

You can buy hand made products if you want. Not everything can be hand made of course, you cannot hand make a microprocessor for example they are far too complex. Still many traditional products can be hand made and are available, however it turns out that for most purposes a £5.92 mass produced spade from B&Q is just as good as a £30 forge made spade from bulldog.

If you actually believed in choice then you would allow the individual to decide which they prefer. The democracy of the marketplace means that both are freely available. If I want a hand made spade I can get one, I don’t need the approval of some committee of local busybodies telling me the cheap spade should be adequate for everyone in my town. Conversely If I just want a cheap spade for very occasional use I don’t want a committee of local busybodies telling me I have to spend six times as much on a spade intended to cope with heavy use for decades.

225

Plume 08.30.15 at 3:33 pm

Cranky @223,

First of all, this isn’t about “building utopia.” It’s about building a workable, practical, effective structure for a far more humane and egalitarian society, one that forges a pathway to sustainable living for all of us.

Second: She wrote a Sci-Fi novel. And she’s just one person. There are millions of people who have experienced successful cooperative communities, and thousands who have written about how they work and can be expanded.

Third: There has never, ever been any attempt on the nation-state level to create such a society. As the vast majority of socialist theorists and advocates note, repeatedly, to be effective, this society — like capitalism itself — must have the widest possible implementation and be the legal structure in place. It hasn’t “worked” in the past, beyond small commune forms, because it was never the default economic model. Capitalism wouldn’t work, either, if it were embedded in a sea of some other system, cut off from developing needed connections, networks and legal structures.

226

Cranky Observer 08.30.15 at 3:41 pm

Bruce Dunbar @ 3:28: an interesting illumination on your point IMHO can be found in the artifacts recovered from the wreck of the steamboat “Arabia”, sunk and buried in mud on the middle Missouri river in 1854. The people on and awaiting supplies from that boat were undertaking a life of pioneering self-sufficiency [1], yet about 20% of the recovered objects are niceties: china from the UK and Germany, ornamental flatware from Sheffield, fancy clothing from Massachusetts, etc. Not choices that would be available at reasonable opportunity cost from small collective manufactures.

[1] Or so it was thought; modulo the Army, eastern industry, global financial network, etc. Still, not a life of ease in the suburbs of Boston.

227

Cranky Observer 08.30.15 at 3:49 pm

= = = Plume @ 3:33 pm There are millions of people who have experienced successful cooperative communities, and thousands who have written about how they work and can be expanded. = = =

I’d be interested to ready about those thousands/millions, particularly those that achieved that state while maintaining access to modern drugs/surgical techniques, high-efficiency tools, & reasonable levels of human comfort while not disintegrating in acrimony. The experience in North America of attempting to create such communities from 1965-1980 was not AFAIK very successful. [anecdotally every person I know who built/joined a communal living system from 1970 forward experienced bitter and unpleasant ends to the experiment, but perhaps that’s sampling error by a person with bad luck you have references to the successful ones]

228

Plume 08.30.15 at 3:50 pm

Brett,

Cheap products for consumers means low wages and automation for workers. There is no free lunch. It also means cheap quality that doesn’t last and must be frequently replaced. As per design.

You don’t know what you’re talking about when it comes to Morris. He was an anarchist communist, not a reactionary.

No, capitalism doesn’t require competition at all. That’s just a myth. And it naturally leads to monopoly and cartels, as it’s naturally a “survival of the fittest” set up. Your example of price cutting is one of the oldest proofs for this. The biggest companies can undersell their smaller competitors, until they die, and those bigger companies gain more and more market share. Their goal is to wipe out their competition. Their natural state is to do this, because their overriding goal is to make money for ownership. Competition hurts their ability to do this. It stands in the way of them maximizing their profits and executive compensation. They want all of the market, if they can get it.

And there isn’t any “democracy of the marketplace.” You have the illusion of choice, and nothing more. You choose only what you’re offered by MNCs, which keep snuffing out small producers in an ongoing process of “primitive accumulation.” Marx was wrong in limiting this to some early stage of capitalist expansion. It’s still happening.

And, seriously, just like Bernard, you’ve projected your demons onto socialist theory that won’t support them. That’s not how autonomous, federated communities would function.

229

Plume 08.30.15 at 3:58 pm

Cranky,

Again, as with capitalism, to be broadly effective, it needs to be the default, legal economic model. Capitalism in small, separate enclaves would fail too, if the default, legal model were sufficiently different — and adversarial. It’s always been absurd to blame the lack of individual success for communes on socialist theory, rather than their context . . . . cut off from the advantages of nation-wide, legal status. And, to make matters far more difficult, proactive efforts on behalf of the existing system to shut them down if they get too big.

Get back to me when an autonomous, federated, communal system goes nation-wide and fails. Then, and only then, will you have actual evidence to even begin to make your case.

230

Brett Dunbar 08.30.15 at 4:02 pm

Actually that is incorrect. Markets can function within a non-capitalist system. Indeed it’s very hard to prevent them. Black markets are a lot less efficient and operate without the support, indeed in direct opposition to the state. Nonetheless they do operate.

Smith was able to give examples of a freely operating market (non-guild craftsmen in the suburbs (favelas effectively)) in contrast with a very similar regulated system (guild craftsmen within town boundaries). The unregulated sector had more competition, lower prices, higher quality and better service compared to the monopolistic guild. This led him to argue that de-regulation would be generally beneficial. And as an idea it could be tested by de-regulating parts of the economy and seeing what happened.

231

Plume 08.30.15 at 4:09 pm

Brett,

Black markets in a capitalist society are using the existing state structure to move goods, receive customers, etc. etc. And they use money printed by state. They can’t function in our system without using state apparatus. It’s virtually impossible.

It’s also highly unlikely that everything they make is locally produced, which means there are importation issues, facilitated by the state, by state to state treaties, and state to state currency agreements. And the shipping lanes are protected and defended by states.

In short, they all operate using the existing state structures. Just because they do so in the shadows, to this or that degree, doesn’t mean they’ve escaped from the state’s grid — metaphorically and literally.

232

Brett Dunbar 08.30.15 at 4:48 pm

Morris claimed to be a socialist. I do not agree with his claim. If you actually follow the implications of his ideas he was a reactionary. He opposed mass production and indeed anything that offered the non-wealthy the opportunity to own good quality consumer goods.

Any individual company wants to make as much as possible, they want to have a monopoly as then they can extract monopoly rents. For a market to function there needs to be competition. The state needs to protect capitalism from the capitalists. I’m not in any way disagreeing with the proposition that most businesses would like a monopoly. I am disagreeing about the solution. Basically leave the market alone if there is plentiful competition. If there isn’t use legislation to harshly penalise collusion and break up monopolies. As a last resort regulate natural monopolies like piped water supply.

The democracy of the marketplace is that I can buy a cheap mass produced spade that will be adequate for a little light gardening I can also buy a traditional forged steel spade which would get me decades of heavy use. I don’t need anyone else’s approval. They get made by various manufacturers, bought by the various retailers and are made available to any member of the public who wants one. I don’t need the approval of a committee of my neighbours or anyone else. No one has a veto on my purchases if B&Q don’t want to sell me an expensive spade then there are numerous other retailers that will. They are not a monopoly and have no realistic prospect of ever being one. The barriers to entry in the DIY sector are fairly low and most of the supermarkets sell some DIY products.

233

Sebastian H 08.30.15 at 5:00 pm

“Right now, people wear the same basic clothes, with very little difference. “

I wonder if you have lived in and around any of the major gay communities?

“anecdotally every person I know who built/joined a communal living system from 1970 forward experienced bitter and unpleasant ends to the experiment”

This a thousand times yes. And extra-especially the crazy amount of sexual abuse of women by the leaders who of course weren’t leaders because this is communal…

234

Plume 08.30.15 at 5:02 pm

Brett,

No. Morris favored the production of good quality, artisanal goods, available to everyone. He was an egalitarian and a radical democrat. He also called himself a “socialist” and often used “anarchist communist” to describe himself and his theoretical work.

Honestly, I have no idea how you make the leap from “against mass production” to “against the non-wealthy owning quality goods.” His anger at mass production was primarily from the workers’ point of view. He knew the slave wages factory workers made, their horrific conditions, the way they had been herded into those factories in the first place. He also knew that “mass production” killed (and still kills) small producers, producers of quality goods and services, who suddenly could not compete and were wiped out by that “mass production.”

And, again, you’ve imagined this “veto” thing all on your own. It’s not what the federated communal system would be about. Yes, we’d vote, democratically, for the production we want in our communities up front. But we wouldn’t be tagging your individual purchases to votes or vetoes. You buy what you want. The key is to make sure the goods and services are what people want and need from the getgo, that they can be locally produced to the degree possible, that they can be sustainably produced, in harmony with the environment, and that everyone can afford what they need. Everyone would have all the work they wanted to have, and wages would be matched with prices and vice versa to ensure a high standard of living for all.

It wouldn’t be the micro-management you imagine. You’d be far more free to do your own thing, with far more leisure time, within a far more diverse system of individual expression and excellence.

235

Plume 08.30.15 at 5:07 pm

Sebastian H,

Yes, I have. And I also spend much of my time around artists, who also tend to dress differently. But these are the exceptions to the rule. Mass production of McClothes is going to mean most people wear the same things, and differences between McClothes, McPhones, McHouses, McCars and so on are . . . . insignificant.

Seriously, Apple sold 61 million Iphones in Q2 of this year. How is that not “sameness” on a mass scale?

236

Brett Dunbar 08.30.15 at 5:12 pm

We operate in a cash based economy. That long preceded capitalism. It makes things operate more efficiently but using state backed currency is hardly essential. Post war Berlin used cigarettes as a de facto currency. You could also use gold or any other commodity, cash happens to be practical.

Inter state treaties are not essential to a currency’s value. It’s that it has value to the other party in the transaction. It does not require that the jurisdiction in which you are operating give it any special status.

Black markets in things like heroin don’t use state structures, the state is actively working to suppress them. The market would operate a great deal more efficiently with lower costs if it were legal could operate in the open and use the courts to enforce contracts.

Importation of legal goods includes a lot of sea bourne transport, which is largely privately owned. The container ports and container ships are private. Airports and airlines in the UK are private.

237

Sebastian H 08.30.15 at 5:14 pm

“Seriously, Apple sold 61 million Iphones in Q2 of this year. How is that not “sameness” on a mass scale?”

Because what you can individually do with a device like an I-phone is amazing. It is amazing that the middle class and even many of the poor in the US have access to such a thing. The wrong-headness of your statement is so enormous. Smartphones wouldn’t ever have been made in the world you’re imagining. Your democratic vote wouldn’t have been interested in making them.

238

Plume 08.30.15 at 5:19 pm

Sebastian H,

You have no way of knowing that a democratic, egalitarian community wouldn’t want smartphones too, and it’s not logical to assume they wouldn’t. And with no profit in the picture, they could be made for less, with all the work done here . . . . instead of 9 out of 10 manufacturing jobs overseas, often for 70 cents an hour under brutal conditions.

239

Plume 08.30.15 at 5:24 pm

Brett,

Roads and bridges are public. How on earth are you going to get the heroin from point A to point B without using state infrastructure? Or clients? That infrastructure goes from coast to coast, and now includes virtual infrastructure as well. There is no escape from the state in modern, complex societies, for better and for worse.

240

Brett Dunbar 08.30.15 at 5:25 pm

Morris was a bullshiters he may have claimed sympathy for the working class but he was actually a romantic reactionary both in economics and his faux-medieval art. Artisanal production has a per unit cost several times what a mass produced item had. The mass produced item was affordable the artisan produced item was and is several times the price. I despise Morris as a smug, rich, reactionary, pseudo-socialist. He could afford expensive hand printed wallpaper and hand made furniture. And despite a claimed sympathy for the working class opposed anything that would make good quality mass produced consumer goods available to the working class.

The market system makes the expensive handmade products available if you want them, it’s your choice.

241

Plume 08.30.15 at 5:45 pm

Brett,

Believe what you want about Morris. You’re wrong about him, but this is all beside the point. I think it’s just you trying to discredit an alternative system by trying to discredit one man.

As the young kids used to say, whatever.

Again, if capitalism were completely, absolutely replaced — which is what I’m talking about — 100% new rules apply. Everything you’ve been taught about “how economics works” would no longer mean anything. Totally different game, with totally different rules, gameboard, cause and effects, etc.

With the shift of revenue streams going from price/sale to a communal pool, you have the real “disruption” of all previous ways of doing economics. The “cost” to make high quality goods becomes what it costs to pay workers from that 100% separate funding source, which is unlimited. The only “cap” on that funding is community choice and labor availability. If we can build it, we build it. We don’t have to worry about funding. Its supply is unlimited.

No profits, no capitalism, means no “supply and demand” issues impacting prices. We set prices and wages democratically, not based on scarcity, overproduction, underproduction, etc. They don’t go up with increased demand. They don’t fall with its absence. We don’t care about the number of sales of any item. It’s irrelevant. All that matters is meeting communal need.

There is no private ownership of the means of production, so society isn’t organized around the desires of ownership. There is no selling of goods and services to enable the personal hoarding of great wealth. There is only the selling of goods and services to fill need. It’s all citoyen-centric, instead of boss-centric. Nothing is structured to facilitate business profits. They don’t exist. Everything is done to facilitate high standards of living, in a sustainable manner, for 100% of the population.

In short, we can produce excellence for everyone. Right now, in our current system, only a few can afford that.

242

Sebastian H 08.30.15 at 5:45 pm

I apologize for engaging Plume on the “what goods will be made” front. It has nothing to do with price controls and why they don’t usually work.

243

Brett Dunbar 08.30.15 at 6:01 pm

If you think you could make a smartphone more cheaply than Apple you are welcome to try. Plenty of other companies make smartphones already, most using the android OS. Apple have a large market share as they make products the public want. In essentially all of its markets Apple face numerous competitors many of them very large.

244

Plume 08.30.15 at 6:12 pm

Brett,

Right off the bat, if you take away profits, shareholder dividends, ginormous executive salaries, you can radically reduce costs. Society-wide costs can also be radically reduced, once capitalism is gone. No economic system in history requires so much state support, infrastructure, police and military protections, endless bailouts, treaties, corporate welfare, social welfare, etc. etc. Maintenance costs for our current economic system on all fronts are astronomical, and will always be present in any system that works through the redistribution upward of “wealth.” Throw in ecological damage, debt and it’s beyond astronomical.

You should read The Making of Global Capitalism, by Sam Gindin and Leo Panitch. Really excellent history book.

Again, on the individual production level, and society wide, the switch to a cooperative, non-profit, egalitarian model would radically reduce up front costs and those which are externalized. When everyone has a job, and all jobs pay well, there is virtually no need for extra-governmental subsidies. And when, as mentioned, funding for wages and public projects come from an absolutely separate source, 100% divorced from sales, “costs” becomes a radically different issue.

Yes, we could make them “cheaper.” Prices and wages won’t have the same meaning anymore, to begin with. And there won’t be the other burdens I list above. But, yes, they’d be cheaper.

245

Brett Dunbar 08.30.15 at 6:33 pm

That was a load of total bullshit.

Morris supported a system which would increase costs. Artisan manufacturing takes more time and greater skill to make a product. This means that more time and labour is involved. This means that regardless of the economic system the quantity that can be produced for a given input is lower. This means that less can be consumed. This means that prices are too high for the working class. He was aware of this contradiction but that didn’t lead him to reconsider his aesthetic perference.

In a market system the price incorporates information about the total inputs to produce a product. High prices tell producers to increase output and consumers to reduce consumption. Low prices do the opposite. You are not proposing to abolish prices rather you are proposing extensive price controls and central planning. We’ve tried that in the past, it doesn’t work. The main difference seems to be you want local planning committees rather than a central planning committee. Price controls still lead to chronic shortages of some things unsold stocks of others and misallocation of resources.

While I prefer to devolve the descision to the individual. If I want an expensive spade then why should the local committee tell me that I’m only allowed a cheap one? Maybe I just prefer the colour, or the shape of the blade, or once had the blade bend on me and don’t want that to happen again. Either way if I’m prepared to pay for the devotion of greater resources to spade making then why shouldn’t they go that way?

246

Brett Dunbar 08.30.15 at 7:00 pm

Go ahead then, If you can make mobile phones more cheaply (that is to say using fewer resources) than Apple do so. No one is going to stop you.

There are some very large non-profits around right now Ikea is owned by a charity, John Lewis Partnership is employee owned and is by some estimates Britain’s third largest retailer.

247

Plume 08.30.15 at 7:34 pm

Brett,

Not sure why you’re not getting this. In this alternative system, no one’s wage is tied to sales revenues. No one’s. Not anyone, anywhere, ever. Not in any way, shape or form. Prices have a totally different reason for being in this alternative. In capitalism, their essential reason for being is to garner as much net revenue for ownership as can be made. Pricing is done for no other reason than to optimize net revenues for ownership. Yes, price signals are a part of the deal, but they’re just aids in the setting of prices in order to maximize net revenues. The goal is personal wealth accumulation for ownership, not consumer enlightenment or empowerment.

In the alternative I describe, everyone is on salary — kind of like teachers. No one makes more money with higher sales, or less money with lower sales. No one gets to appropriate sales revenues all for themselves, and then redistribute a pittance to employees. There are no employees. Everyone is a co-owner, of equal status, working for a set salary. No profits. No shareholders. No investors. No debt.

All wages come from an absolutely separate source, without one iota of connection to sales. It doesn’t matter if you sell 100 widgets, or 1000, you will make the same salary. There is no incentive to sell more, or sell less. It doesn’t matter. All that matters is that we match production with need, to order, and set prices and wages to match high standards of living for everyone. Prices don’t contain salaries, compensation, business costs, debt or taxes. We get the funds for compensation and production costs elsewhere, and there is no need for taxation or debt.

And there are no central committees. We don’t even have the local version. We have participatory economics (Parecon) and participatory democracy in place. Everyone’s voice counts at every town hall, and we rotate facilitators. All leadership is temporary. And we’re not interested in preventing you from buying a cheap or expensive spade. We, as a community, including your input, decide what is made in our communities. We’re focused on empowering everyone from the production end first and foremost. We’re focused on making sure everyone has at least what they need. In our existing system, by the time it gets to shopping choices, you’ve already lost your say so. You only get to choose what massive corporations let you choose from — subject to what you can afford. Again, it’s just the illusion of choice, and most people are left out of even that.

I’m talking about creating real choice, up front, for everyone, with everyone having access to essentials like quality education, safe food and water, a safe environment, quality health care, etc. In the capitalist system, if you can’t afford these things, you’re up the creek. In the alternative I’m talking about, these things are your right as citizen.

248

Brett Dunbar 08.30.15 at 8:06 pm

Prices incorporate the cost of all the resources in creating the product, including the labour of the sales staff. The business owner is trying to maximise profits, as are their competitors, the consumer is also attempting to maximise consumer surplus. So will tend to look for the cheapest supplier at the desired quality. This means that if by cutting your margin you can increase sales you can increase profit you do so. Then your competitors must also cut prices in self defence. If you can gain the agreement of your direct competitors to fix prices you may find that outsiders are drawn in by the abnormal profits of monopoly.

Your proposal by totally de-linking pay and continued employment from sales gives retail staff an incentive to minimise sales, as that reduces the amount of work they have to do. If you get the same pay for working flat out for eight hours a day as you would get for “forgetting” to unlock the shop and doing sod all. You’ll take the easy option.

249

Brett Dunbar 08.30.15 at 8:18 pm

You are not proposing anything new. Price regulation has been tried many times. It doesn’t work. Prices in a market act to equalise the demand for a thing with the resources available to make the thing. If you de-couple prices from consumption then you lose the information about how production and consumption should be modified to account for the scarcity of available resources.

250

Harold 08.30.15 at 8:44 pm

J.K. Galbraith thought it worked. Usually an emergency measure, though.

251

Brett Dunbar 08.30.15 at 9:01 pm

You can get away with it in the short term, the pricing information from the pre-control period can be used to give you a fairly good grasp of what resources are available and where desired consumption lies. So a command economy can work as a short term expedient in an emergency, like a war. The information goes stale fairly quickly, and a command economy is bad at generating new information.

It can also work in a very simple stable economy, like the Inca empire. Technology was pretty much static the output of agriculture highly predictable from the weather so that the amount of new information required was very limited. Attempting to run a complex modern economy with rapid technological change by diktat is courting disaster.

252

Harold 08.30.15 at 9:08 pm

@249 “It’s been tried and didn’t work”. Yes, price controls were in place throughout the whole of the history of civilization — until very recently, when it was asserted that they “didn’t work.”

253

Harold 08.30.15 at 9:11 pm

and removing them would produce Utopia, because “science”!

254

Collin Street 08.30.15 at 9:11 pm

It’s hard to think of anything less attractive than Plume’s world, where we all wear the same clothes, live in the same basic functional apartments, and work at jobs assigned to us by some collective.

It’s almost as if he doesn’t understand that people can reasonably object to things he finds unobjectionable.

255

Plume 08.30.15 at 9:19 pm

Collin Street @254,

Oh, I understand perfectly well that people can reasonably object to them. Unfortunately, those objections rarely are about things I’ve actually said, propose or advocate for. Usually, they refer to the opposite of what I’ve said, etc.

IOW, in order for me to say, “Yes, you make a great point. I didn’t think of that angle before.” I need the respondent to at least get my argument correct. That’s been a true rarity whenever these discussions come up.

256

Collin Street 08.30.15 at 9:30 pm

Unfortunately, those objections rarely are about things I’ve actually said, propose or advocate for.

You have to expect that other people will see genuine problems that you haven’t in areas that you have not properly considered: to you, these problems will appear to be unrelated to the issues you’re discussing, but that would essentially just be an optical illusion caused by the limitations of your own perspective.

[sometimes it happens that the perceived connection would be an error and your reaction that there’s no connection to the point you’ve made and the point you’re being asked to would be correct, but by-and-large people can be treated as of equal cleverness: this means that it’s more likely that this sort of pattern-of-observations is caused by an error on your part than by errors by others. “You missed this” is usually a correct statement.]

You don’t really seem to understand that everyone around you is as clever as you are. Everyone you talk to has the about the same number of clever insights that you do: if you’re not seeing them, it’s because you’re not looking, and because you’re not learning from what others could offer you.

257

Plume 08.30.15 at 9:30 pm

Brett,

Everyone is “staff” in the alternative. There is no private ownership. No employees. There is no hierarchy. Everyone is equal in the workplace in the scenario I’m talking about. The workplace is fully democratized. They would have greater incentive to do a really good job in that case, rather than the existing arrangement of working your butt off to make a few people at the very top rich. That means, by necessity (under capitalism), that you’ll spend much of your day working for free. Capitalism is based on unpaid labor. The more a business owner can generate, the more they make for themselves.

And I’m not talking about divorcing price from consumption. It’s all about divorcing sales from revenue streams. All funding comes from elsewhere, as mentioned. All compensation for work, and funding for community projects, comes from elsewhere. Price signals are used solely to help track consumption, and match it with production and wages.

For the first time in history, we wouldn’t be “doing business” to pad the pockets of the very few. We’d be “doing business” for the sole purpose of providing for the needs of 100% of the population, without exception. The reason for being of all commerce would be to assure the health, safety and welfare of the entire population. That’s it. Currently, the reason for being of commerce is to make a few people rich, which means most everyone else gets screwed.

In short, the focus would be completely turned on its head. We would no longer organize society around the personal desires for wealth accumulation of the few. Society would be organized for the entire populace. The only way to do that effectively is to get rid of the economic system which divides us into haves and have nots, makes us radically unequal and radically different as far as power, access, wealth and income go.

258

Plume 08.30.15 at 9:37 pm

Collin 256,

Seriously. They’re not objecting to things I’m talking about. I’m not missing anything. They keep repeating things that are 180 degrees from anything I’ve suggested, as if they’re stuck in a time warp. The favorite memes are “The Soviet Union tried all of that and look what happened.”

And the quote you chose is a perfect example of that.

It’s hard to think of anything less attractive than Plume’s world, where we all wear the same clothes, live in the same basic functional apartments, and work at jobs assigned to us by some collective.

Nothing I said comes remotely close to suggesting the above. And as mentioned, it’s actually quite the reverse of things. Autonomous, fully democratic, federated communities would produce far more diversity than our current system, and I demonstrated why.

259

Bruce Wilder 08.30.15 at 9:40 pm

Plume: . . . what is your answer to this? What solves this problem?

I do not have an answer. I am not trying to provide the solution. I am trying to be clear about the nature of the problem. And, to the extent that I am clear on the nature of the problem, I am not sure that there could be a “solution” that eliminates “the problem” in a utopian sense. I don’t know that Plume is rightly a utopian — he sometimes gives that impression — but if he is, he’s not the only one commenting on this thread.

Some of the argument about rent control and its effects has revolved around the rhetoric of market utopianism. I really thought Sebastian H might be about to have a epiphany when this came out:

Can you explain how NYC and SF have such horrible housing shortages and some of the most strict rent control? The normal explanation is that strict rent control causes housing shortages. [emphasis added]

Really, Sebastian [horrible housing shortage] -> [strict rent control] isn’t a “normal” explanatory sequence? So alien to your way of thinking that you accuse your interlocutor of not being reality-based?

The myth of market utopia is that everyone can be guided by prices and prices alone, and if the price is right, everything else will work out as if by magic. I presume that is not JQ’s actual view, nor do I think it is Sebastian H’s, but too cavalier a pragmatism (it works! it doesn’t work!) becomes a predictable hazard, because the rhetoric of market utopia is pervasive (and Hazlitt is representative of it).

To my way of thinking, Peter T’s comment 1 was spot-on. The sweeping language JQ is using, and his cavalier pragmatism, is distracting at best.

Hazlitt’s perfectly decentralized market utopia is not capable of solving the problems of urban planning. The ungoverned, self-regulating market in a dense city produced the Walled City of Kowloon.

No waiting list, though, for that hellhole.

260

Val 08.30.15 at 9:51 pm

Plume @ 255

Since as usual there seem to be people lining up to tell you how wrong (if not evil) you are for theorising about how more equal societies might work, can I just say good on you.

I’ve also thought a lot about this and agree with some of your points (I’ve probably got some of my ideas from reading your comments in fact).

And for those who cling to the idea that we can’t ever achieve equality because communism is so awful and capitalism is so great, just a reminder about what capitalism did to Russia http://www.ncbi.nlm.nih.gov/pmc/articles/PMC1116380/

261

Plume 08.30.15 at 9:54 pm

Bruce,

Thanks. Again, well put. I agree. The real “utopians” are the people who suggest that if we just leave “the markets” to their own devices, everything will work out just great. Lurking beneath that magical thinking is the likely subconscious belief that business owners are somehow far more skilled, competent and smarter than anyone else, and that their personal goals all mesh, magically, synergistically, alchemically, to create (amazingly) altruistic results. If it’s not conscious, it’s truly undercover elitism, which assumes that no one who works for governments, no consumers, no workers, could possibly know more or do a better job than those sainted capitalists.

It also completely ignores the amount of “central planning” done by corporations themselves, and seems to suggest that “planning” itself is what screws everything up.

A self-perpetuating delusion and not that different from belief in a god. If the economy performs well, then this is all on business ownership and the wonders of capitalism. If it does poorly, it’s all on government intrusion — like rent control. Business owners and the capitalist system can never fail. Success is always taken from them by non-capitalist meddlers.

Pretty good gig if you can get it.

262

Plume 08.30.15 at 9:55 pm

Val,

Thanks. And thanks for the link.

263

Julie 08.30.15 at 10:05 pm

Plume from way back at 241

“As the young kids used to say, whatever.”

This saying is the only way to respond to some of the people who cannot and will not understand what you – and many of us – can understand.

I say “whatever” a lot with a smile to the people in my depressed rural area. These are the people who have failed the capitalist test of being willing and able to take advantage of others less able than themselves. We are all pretty much leaners out here; poor people are called leaners in Australia and those who succeed in climbing the capitalist ladder are called lifters.

These poor people I live among usually vote for the conservative neo-liberal party rather than the progressive neo-liberal party and although they used to have farmer co-operatives out here last century, they seem to have forgotten all about that way of doing business and are miserable trying to live up to the inhuman requirements of the capitalist mode of production that isolates them from their neighbours and renders them angry and resentful about their ‘poverty’ and so eager to find fault with anyone they can identify as less successful than they have been.

The men who owned the small farms that are failures because the corporations have taken them over and that has left these farmers with few option but to work for the corporate farmers. They blame the gubmint not the Capitalists and are the most unhealthy because they eat Capitalist food/poison and they have very high rates of suicide.

These are the people who are suffering the most from Capitalism and yet they continue to vote for the men who insist that we humans can only function by using other people to get ahead and disdaining and excoriating the losers.

There are a few younger people moving into this little regional town that we old people who are mostly on some sort of pension – govt or private – refer to as our free-range retirement village and they are very interested in new ways of being ‘entrepreneurial’ that leads to ‘equality’ and ‘fairness’ and will be consistent with any measures we need to take to address climate change.

They are very interested in co-operatives. We have started a small co-operative for the craft work that so many of the people out here do, and this effort small and insignificant as it is, seems to be increasingly valued as a way of bringing back the community spirit that a lot of people from both ‘sides’ of politics want.

I’ve been reading ‘Humanising the Economy’ by John Restakis. He seems to have some well established and functional ideas about how co-operative organisations can and are being incorporated into the economy we have now.

http://johnrestakis.net/home.html

264

Brett Dunbar 08.30.15 at 10:44 pm

“Price signals are used solely to help track consumption, and match it with production and wages.”

That is pretty much what they do in a market economy. The price charged has to be sufficient to cover the cost of all of the various inputs. The revenue has to cover the costs. The margins on which large business operate are very narrow. The total profits made may be large but that is more due to the sheer size of the operation, supermarkets typically operate on a margin of around 2%.

Employee owned businesses like John Lewis Partnership are just as keen on making a profit as any other business. It’s just that the profit is distributed as a bonus to the employees there is still a management and unproductive employees are still liable to be fired. You have indicated repeatedly that you do not believe that productivity and pay or continued employment should be related. This means that there is no reason to do anything. There is no reason to work hard and do a good job when I can drift along doing very little for the same pay.

Businesses that plan badly go out of business they either go bankrupt (Woolworth’s for example) or get bought by better run competitors (Wm Morrison buying Safeway (UK)). The survivors in a highly competitive market are the well run efficient businesses. Where the market is uncompetitive badly run inefficient businesses can persist for years. http://web.stanford.edu/~nbloom/DMM.pdf gives some examples of what seems like obvious managerial changes that inefficient Indian textile businesses had not made as they had been operating in a very uncompetitive market. The paper was a world bank funded blinded placebo controlled study by the management consultancy Accenture. Basically the World Bank wanted to know if paying for management consultants was a good way to help development. It turned out to be a far better buy than anyone imagined, even with fairly generic advice.

265

Julie 08.30.15 at 11:06 pm

“unproductive employees are still liable to be fired.”

The unproductive employee can be fitted into the business or the community in some way rather than discarded as an unproductive unit that can be relegated to the margins and expected to live dependent on charity so that the better employees can make a bigger monetised ‘profit’.

If the business is part of the society and not just part of the economy, that is.

266

Layman 08.30.15 at 11:16 pm

Plume: “In the alternative I describe…”

If only you would, but you never do. Where will vaccines come from? Who will build and staff hospitals, and what will they eat? Who will oversee policing, and how will they be constrained? Who will build suspension bridges, and why would they bother?

267

engels 08.30.15 at 11:19 pm

“There is no reason to work hard and do a good job when I can drift along doing very little for the same pay”

A sociologically and psychologically ignorant statement which illuminates nothing but your own prejudices.

268

Layman 08.30.15 at 11:21 pm

Brett Dunbar: “The survivors in a highly competitive market are the well run efficient businesses. “

The notion is absurd. At the slightest bit of a downturn, every single one of them would suddenly discover 10-15% of inefficiency which somehow went unnoticed before, and then do the same thing again next year. Large organizations are never efficient, and decision makers generally have only the vaguest of ideas about what’s going in in their company. Profitable isn’t the same thing as efficient.

269

Brett Dunbar 08.30.15 at 11:28 pm

That’s why we have a benefits system, not everyone has the skills or inclination
to be worth employing. Some simply are not productive enough to cover the cost of employing them.

270

Bernard Yomtov 08.30.15 at 11:39 pm

Plume,

It’s just your silly projection of your own ignorance and biases onto an alternative you truly don’t understand.

Well, it’s true I don’t understand it, despite having read numerous comments by you an some who agree with you. Maybe it’s your explanation that is lacking, or perhaps it is you who don’t understand your own theory, or maybe the theory itself is so incoherent that no one can understand it.

271

Brett Dunbar 08.30.15 at 11:46 pm

If you can find inefficiency then you can increase your margin and profits or undercut your competitor to gain market share. You are always in a position where greater efficiency is beneficial. The Accenture report mostly cited advice that is totally standard practice in the west, but was amazingly uncommon in India. The lack of much competition had allowed firms to carry with truly awful stock-control and quality-control problems to remain profitable for years. Any western business run that badly would have been out-competed by more competent rivals. The actual problem was that it was difficult to prosecute managers who stole from you so it was difficult to trust mangers from outside your immediate family, this limited the ability of firms to expand.

272

hix 08.30.15 at 11:51 pm

Those libertarian phantasies about the labour market hurt my eyes.

Back to the op, not a fan of rent control in the narrower sense , but it seems rather unfair to judge rebt control based on a failure to increase supply, since thats unlikly to be a goal.* A lack of significant adverse effects on supply would be sufficient if other goals that are considered important are achieved.

*Thinking about it, since a lack of housing supply has often to do with real estate owners lobbying for unnecessary constraints on further construction that argument does not sound that crazy either.

273

Layman 08.30.15 at 11:52 pm

“You are always in a position where greater efficiency is beneficial.”

What’s the largest organization you’ve ever run?

274

Julie 08.30.15 at 11:54 pm

Maybe the people who can believe that we need a ‘benefit system’ for those humans who are simply not productive enough, are the people who lack an ability to see the patterns in human nature/culture and these patterns do provide coherence to the system that Plume explains.

Perhaps some people can only understand personalities and abilities that are like their own personality and abilities that conform to their experience of intelligence/ability, and therefore they are unable to imagine that there could be a system that provides dignity and inclusion for all humans?

Perhaps I am stupid but I don’t find it difficult to see that there are ‘patterns’ in human behaviour that could allow for the production of bridges and the other wonderful products of capitalism in non-capitalist societies.

After all bridges and cathedrals were built by non capitalist systems were they not?

275

Brett Dunbar 08.31.15 at 12:10 am

I’m not sure what that has to do with anything. It’s simply a statement of the obvious. Reducing costs allows for greater profits under any circumstances.

276

Brett Dunbar 08.31.15 at 12:19 am

It is possible to lack employability under any reasonable circumstances. You might have significant disability for example. The benefits system is one way of dealing with this.

277

Layman 08.31.15 at 12:21 am

“After all bridges and cathedrals were built by non capitalist systems were they not?”

I don’t think Plume is arguing for feudalism. He’s arguing against capitalism but also against hierarchy and to some extent against scale.

By way of example, egalitarian community group A decides they’ll launch an egalitarian enterprise which facilitates communications, by building communications devices and linking them with wires buried in the ground. (What will they eat? Never mind that for now.)

Some people must dig trenches in the ground, and some people must make devices on an assembly line, and some people must extrude wire, and some people must design the components of the system and develop plans for the others work from. All are paid the same, because equality.

At first, people are rotated through the work, because equality, and they all get the same tinned beef sandwiches and living flats for pay, or they get credit which allows them to swap for those necessities.

But it turns out that some people are bad at designing stuff, and some people are bad at digging ditches, and so on. To make progress, they really need to specialize people to the right tasks. So they decide that some people will always dig ditches, and some people will sit in climate controlled offices and design and plan stuff. (Who decides this? Never mind that for now.) They all continue to be ‘paid’ the same.

Those assigned to dig ditches are irritated. What they do is physically hard, harder than the work done by anyone else. And, they foresee that they can’t do it for as long; one day, their backs will give out, and they’ll have to stop, and they’ll suffer pain for the rest of their lives. They naturally object. (To whom? Never mind.) Why should they suffer while others relax in comfort for the same benefits?

What can be done? Can the ditch diggers be paid more, or allowed to work less, which is the same thing? If so, what will the assembly workers think? After all, they’re standing all day, and their own backs hurt, to say nothing of their feet. If they get a similar reprieve, what will the designers and planners say? After all, without them, there’s no project at all, and everyone is heading back to the subsistence farm.

278

Plume 08.31.15 at 12:30 am

Layman @266,

Who builds those things now? Workers. We would still have workers. In fact, many more of them than we do now — a far, far higher percentage. Why? Because everyone would be guaranteed work, and work wouldn’t be dependent upon privately held business owners, dependent on their whims, their cost-cutting riffs, or their desire to make their fortune. Work would be generated by communal need, for the community, by the community, owned and controlled by the people. We wouldn’t ship jobs overseas to make more money, or automate jobs out of existence to make more money, because making money isn’t the goal in any way, shape of form. Providing for the welfare and well-being of the populace, within a sustainable context, is all that matters. So, yes. We’d make those vaccines and build those hospitals, staff them, grow enough food, organically, sustainably, and not one iota of this would be in the service of making anyone rich.

No one would be left behind. Everyone would have access to all the fruits of societal production, including free quality education, health care, cultural venues. Everyone would have an equal say in that production, in what was produced, how and why.

And, as Julie mentions above, are you saying that nothing was built or made prior to capitalism? Are you under the impression that workers are making profits and wouldn’t work otherwise? Cuz that’s not the case. The vast majority of workers are on salary, as they would be in this alternative. But instead of working to make a very few people rich at the very top, they’d be working for a much higher standard of living for themselves, their families, and to build a much, much better society for everyone.

Are you suggesting that isn’t enough incentive to do those things you list?

279

Layman 08.31.15 at 12:40 am

“Are you suggesting that isn’t enough incentive to do those things you list?”

No, I’m suggesting you completely ignore the likely practical problems with your utopia, and your response demonstrates that beautifully. Will the ditch diggers get more pay or shorter work days, or not? If not, can they quit, and still eat?

280

Plume 08.31.15 at 12:46 am

Layman @277,

Feudalism? That’s basically what we have now, only it’s a new set of lords and it’s no longer based on the land. It’s portable, exportable. But it’s still really serfs and lords.

I’m talking about no lords and no serfs, though I do think we need to return to the land and to the local, the small is beautiful model. Break up all centers of power. Disperse power back to individuals, with newfound and equal voices, democratically. And we federate those small is beautiful co-ops, we link them and network them and they work synergistically, sharing knowledge, labor, skills, produce, etc. The cooperatives cooperate, because there is no need to compete. There’s nothing to compete for. No more capitalism. No more profits to chase. And our communal funding allows us to build what we need, share it and make sure no one goes hungry, no one is homeless, no one knows poverty.

But it goes much, much further than that, which takes it light years away from “feudalism.” Because funding comes from a communal pool, and has absolutely nothing to do with sales/revenues (or inheritence), we can build all the schools we need, all the hospitals, all the clinics, all the cultural venues. We can teach and train anyone who wants to learn trades, skills, the arts and so on. And because the funding is never tied to revenues, and unlimited, we can always pay wages for staff, and everyone who wants to work can, and those who wish to save a bit more, and move up the four steps/tiers, can. If they want to have a bit more, some options to take trips away from that particular egalitarian society, they can train to do so. Four steps — to me, the sweet spot for egalitarianism with enough room to incentivize more time spent on improving skills sets/knowledge.

We could call it anything the people want . . . . Apprentice, Apprentice-teacher, Teacher 1st class, Teacher-admin . . . . or something entirely different. But the ratio of top to bottom would be no more than 4-1 . . . . unless the Demos votes otherwise.

281

Julie 08.31.15 at 12:47 am

“I don’t think Plume is arguing for feudalism. He’s arguing against capitalism but also against hierarchy and to some extent against scale.”

I’m quite sure that Plume is not arguing for feudalism and neither am I. My point was that capitalism is not the only way that humans can organise their production to create complex results that benefit all the types of humans.

There are any number of possibilities that human sociality offers for us to construct functional and efficient organisational systems in which all human abilities are utilisted for the benefit of all.

These systems – however they evolve and they will evolve if we survive as a species – will not be efficient at making profit for the lifters only, but will be efficient at producing the other things that benefit all of us.

And I absolutely agree with Plume that hierarchy and large scale production are a problem for people. These systems are not efficient for all humans; they are dysfunctional and actually cause some people to be ‘leaners’.

Leanerism is not genetic; it comes from responses to environmental stimuli.

282

Layman 08.31.15 at 12:48 am

See? Ask a question about Plume’s solution, and you get a lot, but it’s crickets.

283

Layman 08.31.15 at 12:49 am

“I’m quite sure that Plume is not arguing for feudalism…”

I agree, he’s not arguing for anything. He’s a critic. I agree with his criticisms, by and large, but he isn’t offering any alternative at all.

284

Plume 08.31.15 at 12:59 am

Layman @279,

It’s not a utopia. It’s not meant to be one. It’s just a far better, far more humane, moral, just, practical, workable and efficient way to organize society.

What you consider “practical problems” only exist in your head. How does the current capitalist system deal with these things? Does it solve the problem of better pay for rotten work that no one wants to do? No. Does it solve the problem of hunger, homelessness, poverty, inequality? Quite the opposite. It tends to pay even shittier wages to people who do the dirty work for the rest of us. It generates poverty, homelessness, hunger and inequality.

Your criticism is nothing new. And its mode of attack is nothing new. You simply hold my alternative to a much, much higher standard than the existing system, and if it can’t solve every problem on earth, you get angry and dismiss it.

Rinse and repeat.

Now, ask yourself this. Psychologically, do you think most people are going to do nothing, rather than something, knowing they have at least the basics covered? Or do you think they’d rather work, earn their own wages, feel productive and independent, feel like they contribute to society, for their family, etc.?

I know for a fact it’s the latter. It’s always been strawman nonsense to suggest that if we make sure everyone has at least all of their needs met, no one will work. It’s always been bogus nonsense.

285

Layman 08.31.15 at 1:03 am

“It’s just a far better, far more humane, moral, just, practical, workable and efficient way to organize society.”

Is it one in which the ditch diggers will get higher pay or shorter work days? If not, can they quit and still eat? It’s a simple question.

286

Bernard Yomtov 08.31.15 at 1:09 am

Layman @277,

What you describe is a broad problem that Plume has never addressed with other than platitudes. Who is going to assign labor to various tasks? Someone has to. If it is decided, according to mysterious mechanism, that 1000 pairs of shoes are to be produced this week then there absolutely must be a way to get workers to the shoe factory to turn out those 1000 pairs.

How will this be done?

287

Layman 08.31.15 at 1:13 am

To be clear, I think the doctrinaire efficient free marketers are wrong, and Plume is right to criticize them. I like Plume, and often agree with him, but he’s not offering an alternative.

288

Plume 08.31.15 at 1:13 am

Layman,

Seriously. You think I haven’t gone through all of this here before? Hell, I’m told I post too much about it, and others scold me for responding to criticism. You can’t be seriously suggesting that I’m unwilling to flesh this out.

The alternative is a democratic, egalitarian, Parecon-like system of federated, autonomous communities. Participatory economics and politics. Networked, linked. Production is done to order. Not based on hopes for future sales. No profits. No private ownership of the means of production. The means of production are fully public. Not via proxies. But literally publicly owned. The focus is entirely on making things based on community needs, derived democratically, at town hall meetings, using pattern-aware software to extend and enhance this, and algorithms which learn from those orders and those meetings. Shared across the entire system.

Leadership is rotated and temporary. It’s as non-hierarchical as possible, while still getting things done. People do their public service, as local, regional and national reps, then go home. Temporary. Everyone gets free education, cradle to grave, and free health care, access to cultural venues, public transport. Everyone can train for whatever job they want, or study whatever they want. Communities cooperate on filling employment gaps if this doesn’t match up to needs. People shift around temporarily as needed, but they concentrate on their chosen field. If there are dangerous and dirty jobs no one wants to do, this becomes a part of community service as well. Temporary. It can be chosen by lottery, as are the reps. The autonomous communities exchange labor, knowledge, supplies, food, etc. etc.

For starters.

289

Plume 08.31.15 at 1:21 am

Layman @285,

Can they quit and still eat? Yes. But they won’t be getting their own wages anymore, and they won’t have the freedom to buy what they want. They won’t be able to choose their housing. They’ll have to stay in public housing. Their options will be more limited.

I can’t see many people at all choosing no work. Working brings far more freedom, greater self-esteem, far more options in this alternative. It brings independence.

While all business is publicly owned, and the commons extend across all commerce, your own home is your private domain. If you’ve worked, earned the necessary electronic credits, you can buy a home. Someone who doesn’t work can’t do that.

No one will starve, go homeless or live in poverty — work or not work. Everyone gets the highest quality, cradle to grave education, health care, access to cultural venues and public transport. But they are limited in their choices to an extent. It is clearly more beneficial to work a guaranteed job than to do nothing.

290

Brett Dunbar 08.31.15 at 1:21 am

We aren’t holding your system to a higher standard. It’s just we have a system that works better than those we have tried before. Capitalism is the only system in history where obesity is a problem of poverty. Not only are the poor not hungry, they’re fat. In any previous system to be fat you had to be rich.

Your rhetoric is both emotive and factually wrong. Some jobs that very few people are willing or able top do are pretty well paid. Most people would not consider clearing fatbergs from the sewers of London under any circumstances. In the absence of forced labour the only way to get even the few people prepared to consider it to actually do it is to pay them quite well. It’s somewhat dangerous (the sewerage can produce flammable and toxic gases) fairly skilled (it can be very slippery) and extremely unpleasant (it’s in a sewer) work.

It’s not so much that people won’t work at all as they won’t work all that hard.

291

Julie 08.31.15 at 1:27 am

I guess nobody arguing against Plume’s system has actually lived in a village and seen how people can organise themselves so that the ditch gets dug and the scones get cooked efficiently enough, when the community wants to raise money for something that we all value.

Anyone heard of self-organising systems?

“It’s not so much that people won’t work at all as they won’t work all that hard.”

How hard do you want people to work?

292

Plume 08.31.15 at 1:30 am

Bernard @286,

I’ve repeatedly said who assigns labor roles and did again this evening. We do this democratically. We do this as a community. We rotate leadership, and all leadership is temporary. The entire community has an equal say in this, in all the decisions that affect them. Which is radically different from our current system which hands over this power to a tiny fraction of society. Within the new framework, each one of us pursues whatever line of work we choose. If there is no need to shift labor around, we remain in our chosen field . . . . and everyone gets a shot at pursuing our dreams. Money is not the entrance ticket. Education and training, cradle to grave, is free. That means no one is denied, which can’t be said about capitalism. No one is left behind. Again, that can’t be said about capitalism.

. . . .

There are fewer than 7 million business owners with employees in this country. But that tiny fraction decides your wages, what you do at work, whether to ship your job overseas, kick you to the curb, or automate your position out of existence. And you have zero say in the matter. I think that’s insane. To allow that. To allow so few to decide so much for so many.

In the alternative I’m talking about, that can’t happen. The decision is a truly democratic one. Direct democracy, btw. Not via political parties or other proxies. One person, one vote, literally.

293

Plume 08.31.15 at 1:32 am

Julie @291,

Good point.

It’s as if they don’t see how most corporations tend to run themselves after the initial organization period. Workers even tend to train newbees, without much guidance. They don’t seem to get that humans would still do the same in an alternative. We naturally organize things. Our brains are actually structured to do this.

294

Brett Dunbar 08.31.15 at 1:38 am

That sounds awfully like a command economy with corvee labour. You seem to be advocating drafting people to do unpleasant jobs.

The problem is that what you advocate either sounds like something that has already been tried and rejected or is vacuous handwaving.

If you can study for as long as you like at any subject you like you get perpetual students. Saudi Arabia has a really excessive number of perpetual Theology students as does Israel among its Hasidic community. They spend years and years studying for a degree in the most totally useless subject imaginable. Many Saudis are in university very few are employable at the end of it, however being a student gives social status the way layabout doesn’t.

295

Plume 08.31.15 at 1:42 am

Brett @290,

More nonsense. Obesity isn’t a problem of poverty. And, yes, impoverished people starve. Several million humans die each year of hunger, tens of millions become critically ill due to malnutrition, and the numbers are well over a billion who don’t develop their brain capacity due to malnutrition, because of poverty.

And, sure, you can find a tiny few exceptions to the rotten pay for dirty work. But for most of the worst kinds of jobs, the pay and the benefits are terrible. Think migrant workers, miners, home care workers, cleaning services, hospital orderlies, etc. etc. And manufacturing costs for rich, fat cat capitalists are kept exceedingly low because they pay people 70 cents an hour in the developing world . . . . in conditions that drive many to suicide.

Seriously, Brett. Please put down the pom poms. Capitalism is responsible for more death and destruction than all previous economic systems combined, and it’s generating record levels of inequality and ecological destruction today.

296

Plume 08.31.15 at 1:46 am

No, Brett @294,

I’m talking about communities pitching in and helping their neighbors. Oh, the horror!!

And, again, yes, if they want to be students all their lives, they can do that. But, again, without working, they won’t earn their credits and they will be a bit constrained on what they can buy and where they live. They won’t be able to buy their own place. I doubt many will choose to be students forever, and they can always teach. That’s an actual job in which they’d earn their own wages. I think the vast majority would choose that route. But there will always be exceptions and that’s fine. That’s “freedom and liberty,” etc.

297

Peter T 08.31.15 at 1:50 am

Economics is fixated on the market (possibly because price gives the illusion of being able to be quantified). But humans actually use a blend of mechanisms to coordinate – all of which work (how well depends on context). Cities are a good example – a mix of planning, public provision, family and neighbourhood consensus, private ownership, corporate control, all layered over some more or less fixed facts of geography and constrained by available technologies. That there is some general single truth which can “solve” any problems encountered is simply hand-waving. A medieval city which did not have an effective price-fixing mechanism for grains was inviting mass starvation or urban revolt; a modern one which does invites a black market and rationing.

A glance at any of numerous studies of western government and administration will show great strides in effectiveness and efficiency over the last two centuries – certainly matching anything in the private sector. No prices involved. Just a dash of international competition and comparison, a constant pressure from the political side to squeeze more services from the tax dollar, and deliberately institutionalised internal drives to improve. Not constant or universal, any more than bankruptcy or take-over, but getting the job done.

298

Bernard Yomtov 08.31.15 at 1:53 am

I’ve repeatedly said who assigns labor roles and did again this evening. We do this democratically. We do this as a community. We rotate leadership, and all leadership is temporary. The entire community has an equal say in this, in all the decisions that affect them.

Well, that’s the problem. What you’re dressing up in a lot of rhetoric is a system where I can’t decide what kind of work I’d like to do. Instead “the community” or whoever, tells me to go make shoes, whether I want to or not. If you can’t see the difficulties with that then you are blind.

But that tiny fraction decides your wages, what you do at work, whether to ship your job overseas, kick you to the curb, or automate your position out of existence.

No. It doesn’t.

The decision is a truly democratic one. Direct democracy, btw. Not via political parties or other proxies. One person, one vote, literally.

This is just silly. Do you really imagine that in a system where things are decided by vote there won’t be coalitions, blocs, vote trading, whatever? And even so, why should my life be subject to a vote, however wonderfully democratic? I don’t want to work on an assembly line making shoes, and even if the vote is 999-1 that I should I still shouldn’t be forced to.

Your worship of collective decision-making is frightening. I see no difference between my boss telling what to do and The Collective telling me. Except that I might be able to get away from the boss.

299

Plume 08.31.15 at 2:01 am

Peter T,

Makes sense. A lot of sense.

Was reminded earlier of how the supposedly immutable laws of capitalism are frequently breached. It’s a mistake to believe in them. Too many variables. Too much changed context. Like, it was once believed that years of low to no interest rates would cause, not just inflation, but hyper-inflation. Hasn’t happened. We’re going into year seven of this, if I’m not mistaken.

And after the great recession of 2008/2009, the Fed pumped some 16 trillion into the world economy, with barely a ripple of new inflation. We have been told for decades that such a move would cause super-hyper-end of the world inflation.

Stocks and bonds used to be considered inverse deals, at least to some degree. One would go up and the other was supposed to go down. Recently, they’ve both declined, together.

Anyway . . . since there are no actual “laws” in capitalism, or any other economic system . . . . it makes no sense to dismiss alternatives based on the existing system’s rules set. The same rules don’t apply, and they don’t even work all the time in the existing system. It’s kind of like switching games from Risk to Chess, and then criticizing a Chess move, saying that doesn’t work in Risk.

Folks have to start thinking outside the box, and cease their belief in myths.

G’night, all.

300

Brett Dunbar 08.31.15 at 2:09 am

Obesity is a problem of poverty in the established rich capitalist states. which is a position absolutely unique in history. Capitalism has proved far more productive than any other system in history. It has also seem a large decrease in the Gini coefficient relative to agricultural societies. Especially the after tax Gini coefficient.

Democracy is a bit of a second best to personal choice for decisions that really have to be taken collectively. What tee-shirt I want to buy it’s simply a matter for me and the seller. The wider community has no reason to get involved.

301

Plume 08.31.15 at 2:10 am

Bernard,

I know this is useless, cuz I already said it above, in the section you conveniently left out.

You would get to pick your job. Your choice. Not the community’s. The question was asked about labor shortages. That’s when the community votes kick in, and we help out our neighbors. This, too, is temporary. Once the shortage is cleared, you go back to the job you want. Your choice. And this system provides you with an unprecedented ability to pursue the field of your choice. Your dreams. For free. No longer is your birth lottery an obstacle in the way of that pursuit. You get to go to the finest schools and study whatever you want, regardless of your family background. Free of charge.

So those shortages? They’re not likely to last very long, when everyone gets a free education, cradle to grave, and all the other access to societal benefits, free. And with the autonomous communities sharing knowledge, produce, help, etc. etc. and cooperating with one another. Can’t say that about capitalism. It rations your choices up front and throughout your lifetime. You’re limited to what you can afford, and if you’re born into poverty, your limits are crushing ones.

Again, g’night, all.

302

Bruce Wilder 08.31.15 at 2:13 am

Opportunity cost

The problem with price controls is simple when we think in terms of opportunity cost. If prices are fixed by law, they cannot tell us anything about the true opportunity cost of goods and services. Nevertheless, the logic of opportunity costs still applies to firms and consumers.

Firms will supply a good as long as the price they receive is [more] than the opportunity cost [of the resources employed]. If the price is fixed at a low level, then firms will supply only small amounts, or none at all.

People will be willing to consume more of a good as long as the opportunity cost is less than its value to them. The opportunity cost consists of the price, along with any other costs involved in obtaining the good. If the price is fixed at a low level, and the good is freely available, they will choose to consume a lot.

Paraphrasing Wikipedia: the opportunity cost of a choice is the value of the best alternative foregone, in the context of a choice among mutually exclusive alternatives

It seems to me that JQ is trying to make a very useful point, which is that people respond to price strategically. Price becomes their reference point for estimating opportunity cost in their decision-making, and if price is not “truthful” in some sense, the subsequent game-playing can become quite wasteful and counter-productive.

The point I have tried to make, upthread and previously, is that there is almost always a gap between price and opportunity cost for the firm: some portion of the firm’s income constitutes an economic rent. This economic rent relates to the structure of the economy; you can think of it as a buffer against variability and uncertainty. The firm is organized around the factor or factors earning an economic rent, and the control structure of the firm directs residual income to these factors.

So, from the firm’s perspective, the choice of whether to produce Good A or its next best alternative, Good B, means that the firm’s opportunity cost is not represented by the price of A, so much as by the price of B (relative to A). The price of A has to be higher than the price of B (roughly) the opportunity cost, and as long as the price of A is higher than the price of B, the firm will choose to supply A. The margin between A and B becomes a stability buffer, as the firm will not switch its owned or controlled resources from producing A to producing B, unless and until that margin disappears.

Devotees of the doctrine of market utopia often believe in an imperative to eliminate economic rents. Competition will eliminate rents and that will be a good thing goes the reasoning. Government policy that creates or protects rents is a bad thing. It is not at all a realistic appreciation of the mechanisms governing economic behavior. Many of the most productive firms have made sunk-cost investments in organization that are realizing increasing returns to scale, network effects and so on (that in turn, are driving the economics of urban growth). The only return they can possibly earn on a sunk-cost investment is an economic rent, because there is no opportunity cost for a sunk-cost investment. Their business models are dependent on the arcana of property rights and government policy to enable them to generate a return.

The fact that firms have a cost structure that earns them an economic rent, as I said, accounts for the structural stability of the economy, for the apparent permanence of firms and routines. The baker from the broken windows scenario, possesses a shop and skills dedicated to baking. His marginal cost for making a pastry is much less than the opportunity costs facing customers, who might be interested in making their own. He chooses a price schedule that more than covers his costs and earns him (and/or his landlord) an economic rent, while being an appealing option to some proportion of local consumers, in the sense that he’s made it cheaper or more convenient than household production. Chances are he routinely makes more than he usually can sell, because he doesn’t want to miss out on a sale, in case an unexpected customer calls, because his unit costs, even at the margin, are much less than price, a price he administers with an eye on his competition.

This cost structure is pervasive in a capitalist money economy. It is key to why Keynesian demand management can work: it is because the bakers in this world want to sell more at current prices. (That’s not true in Hazlitt’s imagined world.) It is also why, JQ’s prescription for the poor — to give them money — can work: because there are lots of people producing things, who want to produce more, if they can do so, in exchange for additional money. And, because the government can tax firms’s economic rents, and so tax without appreciably curtailing willingness to produce.

Economic rents are behaviorally important. They motivate people, toward good, ill and trivial behaviors, and I would include political behaviors. They can be a sharp stick, since not just a marginal payment can be put at risk, but a whole capitalized value.

Economic rents are socially important: their very existence points to the interplay between individual and collective choice. The market utopia, where many choices are essentially private and they just add up, so a natural decentralization is possible and even desirable is not the world where economic rents show up or are important.

This is where I think the disconnect on rent control was unfortunate. Every decision is not a private decision or a natural outcome of private decisions. The public authority that makes all kinds of infrastructure and urban planning decisions is shaping the rents landlords can earn. There are centralized, as well as decentralized, decisions, and economic rents relate the two. The problem of adequate housing in NYC cannot be pried away from these other public planning choices and management of the whole is a complex problem, for which there may not be ideal policy solutions at the ready, short of truly centralizing choice, as Singapore has done.

I think Harold was heroically trying to keep a realistic perspective on the consequences of “markets” where the market solution may not be desirable or desired. There is a large component of economic rent in NYC rents, the interests of landlords and tenants are in conflict, and the landlords are not in a position to “solve” the problem on their own. If central Stockholm can only be preserved at the price of waiting lists a mile long, maybe that is still a reasonable political choice.

303

Brett Dunbar 08.31.15 at 2:20 am

The Keynesians like Krugman predicted more or less exactly what happened. The predictions of doom were not from orthodox economics. Standard economic theory had a fairly good description of what was going on and a set of policy recommendations based on experience of the great depression, unfortunately the remedies were rather counter-intuitive.

304

Sebastian H 08.31.15 at 2:36 am

“Really, Sebastian [horrible housing shortage] -> [strict rent control] isn’t a “normal” explanatory sequence? So alien to your way of thinking that you accuse your interlocutor of not being reality-based?”

So here’s the thing. Rent control was supposed to fix the horrible housing shortage problem and make sure that rent was affordable. It has been in place in New York for about 100 years. New York has worse housing shortages than ever and is one of the least affordable places to rent in the entire world. Therefore, I can say with a fair degree of confidence that in New York, rent control hasn’t made sure that rent is affordable in New York.

On a one year basis your criticism has some force. On a 100 year basis it doesn’t.

305

Bernard Yomtov 08.31.15 at 2:43 am

Plume,

You would get to pick your job. Your choice.

No. Because there is absolutely no reason to think that people’s choice of jobs, given equal pay, will remotely resemble the jobs needed to meet the demands for goods and services that are expressed through your ordering system. No reason at all to think it will even come close.

Your “temporary shortages” of labor will be commonplace and large. You seem to imagine that once every couple of years we will all have to pitch in to deal with some emergency. Then we can all go back to being poets or pianists.

That’s fantastical thinking.

306

Harold 08.31.15 at 2:44 am

@302 I know people who got on these waiting lists in NYC and sometimes the 3-year waiting list turned out to be 6 mos. because people dropped out. Waiting lists are not bad, per se. It depends what you are waiting for.

307

Sebastian H 08.31.15 at 2:52 am

“If central Stockholm can only be preserved at the price of waiting lists a mile long, maybe that is still a reasonable political choice.”

20 years long. A mile is underplaying it. 20 years is about a quarter of someone’s life. And you can’t get on the list as an infant. Until you wait out a permanent contract you end up being a sub-lettor which thus far empirically means that you are subject to being forced to move every year or so–which I’m pretty sure is exactly the evil that rent control was supposed to cure. And if you apply all the normal renting laws to sub-lettors you’ve just recreated the whole system you were trying to avoid. So the current situation empirically has resolved to a situation where the main problem you were trying to avoid is still strongly in force. And the most obvious solution ends up throwing you into a normal market of sub-lettors with rent-controlled renters acting the part of landlords.

308

Julie 08.31.15 at 3:18 am

“there is absolutely no reason to think that people’s choice of jobs, given equal pay, will remotely resemble the jobs needed to meet the demands for goods and services that are expressed through your ordering system.”

What reason do you have for believing that the demands for goods and services that are currently expressed through ‘your’ ordering system are needed or are such that they actually contribute to the well-being of people?

Very few of the products that you seem to admire as wonderful contributions to the human condition are just not so wonderful, and do not in any way provide for the growth of happiness.

Very few of the leaner type people I live among would want to write poetry or paint pictures as a way of life. Some people enjoy digging ditches or speaking from experience shovelling gravel for my own driveway. Motivation is the key and you seem to imagine that your value system – profit – is the only one that can motivate human beings.

Your thinking is pedestrian and ignorant of how real people in a free society would work things out.

309

Harold 08.31.15 at 4:27 am

These lengthy waiting lists apply only to highly desirable central Stockholm, apparently. Without them, apartments there would *never* be affordable for regular people. Boo, hoo. Sob, sob. I am crying for the extremely rich people who are forced to wait like ordinary proles. As far as moving every two years, they can afford it. My grandmother moved every two years during the depression because it meant getting a free paint job from the landlord.

310

Harold 08.31.15 at 4:30 am

Pity the poor billionaire who can’t muscle his way to the front of the line!

311

Bruce Wilder 08.31.15 at 4:33 am

Sebastian H

I am not endorsing strict rent control as policy. I will say that rent regulation is standard operating procedure in big cities. It creates a framework for managing the inevitable conflict of interests between landlords and tenants, a conflict in which I do not see the interests of landlords as especially or exclusively legitimate.

The problem of supplying housing in already dense urban areas is not amenable to decentralized landlords responding purely to unregulated market price. Rent control is obviously not urban planning to create an integrated design of transportation and infrastructure. My interpretation would be that rent control usually represents a second-best solution to the problems attendant on the political and practical constraints on urban planning, including, but not limited to the political stalemates.

I have reacted as I have because I don’t think Hazlitt’s One Lesson model of an economy managed by the unconscious Market God has been sufficiently refuted and debunked, and so, pieties about how rent control fails “to work” strike me as ill-advised, in the absence of a context of debunking. If you want to see what the Market God, given complete freedom, would do, look at the Walled City of Kowloon. By that standard, rent control as something in urban public administration to complain about falls into the petty annoyance department.

As for Stockholm, if the Swedes want to preserve the city as a Disneyland with especially long queues, why is that necessarily illegitimate? It seems to me that the operative political constraint is the preservation impulse. Market price would be a destructive whirlwind, and what it would create may not be especially wanted. As things stand, a lot of people really, really want to live in this place. So, we should destroy it, destroy this very pleasant attractive place, so that few people will want to live there and there won’t be any waiting lists? How does that make sense?

Maybe, we should try to get public authority to act sensibly to create more such pleasant and attractive places — not always an easy task with obvious “solutions” at the ready, contra Plume. That’s a different problem, though.

312

Harold 08.31.15 at 5:10 am

Amen.

313

Val 08.31.15 at 12:13 pm

BW @ 311
I don’t think Plume is saying it is easy so much as that it’s possible.

In Australia there have been several surveys showing that people greatly under-estimate the degree of inequality in society and also believe society should be more equal (more than they think it is, and much more than than it actually is). They won’t necessarily vote that way though, possibly because they think it’s unrealistic.

That seems to be the same problem with s lot of commenters here.

Personally I think a lot of people have been bluffed. It’s hegemony or orthodoxy, whatever you want to call it – people think things have to be a certain way. Socially many people seem to think that inequality, violence and war are inevitable, even though
I bet the majority of commenters here would not accept that within their family life, for example.

314

Plume 08.31.15 at 1:10 pm

Bernard @305,

Not sure where you get any of that. Certainly not from my posts. Unless, perhaps, you’re skimming every fourth or fifth word and then responding.

I never said that I expect frequent labor shortages, or that “everyone can go back to being poets or pianists.”

Tragically, their percentages in any population are pretty small. That wouldn’t suddenly change in the alternative, though it would go up. Fewer poets and pianists would feel the need to throw away their art in order to avoid things like bankruptcies, which would no longer happen, and more would discover their innate talents, due to free cradle to grave education. But the overall percentages would still be (unfortunately) all too low.

You’re inventing problems here and it sounds desperate.

Beyond all of that, you haven’t made a case for why there could never be a match of production and need, with plenty of jobs created in the process. I’m actually a bit confused by that first paragraph to begin with, but if I understand you correctly, you’ve just put your foot down and said no, without actually explaining why that would be the result. And, remember, if you give that explanation a shot, you can’t use the “logic” of capitalism to make your case. It would no longer exist. It’s “rules” don’t apply.

315

Plume 08.31.15 at 1:25 pm

Bruce @311,

Again, well said. Especially here:

I have reacted as I have because I don’t think Hazlitt’s One Lesson model of an economy managed by the unconscious Market God has been sufficiently refuted and debunked, and so, pieties about how rent control fails “to work” strike me as ill-advised, in the absence of a context of debunking. If you want to see what the Market God, given complete freedom, would do, look at the Walled City of Kowloon. By that standard, rent control as something in urban public administration to complain about falls into the petty annoyance department.

I’ve honestly never understood how cheerleaders of the current system can possibly ignore the obvious fact of these inherent conflicts. Landlord and tenant, ownership and worker, ownership and consumer, ownership and the earth. And then there’s the thing about leaving it all up to individual business owners, few of whom share essential data or want the same things — other than low taxes, subsidies and free rein. Leaving it all up to the market god is kind of like a canoe with four people in it, each of whom wants to go in a different direction. Left to their own devices, that canoe aint going anywhere.

Another key here is this: Despite the delusion/illusion that these Daniel Boones do everything themselves, and need no one else, “the state” has always been an essential part of their successes, and endlessly bails them out of their failures. They really should be careful what they wish for. If “the state” ever really did pull back to the degree they claim they want, capitalism would tank immediately, never to return. It can’t survive without “government interference,” and there never has been a capitalist society that didn’t have an essential, massive state presence in the economic mix. States invented it, keep it alive, bring it back from the brink of death, over and over and over again. It’s literally dead in the water without state support.

So all we’re doing here when talk about things like rent control is deal with degrees of state intervention. Not its absence or presence. Overly simplistic thinking by conservatives tends to see it in that way . . . . that they claim to want the absence of something capitalism can’t live without . . . . and that their agenda will get us there. They contrast that to “liberal” busybodies who ruin the economy with the presence of state intervention. In reality, both conservatives and liberals fail to note the full on integration of state support for the economy, and this includes linking up all over the world to virtually every other state, plus key international institutions, etc. etc.

316

Plume 08.31.15 at 1:49 pm

I find it telling that one of the biggest complaints about the alternative is both a misunderstanding of that alternative and an incredibly trivial and silly complaint as well.

That you wouldn’t able to buy the spade or T-shirt of your choice, that you’d have to get permission from the community before buying something. In reality, the community is most concerned about what is produced, where and how, up front. Once it’s produced, there is no need to interact with communal democracy before purchasing anything you want. You go to the outlet, use your debit card, buy what you want. Your card contains units earned from work. Buying stuff removes them. You work more, and more credits are added and so on.

Having the community decide what is produced, where and how is just a change in decision-makers. From private corporations, to democratic, communal bodies. It’s a change from the few deciding for the many, without your consent, to the many — rather, everyone — deciding, with your consent. Same basic concept. Different decision-makers, using democratic processes to get there. The current way is radically limited and woefully exclusive. The alternative is radically open and incredibly inclusive.

To me, it’s pretty obvious which one is better.

317

Layman 08.31.15 at 2:10 pm

Plume @ 289

Thanks for answering my question. It does lead to some follow ups.

Those who choose not to work have to live in public housing instead of their own private homes, which means of course that there are private homes. Who makes these homes, and why? Why would the community allocate resources and labor to building private homes distinct from public housing? Is the public housing not reasonable, functional, attractive and clean?

If the worker pays for them, from wages, and all workers make the same wages, are all the private homes the same, or are they all at least the same price? Do I need a mortgage to buy one, or do I rent them rather than buy them? If I can buy them, where do I go for the mortgage?

I know you doubt that many will refuse to work, but I think it rather depends on the work. I think many will refuse dangerous work – they do now, even though now it often comes with a wage premium for the danger. Will I mop up the reactor water at Fukushima, or lay about in public housing eating my Soylent 2? I think the latter, really.

What about medical professionals? Will everyone be a trained doctor, and rotate the duties? Or will only some people handle that? When and how are they selected for training? Are they exempt from ditch digging duty? Or hazardous work – you wouldn’t want your doctor to be the injured party, right? So I guess they’ll be, well, privileged, won’t they?

318

Plume 08.31.15 at 2:25 pm

Layman @317,

In this alternative, as I envision it, anyway, “private housing” would be the default. Public housing would be there for those who don’t or can’t work, and with the full guarantee of jobs, I just don’t see many people unemployed. Communities would naturally allocate resources to build those homes because they, themselves, would be buying them and living in them. The same people making the decisions are the people who live in, or will live in, those houses.

And since the entire economic system is non-profit, with no exceptions, without shareholders, investors or debt, there is no need for mortgages or finance. Prices for homes would be set at a level that the vast majority of people could afford, after a certain time period of work. Chosen by democratic process, hopefully with consensus. The goal isn’t to make money for anyone via housing sales. The goal is simply housing for all citizens. That radically changes the entire dynamic.

Also, as mentioned, all workers don’t make the same wages. There are four tiers, and a max ratio of 4 to 1, top to bottom. Time on the job, continued education, increased skill attainment, democratic reviews of work quality, would all factor into moving up that short ladder. The four steps.

And even if the wages were exactly the same, there is no reason to build the same houses. No logic to that. People are unlikely to elect to build McHouses, when they can choose an unlimited number of designs. How many people really want to live in a neighborhood that looks exactly the same? In this alternative, the people of the community choose. They’re not likely to choose McSames.

(to shorten the post, will respond to the rest below)

319

Layman 08.31.15 at 2:28 pm

Julie @ 291: “I guess nobody arguing against Plume’s system has actually lived in a village and seen how people can organise themselves so that the ditch gets dug and the scones get cooked efficiently enough, when the community wants to raise money for something that we all value.”

Julie @ 308: “Your thinking is pedestrian and ignorant of how real people in a free society would work things out.”

I think that’s a bit insulting and unnecessary. All I’ve done is ask Plume some questions so I can understand his proposal better. The objections that I and others have raised are, I think, well founded, and you should consider them. And, you probably shouldn’t make assumptions about other people’s life experiences.

Before capitalism, things like bridges and cathedrals were built using the equivalent of slave labor, operating within rigidly hierarchical systems where most people had severely limited personal freedom; often no personal freedom of any kind. For all its faults, capitalism is surely better than that.

Would I like something better? Yes, if there is something better. How do I find out if it’s better? I ask questions of its proponents, so I can clearly understand if and how it is better.

320

Val 08.31.15 at 2:32 pm

Layman @ 317
What about medical professionals? Will everyone be a trained doctor, and rotate the duties? Or will only some people handle that? When and how are they selected for training? Are they exempt from ditch digging duty? Or hazardous work – you wouldn’t want your doctor to be the injured party, right? So I guess they’ll be, well, privileged, won’t they?

Doctors aren’t always privileged. Doctors in Russia are low paid, and mainly women.

Don’t know how Plumes’ society will deal with patriarchy (or the legacy thereof). (I know a number of people here have told me that patriarchy doesn’t exist, doesn’t exist any more, wasn’t as big a thing as I think anyway, etc, etc, but as usual I just go on putting my faith in evidence).

321

Cranky Observer 08.31.15 at 2:35 pm

The current course of the thread seems familiar. Ah yes: the _Red Plenty_ discussion.

322

Plume 08.31.15 at 2:36 pm

As to the rest. In this alternative, because the people choose, not corporations, and there is no production with the intent to make ownership rich . . . . we can flat out eliminate all kinds of dangerous jobs. Nothing will be produced simply for the sake of driving personal wealth accumulation. The whole point is to radically change this dynamic to production of what we actually use, need and can sustain, as opposed to what a few people try to trick us into thinking we need, want or can’t live without. As in, marketing campaigns.

We wouldn’t produce anything for its exchange value. We produce it for its use value, and, again, it’s always citizen-centric. Done for society, by society, on behalf of society, not for the rich, by the non-rich, for the 0.01%’s personal wealth accumulation.

That means we can rid the planet of massive amounts of waste, pollution, excess, which also means a radical reduction in dangerous occupations. And with the things we can’t eliminate, again, people would pitch in. It’s actually how humans lived for a good 250,000 years, prior to the advent of concentrated city life, etc.

We would also radically reverse the severely hierarchical acceleration of the division of labor, which is one of those fictions we think we can’t do without. It’s a fiction in service of making a few people very wealthy, which we now accept on faith as necessary. It’s not. It’s just a bad fiction. We can radically simplify things and, ironically, increase our standard of living, while reducing our stress levels ginormously.

(again, more below)

323

Val 08.31.15 at 2:39 pm

Layman @ 319
Some bridges may indeed have been built by slave labour (not so sure about cathedrals). But I think you may find that many bridges and cathedrals were built by craftsmen organised in guilds.

(Nit-picking away with the history and the evidence again)

324

Plume 08.31.15 at 2:47 pm

Layman,

One of the main purposes of that division of labor also tends to escape our attention. It is to separate and atomize workers from each other and their work. Often against one another. It is to establish a disconnection from fellow workers, and a sense of superiority, when applicable. This aids ownership in obvious ways. It helps them use workers against workers, to keep them from any kind of solidarity, or any kind of demand for better wages and conditions.

In the alternative I envision, to the extent possible, we teach people how to do many things at the same time. We teach them how to tackle an entire job, not just one tiny part of it. For example, building a house. All of it. From the ground up. Doing all the parts of that building. Learning how to do all parts. That builds self-sufficiency, independence and solidarity with one’s neighbors. Instead of thinking of oneself as above one’s neighbors, because you have, say, a desk job and they have, say, a job as a plumber, you learn to do all of this, side by side.

The Paris Commune and the theorists behind it showed how this works.

Yes, there are certain skills that would require sustained immersion. But if we teach holistically, there are fewer things in life that would require those separate skills. This would be more than “cross-training.” It would be a revolution in the way we view work itself. Not as our ticket up the neck-breaking verticality of current ladders. But as the way we discover the full horizon of our skills, our self-sufficiency and our common purpose with our neighbors.

325

Layman 08.31.15 at 2:50 pm

Val @ 323

Indeed, craftsmen were employed in building cathedrals, but the manual labor component of the effort was often met by drafting the peasants. They were unpaid, though they did get some extra forgiveness of sins.

That aside, I’m trying to express the idea that we can’t offer the past as a template for a better way of living if we don’t actually think it was a better way of living. The Romans built bridges; would it be better for us to live as people did in the Roman Empire? Feudal societies built cathedrals; should we return to feudalism?

I take it the answer is ‘no’ – that we can agree those organizations of society are not the goal. If so, then whether they were able to build bridges is irrelevant to the question of how this proposed new organization of society would build bridges, because we would not use the means they used.

326

Brett Dunbar 08.31.15 at 2:51 pm

So if I want a tee shirt printed with the slogan “Abolish the collective” or “Do it yourself I’m Lazy” I can’t have it unless “the community” agree? That is exactly what I am objecting to, I do not believe that the community should be involved except when the decision needs to be collective.

What I am objecting to is the community being able to veto production. At the moment anyone is free to print tee shirts with any design they like and place them on sale, if they misjudged the demand they make a loading they were correct they make a profit. Your proposal introduces an additional stage for no apparent purpose.

Capital

327

Plume 08.31.15 at 2:56 pm

Val @320,

Patriarchy is a form of apartheid, which utilizes other forms to make it more deadly. The aim of this alternative is to end all forms. Women would have full equality of voice, rights, decision-making.

No system is perfect, and no system can solve every problem, but it would at least be structured in an optimal way to end patriarchy. The rest would be up to human evolution, self and societal enlightenment. Right off the bat, however, any society set up as cooperative rather than competitive, egalitarian rather than purposely unequal, fully democratic rather than autocratic, is going to have a much, much better shot at ending that pathology.

328

Layman 08.31.15 at 3:01 pm

Plume: “Also, as mentioned, all workers don’t make the same wages. There are four tiers, and a max ratio of 4 to 1, top to bottom. Time on the job, continued education, increased skill attainment, democratic reviews of work quality, would all factor into moving up that short ladder. The four steps.”

Sorry, I missed that. Who decides the wage at the 4 levels? Are there limits on how many people can be at each level? If not, won’t human nature quickly move everyone to the top tier (“you vote for me and I’ll vote for you”)? If there are other constraints, what stops the majority from relaxing them? From creating another tier, at 10x?

Can you say something more about the level at which this democracy is happening? Are there companies or firms, within which this democracy is functioning; or is the community basically just one big going concern?

BTW, apparently Bezos and Amazon like the idea of giving your peers control of your future. The news about their immediate feedback model, by which workers denounce each other, and organize into gangs to protect each other, does not bode well.

329

Brett Dunbar 08.31.15 at 3:04 pm

Capitalism is rather more than just a market. Markets happen without any state support, it’s one of those things that happen when trading is mutually beneficial You exchange things and both end up with things you value more than you started.

Capitalism was based on their idea that competitive markets actually worked very well and should be extended and freed. In a capitalist state you get a number of legal and administrative structures designed to facilitate the efficient operation of a competitive market. Such as the prevention of Cartels and monopolies. Mercantilism and Corporatism (the somewhat similar economic policy favoured by fascism) not only did not oppose monopolies and cartels it actively promoted their formation and perpetuation. Markets still function to an extent even when the state is deliberately trying to stop them.

330

Plume 08.31.15 at 3:08 pm

Brett @326,

If you want to make your own T-shirt with those words on it, go for it. The community wouldn’t even think of trying to stop you. It honestly couldn’t care less.

Beyond that, is the absence of certain shopping choices a deal breaker for you?

Hypothetical: You get to choose between two societies, as is. You can’t change them, for purposes of the hypothetical. And you have to choose one of the two. Which one would it be?

1. The current capitalist system, as is. Which means no free health care for everyone; rampant poverty, homelessness and hunger; health care costs bankrupt a million people a year; students currently have roughly 1.2 trillion in debt, etc. Yes, you can make your personal fortune. Which means being roughly 1 in a 1000 who gets there. Greater than 99% of the population never will. The richest 400 Americans hold more wealth than the bottom 60% of the population.

2. You have fewer consumer choices in some areas, but many more in others. Everyone gets free cradle to grave education, health care, cultural venues and transport. Communities decide what is made in their backyard, how, when. No corporation thousands of miles away decides. The community itself does, democratically. No one goes hungry, homeless or lives in poverty. Everyone at least has their basic needs met. At least. The trade off is that no one can accrue great wealth. There are no millionaires or billionaires. The entire economy is non-profit, publicly owned and democratic.

331

Plume 08.31.15 at 3:23 pm

Layman @328,

In the alternative, at its inception, its origin time, we’d create a new constitution and establish, among many other things, these four tiers. It would be legal writ. As we moved through the years, we could tweak the prices/wages, per the constitution, in order to always keep them in relative sync. The purpose being to make sure everyone made enough to afford a high standard of living. Prices would be set to do this. Wages would be set to do this. Unlike capitalism, which sets both to maximize profit and executive/ownership compensation, this would be done to make life better for the entire polity.

On the tiers. As mentioned, you actually have to do the work to move up. You have to take the continuing education/skills classes. You have to have X amount of time on the job. You have to have X number of positive reviews and so on.

The community itself is like a company. There are “companies” within the community. And they would have, individually, first say so on day to day operations. Workers in those companies would be the first line of say so. Voting wouldn’t have to move up the fairly flat ladder to the community unless there were unsolvable conflicts. The community, IOW, could stay out of the day to day operations of individual companies, once they had been set up according to constitutional and other legal writ. They could be brought back in if there are complaints, etc. etc. If they aren’t meeting needs, or breaking environmental rules, workplace safety rules, etc. etc.

(about Bezos below)

332

Bernard Yomtov 08.31.15 at 3:33 pm

Plume,

I never said that I expect frequent labor shortages,

No, you haven’t. That’s the problem. It’s not shortages but mismatches I’m talking about.

Beyond all of that, you haven’t made a case for why there could never be a match of production and need, with plenty of jobs created in the process. I’m actually a bit confused by that first paragraph to begin with, but if I understand you correctly, you’ve just put your foot down and said no, without actually explaining why that would be the result.

I haven’t made the case??? The case is common sense, statistics, probability, human behavior, all things you utterly ignore. Surely match between production and need is wildly unlikely to occur naturally. Why this isn’t plain as day to you is a mystery.

Production requires labor. If you are going to produce X pairs of shoes and Y shirts you will need a certain number of shoemakers and shirtmakers. Why the number of people who want to be shoemakers and shirtmakers will exactly, or even approximately, match those needs is something for you to explain. But you can’t, at least not without coercion, which you deceptively describe as some sort of wondrous “direct democracy.”

Julie,

What reason do you have for believing that the demands for goods and services that are currently expressed through ‘your’ ordering system are needed or are such that they actually contribute to the well-being of people?

Well, they are actually ordered. Is it your position that you are so wise as to able to tell others what goods will or will not bring them happiness? You’re not.

This is part of my criticism. There is an implicit assumption here that there are those like you, and Plume, and others, who know what is good for others, what is good and healthy and worthwhile, and what isn’t. Sorry, I don’t buy it.

333

Plume 08.31.15 at 3:35 pm

On Bezos.

Amazon is a for-profit corporation. Its owner is autocratic and anti-democratic, within an autocratic and anti-democratic economic system. This system teaches “competition” in all things, and in subtle and overt ways, that “greed is good.”

Do you not think that a system set up 180 degrees from this would yield different results, naturally? I do. It would be set up as a cooperative economy. Cooperatives cooperating, openly sharing. Non-profit, rather than for-profit. Fully democratic, rather than anti-democratic. It wouldn’t teach “greed is good” or any variation on that theme. It wouldn’t overwhelm us with ads and messages encouraging that greed.

There couldn’t be a Bezos. There couldn’t be any one person with that kind of power. And there would be no incentive to backstab one’s way up the neck-breakingly vertical ladder of “success,” because it doesn’t exist in this alternative. And since there is no “boss” to impress, and you’d be “ratting out” your fellow workers TO your fellow workers, it’s doubtful you’d get your desired reward. It’s far more likely you’d be ostracized.

I think you’re fishing for problems that just wouldn’t be there. Not saying there won’t be any problems. There are in any system, and this one is far, far from perfect in any way, shape or form. Just saying I think you (and others) are seeing problems that exist in capitalism, but aren’t likely to exist in a system 180 degrees removed from its structure, intent, goals, etc.

334

Brett Dunbar 08.31.15 at 3:37 pm

So the community isn’t getting together go decide how much of anything should be produced? I can start a business for my own profit without needing anyone else’s approval? That is what we have right now.

Oh I reject both. I live in a capitalist democratic society that has free at the point of use health care. Capitalism is fully compatible with democracy all of the advanced democracies are capitalist. Non capitalist economic systems are seen in despotisms like North Korea (command economy) and Saudi Arabia (rentier state) or anarchic he’ll holes like Somalia (kleptocracy).

Your description is now sounding more like a market system where the size of an enterprise is limited. We actually have a few examples of that. Weak legislation in India causes corporate governance issues which make recruiting managers from outside the immediate family very risky. This results in a textile sector where there are a lot of small inefficient businesses as the better run ones are unable to expand. It works less well and working conditions are worse. That’s quite apart from that some things have to be done on a large scale. Building an A380 needs a lot of skilled workers and the prospect of at least a few hundred sales to cover the cost of building the factories and sell at a price competitive with the 747. No local community could do that.

335

Layman 08.31.15 at 3:38 pm

Plume, your hypothetical is silly, because there are more choices. There’s no virtue in forcing someone to decide between death by hanging or death by the garrote simply as an illustration of which death is better.

That aside, your option 1 appears to be the problem. It’s a strawman. There are capitalist societies that do provide free health care for all, that do have less inequality, that don’t impoverish students, and so on. You have to pretend they don’t exist – that they’re not possible – to make your proposal seem better.

336

Plume 08.31.15 at 3:40 pm

Bernard @332,

No, you haven’t made the case. You’ve just made the unfounded assertion. Backed up with crickets.

I haven’t made the case??? The case is common sense, statistics, probability, human behavior, all things you utterly ignore. Surely match between production and need is wildly unlikely to occur naturally. Why this isn’t plain as day to you is a mystery.

Common sense says that a system designed to match production and need would do a far better job of it than a system designed to match production with personal wealth accumulation for a few people. And stats? What stats? You haven’t provided any, first of all. Second, how would they apply to an alternative so radically different from capitalism? Common sense tells us that when you switch the game from Risk to Chess, you stop trying to use Risk rules, data, forecasts, etc.

337

Brett Dunbar 08.31.15 at 3:47 pm

So you want amazon to be run like John Lewis Partnership?

Waitrose is a perfectly fine supermarket, if rather middle class and expensive. Only M&S rivals it for poshness.

338

Plume 08.31.15 at 3:48 pm

Layman @334,

No. You miss the point. I set up the hypothetical knowing — well, at least being pretty confident — that someone like Brett would still choose the first one. I wanted to see him make that choice. I wanted to see his ideological stubbornness in action.

Second, in those societies that do slightly reduce the ill-effects of capitalism, it’s done though democratic processes that have nothing to do with the natural mechanics or functions of a capitalist economy. As in, they’re done outside its purview and against its normal activity, if left to its own devices.

What “liberals” and “social democrats” don’t seem to get . . . . and I used to be one of them . . . is that it makes zero sense to cling to a system that requires these offsets in the first place. It makes zero sense to continue with a system that requires so much governmental or institutional countering to even slightly reduce the destructive things this system always, always and forever will do.

An analogy:

The capitalist system is like cigarettes. Liberals think it’s best to filter them to reduce their cancerous impact. Conservatives think it’s best just to leave them alone. No filters. Puts hair on your chest.

Leftists like me think all of that is just nutz. Get rid of the freakin cigarettes themselves!!! That’s the source of the problem, which liberals admit each time they say they need filters!!

339

Plume 08.31.15 at 3:52 pm

I want Amazon to be run at least — at least as a WSDE.

Richard Wolff:

http://www.dailymotion.com/video/x2uk25p

340

Layman 08.31.15 at 4:00 pm

“It makes zero sense to continue with a system that requires so much governmental or institutional countering to even slightly reduce the destructive things this system always, always and forever will do.”

This is quite funny. You’re advocating a system in which wages, advancement, production, job choice, housing, etc, are all fixed by a constitution. That’s a lot of governmental regulation, isn’t it?

341

Brett Dunbar 08.31.15 at 4:01 pm

You are simply asserting that what someone wants to produce will match desired consumption. This strikes the rest if us as magical thinking. The market uses price signals to match production to consumption, what do you intend using?

What we are trying to get to is has this actually been tried and if so how well did it work?

Your ideas seem either incoherent or, where detailed enough that we think we understand what you intend, ones that have failed in the past.

342

Layman 08.31.15 at 4:06 pm

“Do you not think that a system set up 180 degrees from this would yield different results, naturally?”

No. Bezos is using the same tools as did Mao’s Cultural Revolution – denunciation, public self-criticism, etc – yet the latter was hardly cast as a private for-profit enterprise. The means matter. You can’t make them better by claiming you have different ends in mind.

343

Trader Joe 08.31.15 at 4:09 pm

“Amazon is a for-profit corporation.”

Interestingly, most shareholders tend to question this. Which is to say, most think Amazon isn’t near as profitable as it should be for the market power it has achieved.

344

Plume 08.31.15 at 4:09 pm

Layman @339,

Not sure why you’re not getting this. This alternative would prevent, from Day One, the need to augment, redirect, supplement, redistribute wages, wealth, access, etc. It would prevent the need to endlessly react to ill-effects of the existing economic structure, day after day, year after year, decade after decade. And given the continued level of inequality, even in the best of current conditions — Scandinavia, for example — these offsets are only partially effective.

It would set up an economy that doesn’t require this. It would set up an economy that actually functions as it should. Yes, as with ANY modern society, we’d have laws, rules and regulations. But, for the first time in history, they would truly be created by and for the people, instead of by and for the ruling class.

Do you think the United States was founded without massive state regulations, rules, laws, etc. etc.? And just who set all of this up? A coupla dozen white guys, with less than a handful coming up with the vast majority of the docs.

Again, I’m not at all sure why you’re arguing against this in the way you are.

345

Plume 08.31.15 at 4:15 pm

Layman @341,

Oh, come on. Mao? Do you honestly believe these tactics began with him? Or that Bezos is doing the same thing? Are you really trying to compare a WSDE style workplace with Maoist China?

There was no democracy in China, inside or outside the workplace. I’m talking about a fully democratized workplace, like the one Wolff describes in that video. Please watch it. Hint: it will seem like it’s over when it’s not. It has sections with breaks. Be patient. Wait for the next section, etc. etc.

346

Plume 08.31.15 at 4:30 pm

Brett @341,

You are simply asserting that what someone wants to produce will match desired consumption. This strikes the rest if us as magical thinking. The market uses price signals to match production to consumption, what do you intend using?

Funny. That’s exactly what capitalism is all about. And, you’re right. It’s magical thinking to assume that what some business owner wants to produce will sync up with consumption. They hope it will, of course. And they run their ads to increase their chances. But most business fail. Most never do sync production with consumption.

In the alternative, it’s going to be a community decision what to produce, how and where. And they’ll decide based upon initial requests to do so. Votes to do so. The decision by the polity that this is a need or something the community really wants. They’ll see how much popular support there is for new production. Gauge it directly before moving to production.

Once the production is established, they’ll continue to take orders, augmented by software designed to recognize patterns, aided by algorithms that track, collate and suggest future requests. Those would run parallel with the orders. With the passage of enough time, if they’ve found the match and can maintain this, they can, if they want to, stop the direct orders and go with the forecasts. Or not. It would be flexible. Up to the community.

347

novakant 08.31.15 at 4:30 pm

I don’t want to work on an assembly line making shoes

Me neither, but do you honestly believe that most of the people currently working on assembly lines making shoes (or the devices we are all reading and typing on right now) consider this their dream job and have no other aspirations? What makes us so special?

348

Brett Dunbar 08.31.15 at 4:36 pm

And what if you get it wrong or the underlying circumstances change? The current system is constantly adjusting to circumstances. Writing it into the constitution makes it very inflexible.

349

Plume 08.31.15 at 4:38 pm

novakent @347,

Excellent point. But the cheerleaders for the current system generally don’t see this. The assembly line folks are NPCs, to borrow from another thread. They also tend not to see how limited the vast majority of workers are in their choices. To them, to those cheerleaders, it’s always “Well, you’re free to go to another job.” Not really. Especially in a system like capitalism, where the incentives are actually to reduce workforce numbers, reduce their pay, outsource to cheaper climes, automate jobs when possible.

Labor is the biggest cost for any business. Reducing that cost is the fastest way to (at least in the short term) higher profits and higher executive pay . . . . and it’s the first thing done in any downturn. Mass firings always follow downturns. Perversely, our stock exchange often reacts in a very positive manner to just such “cost cutting.”

Despite cheerleader obliviousness to it, yes, in the capitalist system, workers are “coerced.” Every. Single. Day.

350

Plume 08.31.15 at 4:42 pm

Brett @348,

As mentioned, the basicstructure is written into the constitution. Exact wages and prices aren’t set there in stone. They can and will be adjusted, again, as mentioned above. The goal of matching price, wage, need and usage is in the constitution, as are human rights, etc.

But, instead of doing this to enable greater wealth accumulation for ownership, as is done in capitalism, this will be done to ensure high standards of living for everyone. Citizen-centric. Not business-owner-centric.

351

Brett Dunbar 08.31.15 at 4:49 pm

The price signal is what is used to co-ordinate production and demand. If the price is high relative to the cost of production then you increase your production to sell more and other sellers enter the market. If the price does not cover the cost of production then you stop producing. It’s a dynamic process seeking the point at which the demand curve and the price curve cross. That is demand at that price matches supply at that price.

Businesses do market research now. If it is done badly you lose money.

352

Plume 08.31.15 at 5:13 pm

Brett @351,

Yes, that is the capitalist theory. But it seldom works in practice. Again, most new businesses fail in this system.

But, again, none of this applies to the alternative for the obvious reason that there is no goal to “sell more.” There is no goal to make more money. There is only the goal of matching production with need, always from the point of view of the citizen. For the billionth time, it’s all focused on the citizen/consumer. There is no private ownership in the mix to coddle, pamper, support or bail out. Nothing is done with them in mind, because they don’t exist in this alternative.

In the capitalist system, the purpose of prices is to maximize profits and compensation for ownership. I think you’d rather not admit this and stick with abstract theory instead, because it sounds better. It almost sounds as if “the market god,” to borrow the phrase from Bruce, bestows his divine and benign knowledge on all and sundry to empower and enlighten the populace. It almost sounds like this, at least until you wake up and realize it’s a croc of silly fictions, designed to obscure the real reason for any of this:

To make private ownership wealthier.

There is no benign hand at work. Capitalism is, at best, amoral. At best. Businesses don’t come into being or do their thing in order to empower or enlighten consumers, or save them money. They come into being to make money for themselves, which necessarily involves taking it from workers and consumers. What you’re talking about is just lipstick on the pig of reality, and you actually want us to believe that individual business owners are acting on behalf of the entire population and doing their best for them.

Come on, Brett. No one’s buying that snake oil.

353

Layman 08.31.15 at 5:16 pm

Plume, your system coerces workers, so it’s no better in that regard than reasonably regulated capitalism. I agree that job choices are generally not always really free now, but in your new world they’re totally not free. If I don’t want to do the assigned job, then I get public housing and porridge. Right?

Also, if prices are fixed by the committee (or whoever), why would wages ever need to increased? Is the committee pushing up prices to some purpose?

Will larger TVs cost more than smaller ones? Will better food cost more? Are you recreating the personal wealth incentive, so that people desire the higher-tier jobs in order to have better things? And, are they really mine, these things? Can I give them away, sell them, trade them? Can I leave them to my kids?

354

Plume 08.31.15 at 5:32 pm

Layman @353,

First off, were all of these questions asked and answered when our current system was thrust on us without our consent?

No. Again, you’re holding my alternative to impossibly high standards of solving every single possible issue that might come up, before they come up. We’re still working on problems in our current system, some 226 years after our Constitution was ratified. It appears you want to compress that into a couple of days when it comes to the alternative.

On to your questions. I hardly would call it “coercion” when you can decline and still have a solid, well-built roof over your head and never go hungry, plus maintain your access to free schools, training, health care, cultural venues, public transit, etc. etc. Even in the most generous social democracies, you’re not getting close to that if you don’t work. You don’t get them if you do.

As for wages and prices. I can’t win here. It seems that you have a problem with no wage and price increases, and wage and price increases. You have a problem with an absolutely flat system, and a slightly tiered system. You complain that there is no incentive to work if people don’t think they can improve their lot a bit. And you complain that if they can improve their lot a bit, it will screw up prices and wages.

It strikes me that you are bound and determined to find fault with whatever I say, with however I respond, with whatever “solutions” I propose. They seem to just spawn more complaints and criticism. In short, you’re seeking perfection and panacea before considering this alternative, which you obviously don’t apply to the current system. Seriously, if the new alternative is just “better” — and it obviously is — that’s all it needs for consideration. Better. Is. Enough.

(Despite the above, will try to answer your questions below)

355

Brett Dunbar 08.31.15 at 5:40 pm

I really cannot understand how you can fail to understand this amazingly simple argument.

The fact that some businesses cannot sell at the market price and mske a profit and therefore either try doing something else or go bankrupt is an essential part of the supply curve. You seem to think it contradicts my argument when it is an essential part of it. Loss is the market’s way of telling you to stop doing something. Losses drive the least productive suppliers out of the market, high profits draw new suppliers into the market. Low prices enable the consumers to use more of your product high prices encourage the consumers to use less and seek alternatives.

No one has ever disputed that the businesses are looking to maximise their gains, as adverse consumers. If a business is making a large profit on a fat margin it is vulnerable to being undercut by a competitor with a slightly smaller margin. The first business then has to follow suit or lose market share. As long as either the market makes collusion impractical (many operators or low barriers to entry) or there is robust anti cartel regulations that should keep the margin pretty narrow. Capitalism assumes that self interest is the primary factor not some abstract class interest. The failure to reslise that self interest overrode class interest is where Ricardo went wrong. A single monopolistic farmer would be able to pocket all gains from the rest of the economy, farming is fragmented, highly competitive and each farmer acts in their own interest rather than collude to extract monopoly rent.

356

Plume 08.31.15 at 5:44 pm

Btw, did you watch the Wolff video? He does a great job of explaining how the democratic workplace functions. Notice there are no “committees” in the sense you probably mean. It’s participatory democracy, which means no set leadership. Leadership is always temporary, and that temporary nature induces a kind of humility and care that otherwise wouldn’t exist. No one is permanently in charge and everyone knows it will be their turn down the line. People will make decisions with that foreknowledge.

Yes, you own your own stuff. You can buy your house, fill it with stuff, and that’s yours. There is no private ownership of the means of production, but your own home is yours. Do what you want with it.

Food. We’ll set high quality standards for all of it, and guarantee safe food and water supplies. All organic, all sustainable, from the getgo. There won’t be separate markets, niches and the like for a wide range of quality, and no need to separate prices. All food with be grown under the highest standards.

Consumer goods, like electronics. Same thing. No need to offer a thousand different cosmetic differences, augmented by clever marketing campaigns. The highest quality standards for all goods and services. We can keep prices within a small range because of this. Again, communities decide what to build, why, how and where. They’re going to vote for the best quality stuff. It’s only in for-profit systems, that create massive inequality, that you even need to have radically different prices. They generated radically different compensation. The top isn’t making more than 4 times the very bottom, and the very bottom makes enough to afford a high standard of living — by design.

357

Layman 08.31.15 at 5:45 pm

“I hardly would call it “coercion” when you can decline and still have a solid, well-built roof over your head and never go hungry, plus maintain your access to free schools, training, health care, cultural venues, public transit, etc. etc. Even in the most generous social democracies, you’re not getting close to that if you don’t work. You don’t get them if you do.”

In fact, some come quite close to this, and there’s no reason to believe they can’t come closer. You should get around more.

“As for wages and prices. I can’t win here.”

You can win! You win by answering the questions clearly, rather than complaining about them, or reverting to discussing the ills of American capitalism. I agree with you on that, so there’s no need to rehash them.

358

Layman 08.31.15 at 5:54 pm

Plume @ 344: “Not sure why you’re not getting this. “

Yes, and you should stop and consider why that might be. You say that the problem with capitalism is that it must be constrained with lots of regulation (I agree, BTW); but you propose to replace it with a system constrained by lots of regulation. If heavy regulation is acceptable to you, then there’s no need to replace capitalism with a mystery – just regulate it instead.

I agree with you whole-heartedly about the ills of unconstrained capitalism. I’d regulate the heck out of it. I’d find a way to outlaw financial engineering. I’d try to limit stock trading and penalize it heavily to discourage markets as casinos and refocus them on their role as a means of capital allocation. I’d tax capital gains at higher rates than income, to promote the value of labor and redistribute wealth and income downward. I’d constrain management compensation. I’d establish a universal minimum annual income adequate to provide a decent minimum standard of living.

If you can’t convince someone like me, who will you convince?

(An earlier version of this went into moderation. Sorry for the repetition.)

359

Bernard Yomtov 08.31.15 at 5:56 pm

Novakant,

do you honestly believe that most of the people currently working on assembly lines making shoes (or the devices we are all reading and typing on right now) consider this their dream job and have no other aspirations? What makes us so special?

Of course not. But at least those people can look for other jobs, and take them if they like. By no means all will do so, or find other opportunities, but is it not important that some will? What makes us so special? Nothing, which is exactly the point. We don’t work in shoe factories because we don’t want to. Under Plumism that option would be denied us if the Collective, in its oh so democratic fashion, told us to get busy on those loafers.

Most people don’t work on their dream jobs, either now or under Plumism. At least now if we do get the chance, or even just the chance to take a non-nightmare job, The Collective can’t vote to deny us.

360

Bernard Yomtov 08.31.15 at 6:00 pm

Consumer goods, like electronics. Same thing. No need to offer a thousand different cosmetic differences, augmented by clever marketing campaigns. The highest quality standards for all goods and services. We can keep prices within a small range because of this. Again, communities decide what to build, why, how and where.

As I said, to much derision from you,

It’s hard to think of anything less attractive than Plume’s world, where we all wear the same clothes, live in the same basic functional apartments, and work at jobs assigned to us by some collective.

361

Plume 08.31.15 at 6:06 pm

Layman,

What haven’t I answered? I’ve responded to all of your questions, and when I do, you ask another batch. And when I respond to those, there’s another batch and so on. I also linked to a really good, short video, which does a great job of explanation.

Again, have you watched it?

Beyond all of that. Why not try another angle? If you think there are holes in my suggestions, why not offer your own fixes? And as for leaving capitalism out of it, that makes no sense. The point of this is comparison and contrast. It’s not to suggest some perfect panacea, some claim to solving all of history’s problems that stands alone in the universe. It’s to suggest that the alternative is far better, for a far greater portion of humanity than the current system. Which it is. And I think obviously so. In fact, I think it’s night and day. But that comparison is essential.

362

Brett Dunbar 08.31.15 at 6:08 pm

No this wasn’t worked out in advance, classical economics was descriptive describing how the existing system worked. Can you give a working example of your system?

Capitalism has worked a lot better than anything else we’ve tried. Most attempted alternatives have been far worse. Capitalism developed in an essentially mercantilist system. Some parts were highly regulated, with price controls, subsidys, tariffs &c. Others were more or less unregulated. E.g within cities guilds controlled many trades with job protection and long apprenticeships serving as barriers to entry. Outside in the sub urbis the guilds lacked authority and anyone could enter the trade without any formalities. The result was the suburban trades had lower prices and better service. This led Smith to a suggest that it would be generally beneficial to deregulate. This could be done piecemeal and reversed if necessary. The argument convinced Pitt who for practical reasons brought it in piecemeal and as it actually worked well it was extended as opponents were convinced by practical success.

363

Plume 08.31.15 at 6:10 pm

Bernard @359,

That doesn’t mean McSame. Which we get now, from capitalism. Again, communities won’t ask for that. They’re going to want diversity. But they won’t ask for a wide range of quality, from crap to brilliantly amazing. They’re going to ask for high quality, all of it, as the baseline.

That’s how it should be. There is no logic in paying radically different prices for goods and services, especially when the supposed reason for the difference is “quality.” Worse yet, “name brand.” It’s far more logical to eliminate the crap and make the highest quality off the bat, and price that so everyone can afford it. Why should high quality goods and services be limited to the rich?

They are in the capitalist system.

364

Plume 08.31.15 at 6:13 pm

Brett @361,

Do yourself a favor. Please read The Invention of Capitalism, by Michael Perelman. It will knock off those rose colored glasses. It’s a seminal historical study of political economy, exhaustively researched and sourced.

365

Brett Dunbar 08.31.15 at 6:21 pm

You are back to “I can only have the spade the collective decides I should have” you go round in circles. If someone objects to the severe restrictions on choice you would impose by giving the busybodies on the local planning committee control of production you say that it won’t do that but eventually you come back to the same planning.

We’ve tried command economies in the past they do not work well, and don’t seem to be compatible with democracy.

366

engels 08.31.15 at 6:21 pm

I think there are some legitimate reasons for an economy producing goods of a range of quality. Sometimes lower quality goods are all one needs.

367

Plume 08.31.15 at 6:30 pm

Brett @364,

No. The community decides, together, everyone, what they want produced in their backyard. How. Why. When. Where. And What. That’s not a “severe restriction on choice.” That’s empowering the community to decide these things, rather than a few executives thousands of miles away. And, for the billionth time, it’s not a “local planning committee.” It’s participatory democracy, which means everyone has a voice, an equal say, and all leadership is temporary. You get your turn to be in the leadership group too, just like anyone else.

And, as mentioned for the billionth time, the community doesn’t even think to try to stop you from purchasing what you want. Its concern is to bring production into the community that the community actually wants. Oh, the horror!!

And in this system, communities are cooperatives, linked to every other cooperative. Perhaps several of them will decide to produce your favorite spade, in your favorite color, so you can be happy again. Cuz, consumer choice is really all that matters, right? Not free health care for everyone, cradle to grave; free education and training, cradle to grave; free access to cultural venues, like museums, libraries, lectures, etc. etc., cradle to grave; plus guaranteed work for everyone; guaranteed safe food for everyone; guaranteed human rights, etc. etc. What REALLY matters is that you can buy the garden spade of your choice!!!

368

Layman 08.31.15 at 6:45 pm

“I’ve responded to all of your questions, and when I do, you ask another batch.”

Because your answers are incomplete, or digressions, or reveal the need for a follow up question.

Food for example. Meat takes more resources to produce than does grain, and some meats take more than other meats. Some crops require much longer to come to maturity. Some foods spoil quickly, while others can be easily stored. Some foods are more appealing due to our evolutionary heritage than others. These things lead to different prices for nutrition content today.

So I asked you about food prices, and you gave a broad, vague answer which doesn’t address the question. Will beef cost more per calorie than potatoes? Will filet cost more than rump? They would have to, since the production costs are so different. Of course this means there are rich and poor, those who can afford the nicer, more desirable things and those who can’t. You’re closing the gap, but there are other ways to do that.

Similarly, I asked you about property and inherited wealth, and you agreed that people would own property and inherit it. So some people will be born wealthy, in relative terms. If I want what they have, I have to dig ditches, while they sit on their asses.

Perhaps some people will buy two houses, or more. Can they rent them to people who can’t pay the purchase price, but don’t want to live in public housing?

You’re basically trying to reinvent what we have now, without the capitalists.

BTW, you can have equitable, democratic enterprises within a capitalist framework.

369

Brett Dunbar 08.31.15 at 6:45 pm

At the moment I can decide simply to buy a spade, on the spur of the moment. It doesn’t require ordering in advance it doesn’t require that the planning committee have decided that the local community needed a spade of the righteous quality six months ago. At the moment all that is needed is I want a spade and that the retailer has observed they usually sell a couple of spades a week, they last more or less forever on display, let’s have a few each of half a dozen different brands at different prices and order more if stock gets low. I can go in and decide what I want.

I don’t really want to be involved in planning supply, it’s neither interesting nor am I good at it. The planning committee is going to end up being run by the busybodies who are willing to turn up.

370

Bruce Wilder 08.31.15 at 6:57 pm

Val @ 313: Plume and I sometimes agree on points of critique, but Plume’s positive program, his “possible”, often seems to me to fall into the same category as the “possibility” of eating without shitting. According to Plume, we’re going to have cooperation without conflict, production without waste, management without bosses. I can’t reconcile my personal experience of the politics of committee meetings with his confidence in their judgment and decisiveness.

I’m not unrelentingly hostile to what he calls capitalism, as if it were a definite thing (and oddly immutable for being so dynamic). We do have a loosely-coupled, emergent system of economic cooperation, mediated by money and finance, and imperfectly governed by law and public policy. Like any machine system (metaphor!), it works and it malfunctions and it entails mistakes and waste. I am grateful for and admire many amazing accomplishments of human beings working in that emergent system of cooperation, and like any sensible person I worry about indications of our imminent self-destruction. That it provides some scope for the independent pursuit of individual preferences and ambition and multiple experiments and discoveries and adaptiveness seems like a mostly positive thing. Like other commenters, I think Plume criticizes the system for resistance to adaptative change, but tends to overlook the system features that make adaptiveness possible.

I am interested in understanding that system of economic cooperation. Raising consciousness about how that system works and by extension how to better govern ourselves seems like an important task. The Hazlitt-Hayek-Friedman story about how the economy is a system of self-regulating markets nearing equilibrium in this, the best of all possible worlds, seems to me like a dangerous lie or delusion (depending on how sincere you think the narrator is). I was educated and trained as an economist and value my own education, so my critique of those ideas can be a little close, but it comes down to the complaint that Friedman’s facile, propagandistic storytelling constitutes demonstrably bad, wrong economics. Even when I am being hyperbolically emphatic (“There are very few actual markets!”), my immediate goal is disenchantment from a set of seductive, but misleading stories, leading to a better appreciation of how the actual system works, and fails to work. I’m not much for Plume’s politics of now for something completely different. I’ve never been able to embrace even “heterodox economics” — to me, the point is that economics should not be a religion, so a protestantism of multiple sects and theologies is not an attractive path. It is not my view that economics as a body of knowledge is wrong or useless, because I don’t think economics is coincident with the lazy, ideological ravings of, say, Greg Mankiw; it is also not my view that we have the option of taking capitalism to the returns desk at Macy’s and exchanging it for The Alternative.

The actual political economy, qua system, is in a continuous process of emergent self-organization. A bit of consciousness-raising about how it works might add some intelligent self-awareness to the adaptive “design” path it takesand that would be a good thing (did I mention indications of imminent self-destruction?) That’s where I would place the OP: an attempt to advise on the efficacy of a policy intervention. Here we have a system that runs on money and price; will an attempt to fix price by political fiat, be an effective governor on the system? Correct Answer: certainly not, if that’s your whole program.

I don’t know that Plume got that message from the OP. His program seems to involve a lot of ungrounded faith in the power of political fiat — writing things into the constitution and so on.

My objection to the OP was far more subtle than Plume’s, I think. I think, at a minimum, you need an analysis of how the system works that includes economic rent as a source of stabilization, to appreciate why rent regulation is commonplace policy, and why rent control might be implemented in particular circumstances. And, I think it is necessary to reject the Chicago-style fairy tale of the market economy, where free market prices magically take us to optimal states of the world, and interventions like rent control can only cause problems and can be the only cause of problems; if you can see that the “free market” prices and private entrepreneurship can sometimes carry the system in dystopian directions, then you can appreciate why NYC might adopt strict rent control as a way of applying the brakes on a runaway system (which I think is more or less historically accurate). You don’t have to take the view that panic braking is an example of skillful driving.

371

Plume 08.31.15 at 7:14 pm

Layman @367,

Your suggestion that prices would have to be increased for X, because of Y and Z, is dependent for its cause and effect on for-profit logic and the logic of capitalism, basically. All of that goes out the window when there is no profit taking, anywhere, ever, any place along the supply chain. And when funding for compensation, benefits, public projects and so on are entirely divorced from sales/revenue. All funding for all of that comes from absolutely separate, publicly held pools. None of it comes from sales. That radically alters the need to raise prices if other things increase “costs.” There is no such logical necessity involved, ever, in the alternative I describe. No one is trying to make money by setting prices to maximize profit and compensation . . . . or offset other costs. We don’t have to compensate for changes in supply, or more labor requirements, because nothing is tied to sales, other than data collection. Everyone is already on salary.

Sell 100 units, or sell 1000. It makes no difference. It doesn’t force prices up or down, anywhere along the supply chain. Again, because there is no profit, and no link between sales and funding for anything. Sales are just numbers used for community data. They’re just a way to account for things bought and sold.

As mentioned, there wouldn’t be any rich or poor people. It would be an egalitarian society without classes. No ruling class. No one living in poverty. Everyone would have at least all of their basic necessities met, along with some truly amazing benefits, for free. The basic standard of living for everyone would be higher than it is now, on balance, for middle class Americans, and higher still for those who work. If you need to picture it in terms of current class divisions, it would be solidly “middle class” for everyone, with slight differences for people who have been in the workforce for a long time, and have done the other things mentioned above.

A 4 to 1 ratio max is a far cry from our current average of 300 to 1. And it’s actually worse than that, because that’s a 300 to 1 ratio of CEO pay to rank and file pay. Not the very top to the very bottom. The very top to the average, etc. In Fortune 100 companies, the average ratio is more than 1000 to 1. Again, I think the 4 to 1 ratio is the sweet spot between an absolutely flattened pyramid and a bit of added incentive to go back to school, train up, etc. etc.

Also, yes, I know, you can have WSDEs in our current system. For the third time, did you watch the video? I’m answering your questions, can you answer mine?

But the thing is, when those exist in a capitalist sea, without the advantages of being the default legal system, they can never maximize their efficiency or productive capacities . . . . and from a moral and ecological point of view, they must always fall well short of the drastic changes to society we desperately need.

I want a system that allows workers to own their own production, instead of having that taken from them, appropriated by capitalist ownership. I find that deeply wrong and immoral. And the capitalist system is leading us to an ecological Armageddon. This can’t be stopped with capitalism in place.

372

Plume 08.31.15 at 7:25 pm

Bruce,

Never said there would never be conflict, or waste. I’ve always talked about the alternative being much “better” than the current system. But not perfect by any means. It would generate its own set of new problems and there would be plenty of conflicts. But on balance, it would surpass current systems in several key areas, including the allocation of necessary resources, compensation and access to the fruits of society. It would radically shift the locus of concern from making rich people richer to making sure everyone has at least enough. It would drastically shift the focus from the ability of the few to accumulate vast fortunes to what an economy really should be all about:

Ensuring at least adequate and sustainable allocation of resources, comp, access, etc for the entire population, with no one left out.

From my POV, “liberals” are okay with leaving a certain percentage behind. They think this is a necessary price to pay for allowing a tiny percentage at the top to make their fortunes. We leftists don’t think that’s a bargain we should ever have made, or had a right to make. We don’t see the “freedom” of the few to become rich as a legitimate pursuit in the first place, and certainly not when it requires massive losses for a large percentage of society — and the earth. They can’t become rich without others paying dearly for that, and the earth can’t handle it for much longer.

Makes far more sense to “sacrifice” the chance to become millionaires and billionaires in exchange for no one being left behind. Can’t do both. And I see the current arrangement as obscenely immoral, arrogant and blind.

373

Brett Dunbar 08.31.15 at 7:55 pm

Rent control attempts to solve the problem of you wanting to restrict supply without allowing prices to rise when demand at the regulated price substantially exceeds supply. Basically it attempts to solve a problem caused by not letting the market operate by further restricting the market.

Increasing prices would reduce demand by pricing out the less wealthy and making increasing supply more rewarding. Supply can be increased by for example a coaseian bargain with residents paying them to not object to new building or demolition and rebuilding.

There are plentiful markets, supermarkets carry a wide range of different brands at different prices. For example in baked beans they have their own brand, their value brand their quality brand plus a fair few brand names, including Heinz and Branston. They all compete on price and quality.

374

Layman 08.31.15 at 7:59 pm

“Your suggestion that prices would have to be increased for X, because of Y and Z, is dependent for its cause and effect on for-profit logic and the logic of capitalism, basically.”

Capitalists didn’t invent the laws of nature. Some things take more resources – finite resources! – to produce than others. Will your prices reflect that, or not?

“As mentioned, there wouldn’t be any rich or poor people.”

Yes, you say that and then contradict it. Some people will be paid more than others. Some will own houses, while others will not. Some will own multiple houses, and take on tenants, squeezing rent from others. Some will eat steak, while others eat soya. Some will work in climate controlled environments, doing things they love doing, while others will dig ditches. But there won’t be rich and poor, never that!

375

Bruce Wilder 08.31.15 at 8:25 pm

Brett Dunbar:

Rent control attempts to solve the problem of you wanting to restrict supply without allowing prices to rise when demand at the regulated price substantially exceeds supply. Basically it attempts to solve a problem caused by not letting the market operate by further restricting the market.

Can the market ever cause a problem? Is it always innocent? Are there never any problems caused by letting the market operate “freely”? ‘Cause that would be really weird.

376

Trader Joe 08.31.15 at 9:01 pm

I think it would only be a matter of a few generations before inequality would be restored.

Assume we found ourselves in Plume-world and person A, being brilliant of mind, was chosen to be a doctor and we would presume that (I will use her as my pronoun for this person, but obviously it applies equally to any gender) her skill and gentle manner would be revered by all such that she would get the top-end of the scale in compensation – 4x the base.

Person B was born strong of back and hearty of spirit. If there was a ditch to be dug, he (I chose he this time, but gender isn’t relevant here either) did it and chose from an array of well honed spades which society had generously provided him, so he could complete his tasks with an economy of effort and thus he was quite productive in the world of ditch digging. As excellent as the ditches were however, clearly best in class, society had only so much demand for the well made ditch and thus in its wisdom bestowed the ditch digger compensation equal to 1x the base.

Base salaries, of course, were quite adequate to all of the basic needs. Both person A and B were well fed, had reasonable entertainments available to them (free cable TV and wi-fi!) and their healthcare was provided according to their needs and quite competent. Other reasonable necessities were also furnished from the largess of the well functioning society.

Person A loved her work and spent most of her time doing it such that, despite earning 4x the base, she really only spent about half of it so was able to set aside 2x the base each year for about 30 years of the 50 years of her working life. It should also be noted that person A was married to a lovely partner, person M, who was also a skilled physician (they met in med-school). Person M also earned 4x the base and was likewise able to save 2x the base each year for 30 years. By the time A and M died they had accumulated savings of 120x the base which, together with their nice, but not outlandish house and other modest necessities was passed along to their only offspring, who we shall call Person Z.

Person B of course had what he needed, but earning no more than the base he wasn’t in much position to produce any savings. He did marry, person L, who did some compensated work from time to time, but chose primarily to tend their home and see to the needs of their children X and Y who were each the spitting image of their parents.

The second generations of these two families progressed in exactly the same way, which statistically is quite common and also to some extent consistent with the genetics which in this case I’ve reduced to ‘intelligence and caring’ for Person A and her offspring and ‘strength and hardworking’ for Person B and their respective offspring. All positive traits incidentally but ones which are quite often rewarded differently depending on what milieu a person finds themselves.

By the time the third generation rolled around (i.e. the grandchildren of A and B, respectively). The grandchild of Person A would be sitting on at least 240x the base in inhereited wealth + whatever their skill could earn them. They would have spent their life in the company of highly educated and skilled parents and grandparents and would be born understanding that they had ample credits to acquire possessions at a rate well in excess of those around them.

We as society might like to hope that this grandchild, with such advantage, would pursue the caring, intellectual heritage of their parent and grandparent as a physician or some other source of good, but we could likely understand why this advantaged soul might instead become an asshole and use their credits in an ostentatious manner that would be demeaning to the relative poor they occasionally came in contact with.

Meanwhile the grandchild of Person B would still have basically a 1x base job, a life spent in public housing, few successful role models and the option to continue digging first class ditches (like his father and grandfather before him) or sit and watch as much free cable TV as his eyes could tolerate while requisitioning as much peoples-vodka as his budget allowed.

This would be the point at which Plume-world and the current world might look somewhat the same as what we see today to the eyes of many.

377

Brett Dunbar 08.31.15 at 9:11 pm

Some problems can occur due to the market. It’s awful at dealing with common goods and not that good at dealing with public goods. Non-excludability and externalities are a problem. Sometimes this can be dealt with by pricing externalities in. Other times the state has to step in to provide public goods like military defence and compel payment.

The tragedy of the Commons affects common goods (rival, non-excludable) like ocean fisheries or beavers in nineteenth century Canada. Incidentally Common land is actually mostly a collectively owned private good, a limited number of commoners have exclusive rights to graze some animals on the common to the exclusion of everyone else. Actual common goods are relatively rare as the problems the market has with them are obvious.

With housing that isn’t the problem. Housing is a fairly ordinary private good. The problem is a significant negative externality affecting a group with veto power. The local residents suffer loss of value to the existing housing stock if supply is increased. They also elect the local council which controls planning. This means that they can block building and it is their direct interest to be NIMBYs. The high prices are a cosequence of restrictions on supply.

378

Plume 08.31.15 at 9:47 pm

Layman @373,

Asking for the fourth time, did you watch the Richard Wolff video? And, to make the response to the following easier to understand, I suggest the following TED talk from Yuval Harari.

Capitalists didn’t invent the laws of nature. Some things take more resources – finite resources! – to produce than others. Will your prices reflect that, or not?

Capitalism is a fiction people have agreed to treat as a reality. Its rules and logic are fictions and fictional conventions within that larger fiction. There is no “natural law” that says prices must reflect things like scarcity. Prices don’t exist in nature. Pricing things doesn’t exist in nature. They are a human inventions/conventions, as is capitalism in total.

If, for example, we all agreed that the price of something extremely rare should be lower than things that are plentiful, that’s the way it would be. It’s all in the agreement. And though it would be more difficult to pull off, this could even be the case if consumers, alone, agreed to this or other variations, and didn’t deviate. What could a seller do, for instance, if they could find no buyers unless they priced their rare gems the same as their plentiful ones? It’s all an agreed upon fiction. Capitalism “works” to the extent it does because few people are willing to say no to it, to its fictional conventions, pricing, wages, “logic,” etc. etc. But all it would take to turn it completely on its head is a new agreement to completely refuse any existing arrangements, conditions, pricing, wages, supply chain arrangements, etc. etc.

379

Plume 08.31.15 at 10:07 pm

Also:

Yes, you say that and then contradict it. Some people will be paid more than others. Some will own houses, while others will not. Some will own multiple houses, and take on tenants, squeezing rent from others. Some will eat steak, while others eat soya. Some will work in climate controlled environments, doing things they love doing, while others will dig ditches. But there won’t be rich and poor, never that!

You added multiple homes, tenants and the like. I didn’t. Renting to tenants is private ownership of the means of production. It’s a privately held business. That’s not a part of this alternative system. In capitalism, renting typically requires special zoning. We wouldn’t zone private homes for rentals. And what “soya”? As mentioned 1001 times, all food would be of very high quality, organic only, guaranteed to be safe, etc. The difference between working and not working isn’t that one is rich and the other poor. The difference isn’t that one gets to eat filet mignon while the other eats shoe leather. The difference is in their range of options. The basic benefits of this alternative society are far, far too good for anyone to be “poor,” and salaries, even at the top end, are too close to everyone else to allow a huge gap between people. The gap required for “rich and poor” is far larger than anything that could develop in the alternative. Everyone who wants a job can work, and the top to bottom ratio is 4 to 1. That’s not even remotely the difference between rich and poor.

There is also the age factor. As mentioned in earlier discussions, it would be 60 for anyone who wants to retire. That opens up new jobs, at a faster pace, for others who may not like their current gig. With free access to high quality education and training, those ditch diggers could choose another trade or profession, go to school for it, train for it, and get into a different environment if they chose. We’d invest in automating dangerous jobs to the degree possible so that every job was as safe as it could be. Funding is separate from sales, and there is no need to make a profit. That gives us enormous leeway when it comes to improving working conditions.

No social democracy gives every single citizen those options. No social democracy offers cradle to grave free education and training. No social democracy offers free entrance to all cultural venues like museums, lectures, libraries, parks, etc. etc. They all have fees of one kind or another. It costs money to go to the Louvre, for example. They don’t have education programs for infants and toddlers on up, even in the Scandinavian countries — arguably the most progressive nations in the world right now.

In short, the tools would be there, the access there, the barriers of price would be gone. You want to make it sound like a large percentage of people will be stuck forever, toiling away, falling further and further behind. Not even remotely. Given that the whole thing is set up to enhance the lives of every single citizen, with no exceptions, that’s just not even a whisper of a hint of the way things would be.

380

Layman 08.31.15 at 10:08 pm

“Asking for the fourth time, did you watch the Richard Wolff video?”

No. As for the rest of your response, it would be better if you’d just answer a simple question: Will the prices for goods in your model reflect the resources committed to producing them, or not?

381

Bruce Wilder 08.31.15 at 10:09 pm

the state has to step in to provide public goods . . . With housing that isn’t the problem. Housing is a fairly ordinary private good.

How about, you know, streets and bridges and tunnels and water and sewer and police and fire and schools? ’cause we are talking about real estate development and urban planning, no?

NYC in 1946 had become one of the largest cities in the world as commercial gateway to the most advanced industrialized region in the world, (and incidentally the source of a lot of ladies’ underwear). Manhattan was very densely populated (more so than now). It was famous for some of the grandest public works ever seen — the Brooklyn Bridge for example, or Grand Central Park. It persevered thru the War, despite other demands on the nation’s resources, building what is still the longest, largest tunnel ever drilled thru solid rock in order to supply clean water to a metropolis critically short of the stuff. Tunnels and bridges into Manhattan — among the civil engineering marvels of the age — were crowded every day.

In 1946 NYC suddenly found itself the political and financial capital of the planet, in possession of power, privilege and wealth beyond all imagining. It was the Imperial City at a time, when all other Imperial Cities — London, Paris, Berlin, Tokyo, St. Petersburg — were in ruins or at the center of nations barely recovering from trauma and devastation. A large part of all the gold bullion in the world was parked in the basement of a downtown bank. Most of the world’s largest and most powerful corporations were headquartered in midtown office buildings; the richest and most powerful banks, downtown.

The shock was tremendous. Rents rose. Who wood a knode? It is difficult for me to credit the notion that private landlords were going, on their own mere motion, to smoothly respond to the demand before a large part of the residents were impoverished or swept away in a windfall to land owners. Where do you imagine they were going to build? Where was the supporting infrastructure to come from? The construction workers? At the time, the nation did not have the capacity to build even refrigerators for new housing.

I’m not saying they did the absolutely best thing. They were confronted with a problem without precedent and they took emergency action without really knowing all the consequences. Probably, with five years of wartime rationing behind them it seemed to make some sense, and it had legitimacy. There was an established framework in law dating back (I note from previous comment at least to 1920), which isn’t surprising, because most cities have rent regulation frameworks for reasons obvious to people not brainwashed by the market fundamentalists.

This goofy faith in “the market” has to get a lot more real.

382

Plume 08.31.15 at 10:12 pm

Just in case you think I didn’t answer you:

No. Prices wouldn’t reflect scarcity or other “costs.” There’s no reason for them to in the alternative system. They have a different purpose, burden, rationale than in the capitalist system. And the alternative rejects the fictions of capitalism and everything related to those fictions, absolutely.

383

Plume 08.31.15 at 10:18 pm

Layman @379,

We cross posted.

Why would it be better? I actually did answer your question prior to 381. It’s all there.

I have a feeling that, like Bernard, you’ve been barely skimming my posts and reading every fourth or fifth word. You obviously have the right to do that, of course. But it does make it a bit frustrating to carry on a decent conversation that way. And this one has been decidedly one-sided. You drilling me for answers, while refusing to answer my questions, or my call for adding your own solutions.

I’ll do it again. Instead of the continued questions, why not post some ideas for fixing the problems you see in the alternative?

384

Brett Dunbar 08.31.15 at 10:22 pm

No you couldn’t. Prices reflect the value of the inputs required to make something. They are not arbitrary. Basically things have different availability. If something is common it is going to be cheap, even if most customers would still buy it if it were expensive, they are still going to opt for the cheapest supplier. The laws of supply and demand are based on observing what happens in a market without price regulation.

If you have a maximum price less than the cost of production then you get no production. If you set a price well below the marginal price you get shortages as the demand at that price is far higher than the supply at that price. What you get then is a lot of queuing and under the counter payments. It’s not as if setting prices by legislative fiat hasn’t been tried thousands and thousands of times.

385

Layman 08.31.15 at 10:26 pm

“You added multiple homes, tenants and the like. I didn’t. Renting to tenants is private ownership of the means of production. It’s a privately held business. That’s not a part of this alternative system.”

I asked the question, you didn’t answer, I pressed the point. You’re wrong about zoning, it generally doesn’t distinguish between rentals / ownership of single family dwellings. In any event, if people can stock up on luxury goods, like homes, they’ll trade them with other people for services, e.g. You can live in my extra house if you cook for me and clean my home. You will prevent this with legislation of some kind?

I invite you to dig ditches at 58. Or to try to go to school at night after digging ditches all day. That’s aside from the matter of aptitude.

On food, if you promise steak for everyone, you’ll have to closely control the population to fit the available arable land, with a much lower population level because of the land resource demands of feeding cattle. You could do this with prices, but you refuse, so I guess it’s draconian population control measures. If not, at some point there won’t be enough beef to go around, and you’ll have to ration it, again not by adjusting prices. I wonder which citizens will end up with the meat?

386

Plume 08.31.15 at 10:35 pm

Brett @383,

You keep insisting on using capitalist theory/logic in a non-capitalist context. Currently, producers won’t produce something if they can’t make money on it, and that “logic” carries throughout the entire capitalist system. But if everyone owns the means of production together, and we produce what we want according to need, not to make our personal fortune, then all capitalist bets are off. The rationale for producing anything is absolutely, 100% different, and that permeates the entire alternative economy. And when sales are absolutely, 100% divorced from funding, funding from sales, the price of something is irrelevant to the nth degree.

Funding comes from a totally separate pool. It doesn’t matter how many sales you make. Price doesn’t generate any usable revenue. All of that comes from a separate, publicly owned source. That source isn’t impacted in the slightest if you raise prices, lower them, sell 100 units, or sell a million.

That’s the truly “revolutionary” aspect of this alternative. It severs price and revenue from all funding. It makes it so we no longer need prices to contain taxes, benefits, worker pay, executive pay, profits, etc. etc. They don’t have that burden any longer.

It’s an entirely different game, with entirely different rules and logic.

387

Brett Dunbar 08.31.15 at 10:39 pm

There was a shortage of supply at the traditional price. The increased demand should have resulted in low-value labour intensive work moving elsewhere. For example the ladies underwear factories could easily move to an area where the cost of land was lower get larger better quality premises for a lower price their workers would have lower housing costs for bigger homes and the old clothing factories could be redeveloped for higher value usage.

388

Bernard Yomtov 08.31.15 at 10:42 pm

Bruce Wilder @369,

One of the best comments I have read in a long time.

I wholly agree that we need to avoid the fantasies of stick-figure economics, where this line must meet that one, and all will be for the best. What I am objecting to here is Plume’s ideas which seem to me to be even more fantastical.

389

Layman 08.31.15 at 10:43 pm

“Why would it be better? I actually did answer your question prior to 381. It’s all there.”

Point to the prior answer.

“I have a feeling that, like Bernard, you’ve been barely skimming my posts and reading every fourth or fifth word. “

Your feelings are your own, so you’re welcome to them; even if they’re insulting.

To get back to the point, you think you’re clearly elaborating a replacement for capitalism; but I think you’re voicing vague and sometimes alarming generalities. I asked you to elaborate your program clearly, but you didn’t, so I began asking questions about it in the hopes of discovering it that way. I’ve made it clear that I share your dim view of unconstrained capitalism, so I am at least in theory a potential convert to your scheme, but despite that you don’t consistently and clearly answer the questions, and beyond that you ascribe to me views and motivations I don’t actually hold.

Now you’re asking me to offer suggestions to improve your scheme. Very well: abandon it in favor of extensive regulation of capital in a social democratic framework. Enact a universal basic income. Cap management salaries. Create a highly progressive income tax, and tax capital gains at the highest income rate. Outlaw all wagers masquerading as market trades, and allow stock markets to open just 1 day each month to facilitate allocation of capital resources while discouraging active trading. Severely limit financial engineering. Expand Medicare to cover everyone, and fund it by increased payroll taxes at higher income levels, and allow Medicare to set prices. Reduce the retirement age rather than increase it. Constrain the length of the work day and week, and mandate generous holiday and family medical leave provisions.

That should keep you busy for a while.

390

Bruce Wilder 08.31.15 at 10:46 pm

BY @ 387 Thank you. I am reluctant to engage with him– I don’t think I am the only one.

391

Brett Dunbar 08.31.15 at 10:49 pm

So if I have a shop, “forget” to unlock the door in the morning and spend the entire day in the back office playing GTA I get exactly the same pay as I would for working hard?

The amount the shop takes in has nothing to do with my pay?

This has been tried, if you entirely divorce productivity from pay you get very low productivity.

392

Plume 08.31.15 at 10:49 pm

Layman @384,

Why are you banging on about ditch diggers? And why would you think they’d have to still be doing that at 58?

As for time to go back to school and study. A coupla things: First off, we work as much as we do now, as many hours as we do now, to make profits for our bosses. Take out the need to generate profits for a few, and we can slash several hours off a day, easily. A worker at a car parts assembly line, for instance, produces enough in his or her first hour to match their day’s pay. All the rest of their time is working for free. Ending for-profit employment instantly enables far more leisure time for everyone.

Capitalism operates on the grotesque underpayment of workers. That’s how it generates profits and high comp for executives. The more unpaid labor it generates, the more the folks at the top make. It’s built on the premise of slavery, with a twist. Instead of appropriating all the production and giving nothing back to the worker, it appropriates all the production and gives back a pittance.

In the alternative, that doesn’t exist. There is no capitalist appropriation of surplus value to begin with. There is no profit. There is no need to work long hours to generate that unpaid labor, to increase surplus value, etc. etc. No need to lengthen the work day to squeeze out as much profit as possible. It’s the opposite. We can and do radically shorten it.

And, again, if someone wants to take a break, they get free schooling/training. If they’ve already bought their home, they don’t need to move into public housing. If they’ve managed to save up, they can still use their debit card to purchase things as per usual. It’s their call as to how long they want to study and live on savings. They’re not trapped, like you want to imagine. There are all kinds of different ways society will help them achieve their goals.

393

Plume 08.31.15 at 10:53 pm

Brett @390,

It’s not your shop to begin with. There is no private ownership of the means of production. And I mentioned this waaay upthread. It doesn’t matter how much you sell. Same pay, regardless. Everyone is on salary.

394

bob mcmanus 08.31.15 at 11:02 pm

388.penultimate: Why don’t we have those things already, or as lost, why have they been lost? I’m sure you have a narrative with white and black hats, and likely some kind of plan. Elect more and better Clintons, or try for Warrens and Bernies, and patiently work real hard for a century. Ooops. Melting. What makes you think “they” aren’t out there working and failing, and that your or my additional effort will do the marginal trick?

Not even heterodox, BW? Now I know you better. Conservative.

I watch who likes Plume, and who not so much, and learn.

395

Plume 08.31.15 at 11:04 pm

Layman @388,

I like your ideas, within the context of the current system. They make things better. But they still leave an awful lot of needless suffering in place. And they do nothing to even slow down the ecological trainwreck were heading toward, thanks to capitalism.

That won’t be stopped via reform. A good explication of this is from Naomi Klein. Her This Changes Everything.

Another useful site on the topic:

http://climateandcapitalism.com/

. . . . .

G’night all.

396

Brett Dunbar 08.31.15 at 11:05 pm

Market trades are wagers in the same way that insurance is a wager. One party takes risk that they can bear more than the other party. To some extent that depends on a judgement of what the market will do in the future.

397

bob mcmanus 08.31.15 at 11:09 pm

I do want to agree that 369 was on of your best and clearest comments, guaranteed to comfort and reassure the Yomtovs and utterly dispiriting to myself.

398

Layman 08.31.15 at 11:13 pm

“Market trades are wagers in the same way that insurance is a wager.”

Not really, no.

399

Bruce Wilder 08.31.15 at 11:16 pm

bob mcmanus @ 393

liberal with a (limited) social conscience and doubts about everything, but, yes, that would be conservative in some contexts and typologies my temperamental roots are liberal, or whiggish as I sometimes say; if I lean left, even hard left, it is because the wind is blowing so very hard from the right, and a right so blinkered, degenerate, vicious and stupid, I can’t stand the smell and lean away

my liberalism embarasses me at times, with contemporary or historical associations I’d rather deny (and which you are kind enough to remind me of, from time to time) but, every political tendency has stupidity and blood on its hands, so what are you going to do?

400

Layman 08.31.15 at 11:20 pm

“And they do nothing to even slow down the ecological trainwreck were heading toward, thanks to capitalism.”

This may be part of the problem: I think the ecological train wreck has more to do with human nature and human expectations than with capitalism. It’s about what people want now, and their inability to see or care about long-term consequences. If that’s what your plan is meant to address, then it isn’t about ending capitalism, it’s about reducing standards of living at the top and in the middle. Focus on that. And if you want to do it quickly, you’d better use the system you have to make drastic changes instead of trying to invent a new one out of whole cloth.

401

Brett Dunbar 08.31.15 at 11:23 pm

Plume you vastly overestimate the productivity of the workers. Most produce a little more than it costs to employ them. For a car plant labour is a small part of the costs, most is in the capital equipment and the cost of the raw materials. Of a twelve hour shift while the output of say the first two hours might cover pay, the next three might cover the energy and capital depreciation on the factory equipment the next five might cover the cost of raw materials there’s an hour and a half meals and toilet breaks and the last half an hour profits.

If you attempt to take an excessive profit margin you get undercut by competitors and lose sales as consumers chose a cheaper alternative.

I’m using my shop to mean the one that I happen to be operating, it doesn’t indicate ownership. Like my computer in the office is the one I happen to be using today.

402

Brett Dunbar 08.31.15 at 11:40 pm

They actually are. Most of them involve hedging against a risk. Say you are a baker and cannot afford it if the price of flour rises 10% above the current market price as you have contracted with a supermarket to supply them with bread at a specified price. You take out an option contract at 5% above the market price. If the price is above that you exercise your option. If it is not then you don’t exercise your option and the seller keeps the fee you paid for the option. The seller is gambling on the price of flour not rising. The more esoteric bonds were mostly based on various combinations of conditional bonds.

403

Norwegian Guy 08.31.15 at 11:46 pm

I’m not sure if I disagree much with Quiggin on rent control, though I think the issue is more complex than he presents it.

Rent control has been implemented in many different ways, varying both historically and geographically. The overall structure of the housing market also differs considerably. In some countries, long-time tenancy is common, in other countries the rental sector is much smaller, and for the vast majority of people a temporary phase before buying. In the latter case, tenants won’t be a large and powerful group, and the controls can relatively easily be changed or abolished. After all, property owners usually have more political clout than low-income tenants.

I more or less assume that you find laws everywhere that regulate tenancy agreements. Even when the initial rent can be agree freely between landlord and tenant, the law might limit how often the rent can be revised, and by how much it can be increased (or decreased). Is
this rent control? If so, it’s a very weak form that I’ve seldom if ever heard anyone object to.

On the other hand, you could have a very strong control that fixes the rent to a certain price. But why would you do that? It’s not unreasonable that rents should rise along with inflation (or decrease with deflation), and it should also be possible to increase rents if necessary for covering costs to maintenance and improvements. The New York flat where the rent was only 10% of the market rent looks like an extreme case.

It’s also possible to have rent control that only covers a portion of apartments, and for instance exempt all new constructions. That way, developers still have incentives to build new housing. I can’t see how such a system, which resembles what existed in a few Norwegian cities prior to 2000, rises the overall level that tenants have to pay. If anything, this sector with low rents should have a downward pressure on rents in the rest of market. Here’s an article that suggests that rent control has lead to lower prices in Copenhagen and Stockholm compared to Oslo, though it notes there are drawbacks as well: http://sciencenordic.com/privatised-rental-market-inflates-costs.

I understand that in the UK, close to 20% of the population live in council housing, and that rents are lower here than in the private market. So it’s hardly an unregulated system.

Now, in theory, housing could be deregulated, and low-income tenants compensated with housing benefit. But this means replacing universal programs with means-tested programs. I have my doubts whether that’s a good development.

404

Layman 09.01.15 at 12:59 pm

Brett Dunbar @ 402

I see a baker who can make a profit even while paying 5% more than the current market rate for flour, and a flour seller who can make a profit even while getting 4.54% less than the market rate for flour. Why can’t they make a straightforward deal, between themselves – an agreement on a set price, say at 105% of the starting market rate, for a defined period? Why is an ‘esoteric bond’ necessary in order for both of them to flourish? Other than greed, I mean?

If they insist on a wager, why can’t they make a wager between themselves? Why must there be a market instrument to represent the wager, one which can be manipulated for profit by people who’ve never baked a muffin or even seen an oven?

405

Brett Dunbar 09.01.15 at 2:50 pm

The baker took an option as they wanted to be able to buy on the spot market if that was lower. They could have gone for a futures contract but that wasn’t what they wanted. They wanted to put a ceiling on the price they had to pay. That is they wanted to hedge against a sudden price rise (for example if there was a bad harvest) not lock in a price. The seller of the option needs to be rich enough to eat the loss if the option is exercised. The seller might themselves take out an option to buy at 10% above the current price in order to limit their exposure to loss.

406

Layman 09.01.15 at 2:52 pm

“The baker took an option as they wanted to be able to buy on the spot market if that was lower.”

I understand the transaction, but it doesn’t answer the question.

407

Trader Joe 09.01.15 at 3:21 pm

Layman @404
The reason for a financial intermediary is to usually to broker time and size. One might imagine that the amount of protection the flour seller wishes to hedge is many times the size that any individual baker would wish to hedge. Equally, the baker may only wish to have protection during a particular part of the year – maybe the slow summer months, while the flour company wants it year-round.

As with most intermediated transactions, the commission is earned for finding the person who wants the other side of the trade (or taking it themself)…it does create a friction and cost to the parties both buying and selling, but likewise is cheaper than spending time and effort to locate matched counterparties oneself. Just as the middleman has never made a muffin, the baker has never shown laddered forward contracts to a dark pool…everyone brings a skill to the table.

408

Brett Dunbar 09.01.15 at 3:22 pm

They didn’t want a future contract. They wanted an option. A 5% rise might only allow breakeven or a loss all enough for the baker to survive. Maybe they expected the price of flour to fall but were worried about the small but unaffordable risk of a severe crop faliure leading the price to increase 25%. They are buying the option to limit their exposure to the risk of a sudden large price increase. Without losing the opportunity to profit if the price of flour fell. Being bound to a future contract might prevent you competing with other bakers if the price of flour fell, as you are already committed to buy flour at a higher price. The option is acting as insurance against price rises.

409

Layman 09.01.15 at 3:25 pm

Perhaps, in addition to a wager on the future price of flour, they also want a wager on the outcome of an upcoming Giants game, and one on the chance of rain next Tuesday. Should they win those wagers, they’d enhance their profitability. Should there be a market instrument, traded on the exchange, to accommodate their desire?

410

Layman 09.01.15 at 3:38 pm

And, isn’t it the case that, for any particular exchange of the instrument denoting this wager, neither party is likely to be a baker or a flour seller; that most such transactions are taking place between third parties who are simply gambling?

411

engels 09.01.15 at 3:57 pm

412

Plume 09.01.15 at 4:00 pm

Layman,

Last comment on this — no, really.

:>)

First off, I find it beyond puzzling that anyone who recognizes capitalism’s ill effects would still cling to it. It makes no sense to accept such an unequal, oppressive and unjust system, whether one thinks they can mitigage for its effects later or not. If my alternative is not to their liking, they should at least want one that doesn’t do what capitalism does, that prevents the radical divisions and segregations it creates, all on the basis of arbitrary fictions regarding how our time is valued, why one person’s time is valued thousands of times more than another’s, and so on. Add the fiction that one person should be able to claim the work of many as their own, and it’s even more baffling.

And because of this bizarre, arbitrary, grand canyon gap in time valuation, power is distributed in a massively unequal way. This inequality renders your reforms dead in the water. Because the system itself creates its own defense. Wealth is power in this system. Great wealth is great power. And they’re not going to let the good wishes of liberals or anyone else take that away from them. History tells us this in no uncertain terms.

It also makes no sense to allow gross inequalities to happen, and then try to fix them after the fact. It’s like letting people beat the hell out of each other, thinking after-the-event triage units are the best route to go. It makes far better sense to prevent the mayhem in the first place, so those triage units are saved for emergencies. Creating an economic system that allocates resources and access in the most equitable way possible, up front, makes those after-the-event fixes unnecessary.

As for ecological concerns. Again, the logic of capitalism radically multiplies and accelerates the process toward an unsustainable world. As I tried to show, capitalism does production solely to make money for ownership. It doesn’t produce to order, or for the good of humankind. It doesn’t produce use-value. It produces whatever, however, whenever, in order to make money for ownership, regardless of the effects. And the vast majority of that production requires volume, and more volume, and more volume. To survive, it must grow. It must engender more and more consumption, more and more production, on and on. Capitalism uniquely conflicts with finite resources and the planet’s health. No previous system was ever so deadly for the planet.

If you have umpteen problems with my alternative, fine. But I think any alternative that does not get rid of the root cause of our problems — for-profit, private ownership of the means of production — is guaranteed to fail. Not only is it deeply immoral for the few to control the entire economy, take from the many, decide wages, time-valuation, prices, and appropriate workers’ production for themselves . . . . it automatically creates far too many unnecessary conflicts. Between ownership and labor; ownership and consumers; ownership and community; ownership and the planet. The few should never have that kind of power over the many. Any alternative that doesn’t try to radically flatten the pyramid, and radically broaden equality of voice, access, autonomy, resource sharing and so on . . . . is destined to fail.

413

Layman 09.01.15 at 4:06 pm

Even my short comments are now going into moderation. I take that as a sign. Sorry to all, especially to JQ, for derailing the discussion.

414

Brett Dunbar 09.01.15 at 6:23 pm

If you can find a counterparty then yes. Options on prices in agriculture are effectively bets on weather already. Weather has a large effect on food prices and it can be sensible to pay someone else to take the risk. You might want to hedge against the risk of an event being cancelled due to the weather. Say you have the contract for a tennis tournament on grass.

415

engels 09.01.15 at 7:02 pm

Is there an option to hedge against financial crises? As an ordinary taxpayer I could take one out so it’ll cost me a bit less the next time the financial wizardry of which Brett is so enamoured blows everything up.

416

Bernard Yomtov 09.01.15 at 7:52 pm

Should there be a market instrument, traded on the exchange, to accommodate their desire?

What difference does it make? The purpose of the option, or other derivative, is to assure the baker of a tolerable price for flour. This has obvious benefits to the baker in terms of entering into contracts to deliver bread and so on. It is in fact a sort of insurance. It insures against the disaster of a huge jump in the price of flour.

The reason the intermediary enters the picture is that it is hard to find a counterparty – a flour seller – who wants to take exactly the opposite side of the transaction, in terms of quantities, price, and delivery schedules. The intermediary’s job is to contract with this baker and others, and then to find counterparties who, as closely as possible, will, in the aggregate, take the other side of these deals. To the extent there is not a perfect match the intermediary assumes the risk of the contract.

This costs both buyer and seller something, as insurance policies do, but they are spared the need to locate their own counterparties, negotiate contracts, and even check creditworthiness. The intermediary is responsible for fulfilling the contract, whatever happens to the counterparty.

417

Layman 09.01.15 at 8:10 pm

“What difference does it make?”

Like engels above, I should think that’s obvious.

418

Trader Joe 09.01.15 at 8:14 pm

Is there an option to hedge against financial crises?
Absolutely. The problem is that it costs you during times of growth which are far more prevalent.

I’m not going to suggest that no one uses derivative contracts to make money – but “hedge” means just that – to hedge one’s bets – its making money in one area to offset money lost elsewhere. The baker doesn’t pay less for flour, but uses the gains on his hedge contract to offset the higher cost he pays.

Even in the most actively speculated commodity markets (usually gold, sometimes oil) over 2/3 of all contracts by value are executed by companies actively involved with the commodity in question, which is to say they use or supply the item as part of the actual business they do – not just to make speculative profits.

Airlines do this constantly with fuel costs. Right now, most airlines are paying more for fuel than buying at the spot price, but that’s to avoid paying an insufferable amount when prices are high.

The problem is not the speculation, few speculators defaulted in the financial crisis since there are capital controls to minimize the size of both their positions and losses. The problem is when a working counterparty (such as AIG or Lehman) is judged unable to pay, usually due to liquidity constraints. That sets off forced sales which exacerbate the problem and all the attendant negatives.

419

Layman 09.01.15 at 8:42 pm

“I’m not going to suggest that no one uses derivative contracts to make money “

You’re not? Well, that’s good.

420

Bernard Yomtov 09.01.15 at 10:28 pm

Layman,

You asked:

“Should there be a market instrument, traded on the exchange, to accommodate their desire?” referring to those who want bet on football games or the weather. It may be obvious to you why that matters, but it is not to me.

421

david 09.02.15 at 2:49 am

Weather derivatives are not hypothetical, in any case.

We are kind of tiptoeing around the role of ‘gamblers’ in this case, anyway. It’s obvious what the baker gets out of flour futures, and what the miller gets out of flour futures, but if it were that simple, we’d just restrict the market to bakers and millers, and that’d solve the speculation problem. So what role do non-baker-non-millers play?

They provide liquidity – that is, they buy and sell so that a buying baker doesn’t have to look for a miller willing to be counterparty to that exact risk-package (such a counterparty may not even exist – e.g., if there are many bakers but only a few large agribusiness millers, who may have better ways to diversify). This is the equivalent of the role that a wholesaler would play in a pre-financialized age, but there’s no fundamental reason for the risk-management and logistics to be done by the same entity, and many such goods are perishable anyway (which would prohibit hedging through adjusting inventory levels).

422

Sebastian H 09.02.15 at 3:51 am

“They provide liquidity – that is, they buy and sell so that a buying baker doesn’t have to look for a miller willing to be counterparty to that exact risk-package (such a counterparty may not even exist – e.g., if there are many bakers but only a few large agribusiness millers, who may have better ways to diversify).”

While I agree with the general thrust of this, liquidity is something with a diminishing marginal return. We could probably scale back on the liquidity of many products without damaging economic growth at all, and while also reducing the amount of volatility.

423

John Quiggin 09.02.15 at 6:00 am

@Layman No need to apologise for derailment. I’m still getting some interesting thoughts from the discussion, although its directly relevance to the OP is pretty limited by now.

424

Bruce Wilder 09.02.15 at 6:31 am

. . . there’s no fundamental reason for the risk-management and logistics to be done by the same entity, and many such goods are perishable anyway (which would prohibit hedging through adjusting inventory levels).

Of course if no one in this net is financing the adjustment of inventory levels, it does raise the question of what the principle of operation is.

425

david 09.02.15 at 6:44 am

Revenue- or cost-smoothing, especially to meet fixed costs (e.g., labour).

Capital markets are not perfect in reality, and it’s a lot more expensive to borrow to cover volatility than to hedge against it – that is, retained earnings are a kind of operating inventory in itself. In a perfect Modigliani-Miller world, your shareholders diversify their own portfolios instead, but we don’t live in an M-M world.

426

Val 09.02.15 at 11:56 am

Bruce @ 370
Thanks Bruce for your reply. I would like to respond in equal depth but I am too tired at present. It’s funny because there have been discussions here previously about issues around the use of teaching associates in universities and I guess I’m example of some of those at present – anyway some other time perhaps (after I finally retire, whenever that may be)

Anyway, it sounds like – as I think Bob or someone said upthread – you are still a mainstream economist in some ways, like John Quiggin also I think, and my sense is that rather than debating with you, I should concentrate on writing a good thesis and getting some publications, so that my ideas may be taken seriously.

In the meantime, I think Marilyn Waring is a really good feminist heterodox economist – what do you think?

427

Layman 09.02.15 at 2:57 pm

Bernard Yomtov @ 420, because it’s apparent we can’t adequately regulate an exchange which functions as a casino. Banksters invent esoteric derivatives which, to be charitable, they don’t understand. They submit them to ratings agencies which, to be charitable, don’t understand them either. They buy insurance on them from insurers who, to be charitable, don’t understand them either. Then they sell them to buyers who clearly don’t understand them, and they end up in mutual funds that undermine the pensions of working people – who have in turn been forced to participate in this scam by the eradication of traditional pension programs in favor of the great casino of derivatives through their 401K plan.

This is the charitable view. In fact, I think banksters make shit sandwiches, and then systematically transfer the risks on to someone else, who in turn do the same, until at the end of the chain rubes are forced to eat the products.

If two banksters want to have fun exchanging complicated bets, who cares? But if the purpose of the exercise is to extract money from naive workers, at the risk of occasionally destroying the economy and impoverishing millions, why should we permit it?

428

Layman 09.02.15 at 3:25 pm

Bernard Yomtov @ 420, I have a response to you, currently in moderation. I wish I could figure out why that keeps happening!

429

TM 09.02.15 at 5:21 pm

Harold 115: according to your link, the US city average price of potatoes is about 15% higher than bananas (.67 vs. .58 per pound). The table confirms that bananas are cheaper by weight than any other fruit or vegetable. I concede the skins although some skinning loss also occurs with potatoes. However, my East coast shopping experience does not conform to those numbers. Looking for more data, I find a startling variation in potato prices. Look at this comparison (http://www.expatistan.com/cost-of-living/comparison/philadelphia/chicago):

Chicago Philadelphia
Apples/kg 3.70 4.51
Tomatoes/kg 3.77 4.23
Potatoes/2 kg 1.53 4.47

These are realistic prices in my experience (no data for bananas are given but I already said they are about 1.20 per kg at TJ’s). The Chicago potato price is what I would expect. Why do East coast potatoes cost 3 times more than Chicago potatoes, and 3 times the national average according to BLS? If transport is the issue then why the much smaller difference for apples and tomatoes?

430

Trader Joe 09.02.15 at 5:29 pm

@428

That Philadelphia potato number looks suspiciously high. I can assert that NYC potatoes don’t cost that much (looks more like a 5kg than a 2kg price) so there is no reason Philadelphia should. NYC is usually +/-2.00 per 2kg.

431

TM 09.02.15 at 6:09 pm

It conforms with my experience. If this is really a Philly anomaly, I apologize for making generalizations but it sure calls for an explanation.

432

Harold 09.02.15 at 7:33 pm

TM @ 428.
I went out my to local met food and found the following:
Bananas $.69 /lb
I bought several bananas and peeled weighed one, fruit and skin, on my home scale.

Result:

3.35 oz banana fruit
2.20 os skin

I’d say that a nearly a third of the weight of the banana comes from the skin.

Potatoes
Met food special: Idaho potatoes 5 lbs for $1.99

10 lb Idaho russest burbank potatoes $4.99
loose potatoes $.99 (both white and red)

The Korean grocery on the corner had comparable prices with loose potatoes at 69 cents

Potato skins are edible, BTW.

If the great bulk of the potatoes grown are going to the processed food industry, then to me that would explain why retail customers can be charged more. They are becoming a specialty food for the home consumer, but I doubt very much that McDonalds pays $1.00 a pound for potatoes. In any case, as I said before, at Trader Joe’s and places like that you are getting specialty organic potatoes with a big markup. You need to check out prices at Pathmark, Key Food, or Foodtown where most people actually shop.

433

Harold 09.02.15 at 7:41 pm

I am waiting curiously for Layman’s post to appear.

434

Bernard Yomtov 09.02.15 at 11:49 pm

Layman @ 427,

I agree with much of what you say. But you miss a key point. The more exotic derivatives are not traded on exchanges. A big advantage of an exchange is that the price and size of transactions are public, and that the contracts are standardized. Further, amounts owed due to price changes are calculated, and paid, daily.

If you want to know what it costs today to buy wheat for delivery in December the information is at hand. Further, if you want to know exactly what the commitments made by the participants are you can look up the standard contract.

Exotic derivatives are indeed hard, if not impossible, to regulate. These are, or should be, traded only by those seriously knowledgeable, but of course that doesn’t happen and there are traders who don’t understand the risks they are taking and do the kind of damage you talk about.

I think there are several ways to improve the situation. One is to be stricter about leverage requirements. Too much leverage will bring you down even if you never touch a derivative. Another is to restrict those allowed to trade these things. Municipalities have gone broke fooling with this stuff. It is not for nothing that Warren Buffett calls them “weapons of mass financial destruction.” There are other things I could go along with.

435

Layman 09.03.15 at 6:56 am

A great many derivatives are traded on the exchange; and if the more esoteric ones aren’t, they can still contaminate securities that are. Consumers never bought credit default swaps from AIG, but they were harmed by the fact that AIG sold them nonetheless. As for the idea that they are insurance, something like 80% of the CDSs traded are so-called ‘naked’ CDSs, where the buyer doesn’t actually own the securities being insured. The buyer is simply making a bet on whether the mortgages held by some other party will default. I imagine the same is true for a good many other derivatives, where the original purpose of the instrument now accounts for a minority of the transactions taking place, and the rest is just gambling. I don’t have anything against gambling, except this game is rigged – the big boys are playing with our money, and when they lose, we pay.

436

Harold 09.04.15 at 6:21 am

TM @ 432 (again) Not only the price of potatoes but prices of all grocery items vary considerably from week to week and day to day. That is because, as someone pointed out on this thread, the grocery business operates on an exceedingly thin profit margin. Thus the store managers have to take losses on some items (usually staples) to attract people to the store, and mark up others (often, but not always, non-food items or luxuries), to make up for the losses. The constant shifting of prices means whoever does the grocery shopping has to be very alert and savvy. Sometimes bulk items are cheaper, sometimes not, for example.

437

Chris Warren 09.05.15 at 12:40 am

Minimum wages are a price control and they work extremely well, particularly in the long-run.

Rent controls also work extremely well provided the government expands supply.

Price controls over monopolies are absolutely necessary.

Price controls over imports from unfair competitors are also absolutely necessary.

Price controls in situations of economic stress (wars, natural disasters, crisis) are also the only option.

If capitalists use their economic power to control prices – then society has the same right to respond.

But the key price is the price of money. The Reserve Banks are nothing but price controllers. Unfortunately they have been running their operations purely for the sake of keeping the capitalist “magneto” turning over. This is why we have so much debt (fictitious value) in the system. It amounts to $40 per day since the Big Bang 13.7 billion years ago.

If you want a stable capitalism – you must have price controls.

438

Harold 09.05.15 at 5:07 am

@437 !! Best comment!! Thanks.

Comments on this entry are closed.