How would raising the rent change the wait time for ground floor housing? By forcing poor people to move out because richer people want to move in?
That doesn't sound like a good thing.
According to standard economics, since there's a demand, why isn't there other, new housing along these lines - where costs are paid for by investments and entrance fees rather than rents?
Economics 101 often fails to convey the crucial fact about rationing: under any rationing system that isn't a pure random lottery, the only effect of rationing a good is to change the currency in which that good is priced. [1]
For example, I live in Canada. Our healthcare system is single-payer [2], which is isomorphic to saying that it is rationed. So it would not be accurate to say that your access to healthcare in Canada is priced in dollars. But it would be accurate to say that your access to healthcare in Canada is priced in your ability to navigate bureaucracy, the flexibility of your working hours (to snag last-minute appointments), and your family connections who are embedded in the healthcare system as administrators or physicians.
Depending on your personal values, you might consider it good or bad that access to healthcare in Canada is priced in these units. What makes dollars unique is that if you inject more dollars into the free market for a good, then ceteris paribus, you will cause more of that good to be produced. Whereas if you injected more bureaucratic know-how into the Canadian patient population, you'd merely cause more intense competition for the same fixed number of physician-hours.
That is: by repricing a good in non-dollar units, you've removed a lot of the flexibility that would have allowed your system to make more of the good if lots of people wanted it. There are situations when this might make sense to do, and there are legitimate debates to be had around it. But this is the tradeoff you're making when you ration.
People often mistakenly think that if the price of a good is opaque, then the good must not have a price. This is incorrect. What's more, if you believe it, then you're almost certainly getting over-charged. And very unfortunately, this mistake tends to be most common among less sophisticated folks — who are the very folks that rationing was intended to protect in the first place.
>I personally find it very comforting that (at least at in principle) both the rich and poor wait in the same line.
That's rarely the case. For stuff like consumer goods (ie. getting the iphone on launch day, a few years ago) the rich person can buy it off a scalper, or pay someone to stand in life for them. For healthcare they can just fly to a private clinic.
There’s a lot of ways in which the cost of healthcare in US is inflated due to restrictions and monopolies. Don’t form an opinion on the premise that healthcare is intractable expensive.
> Economics 101 often fails to convey the crucial fact about rationing: under any rationing system that isn't a pure random lottery, the only effect of rationing a good is to change the currency in which that good is priced. [1]
Isn't it often worse than that?
Unless rationing can be perfectly enforced (e.g. require consumption of the entire resource under observation of enforcers, which is actually most tenable with housing by frequently checking to make sure only the authorized people are present) then secondary grey/black markets form when there is an opportunity for arbitrage.
> People often mistakenly think that if the price of a good is opaque, then the good must not have a price. This is incorrect. What's more, if you believe it, then you're almost certainly getting over-charged. And very unfortunately, this mistake tends to be most common among less sophisticated folks — who are the very folks that rationing was intended to protect in the first place.
Note that this is one of the problems in the US too. Health care prices are pretty opaque, it definitely has a price - which you'll find out after you get something done, and I would argue people get overcharged - evidenced by the fact that insurance companies can come in and slash the bill to a fraction of what it was (literally saying "you aren't allowed to charge this much").
> What makes dollars unique is that if you inject more dollars into the free market for a good, then ceteris paribus, you will cause more of that good to be produced.
Markets don't actually work this way in practice. That's the theory, the theory rarely actually pans out. We could look at US healthcare, which is an insane mess, but it's pretty easy to argue that it's not actually a market due to insurance and opaque pricing and all the same problems. We've kind of got the worst of all worlds over here. But dental and vision care, which are closer to real markets don't actually work any better. They're still expensive, in accessible, and pretty non-responsive to price signals.
Instead, take something like food, where it's a commodity. That's a place where markets should be the cleanest and most responsive to price signals. We produce 1.6x the amount of food the world needs. And food is some thing where there's a literal cap on the ability of any individual to consume it. Our stomachs are only so big, there's literally only so much each of us can consume in a day. By market theory, prices for food should be almost negative and no one should be with out food given those facts. But that's not how it works out. As always, there are too many confounding factors and the profit motive causes rent seeking at every layer.
By market theory, there should be over production of food, which should cause everyone to have food and food producers to drop out of food production until prices rise to equilibrium where everyone has food and the people producing food have a good living.
Has that happened anywhere? No. Instead, you have corporations standing between producers and eaters finding ways to make food more expensive through value add and marketing. You have producers struggling to get by, buried under a mountain of debt, and often effictively in indentured servitude to the processors. And you have hundreds of millions of people food insecure, tens of millions even in a rich country like the US that massively overproduces food. Because markets in real life don't work according to the theory.
And that's why we can't just approach economic problems with the idea that we can just throw more markets at them. And why we have to think about when systems like single payer, for all their faults, are better than what we'd end up with through markets.
Trust me, if you'd ever had to deal with the American health care system, you would long for the Canadian one.
> Instead, take something like food, where it's a commodity. That's a place where markets should be the cleanest and most responsive to price signals.
There are a whole lot of distortions on every side of the market for food which interfere with a properly functioning market. There are incredible subsidies paid to farmers to produce specific things (which then cause over-production in those items). There are tariffs to protect privileged farmers. There are actual import and sometimes export quotas. Then, rich countries dump the over-production as in-kind food aid to poor countries undermining poor farmers there.
Case in point is Nebbia v. New York[1] where the supreme court affirmed state interference in free markets by setting a price floor on milk to protect a select few milk producers.
Going back to my first comment. The mechanics are clear. An effective price ceiling leads to too few units being offered relative to the units demanded resulting in perpetual shortages and non-market mechanisms end up determining who gets the benefits of the existing units. Persistent price ceilings lead to chronic reduction in investment producing the thing.
Similarly, effective price floors (minimum price of milk, minimum wage etc) lead to too many units being offered to the market leading to persistently wasted productive resources.
Both reduce the total productive capacity of an economy.
But that's the point. There are always going to be distortions. And only some of those distortions come from the government. Perfect markets don't exist and can't exist. They don't line up incentives as advertised, the incentive for the producer to take as much as possible from the consumer drives all kinds of insane and harmful unexpected behavior. And market competition doesn't keep that incentive in check as the theory holds, because all producers share the same incentive and their interests align. Government distortions are sometimes self serving as you've pointed out, but just as often they are attempts to counter act the distortions created by the markets themselves.
Economic theory has never been predictive to any reasonable margin of error. And a theory that cannot predict outcomes is not a valid theory.
Perfection is good to have in models to demonstrate limiting cases, but not necessary to know the difference between situations where prices are allowed adjust and where prices are not allowed to adjust.
The "markets are not perfect" crowd loves to imagine the existence of a "perfect" and benevolent social planner who will always act according to their wishes. Let me know when you find one. (I know, "#realsocialism never been tried).
> Economic theory has never been predictive to any reasonable margin of error. And a theory that cannot predict outcomes is not a valid theory.
I find it ironic that you make this statement in the context of a clear cut demonstration of what happens when prices are not allowed to adjust.
There are a zillion markets across the world where one does not need to depend on the benevolence of the proprietor to get what you want or the benevolence of the customer to earn a living. Those get conveniently ignored.
If price controls worked so wonderfully, Uber, which was only an improvement on what was there before it and nothing close to "perfect", would not have become so popular. I would have loved for them to run a continuous double auction, but then nobody every gave me a billion dollars to burn.
> distortions created by the markets
By definition, distortions are created by interventions in markets.
> We produce 1.6x the amount of food the world needs. [...] By market theory, prices for food should be almost negative
Can I get a source for the 1.6x figure? I suspect it's 1.6x on the field, but doesn't factor in losses in transport/processing. By the same logic, we generate 110%[1] the amount of electricity that the world demands (at the power plant, 10% is lost due to transmission losses), therefore electricity prices should be negative as well.
So being able to get something after a wait is worse than not being able to access it at all by being priced out? That's a hot take.
Just because something is "priced" in a different quantity doesn't mean that it isn't cheaper or higher quality overall. That requires a more sophisticated argument than a simple observation that there's still some cost.
> the only effect of rationing a good is to change the currency in which that good is priced
This just sounds like an instance of the fact that a sufficiently abstract system of reasoning can be always be forced to described any particular patch of the world. Though typically at the cost of considerable contortions of the terms that makes no sense in other bits of the world.
For example, you may well say that "ability to navigate bureaucracy" is a currency. But it's hard to understand how you put that currency in a bank, in which sense this currency splits into perfectly equivalent units, or how it represents equivalent value at many different physical locations since the specific bureaucrats are tied a specific location.
By the way, picking an instance of cheating as some sort of general argument of why a specific system is not to be trusted is just a straw man, since the problem of cheating is independent on the exchange mechanism. Alternatively, accept this argument: scammers on Amazon prove that free market mechanisms don't reliably give a fair price.
Since this is not a public service, then no rationing is not bad. In the US, a lot of the homeless shelter are faith based and each only have so many beds to go around each night.
There are not more since someone has to put up the money for the investments. And entrance fees would not likely work for anything new and not novel. Only the government can spend more than it makes.
I don't think you would be permitted to have a faith-based test for entry into a homeless shelter in the US, though, even if the shelter were faith based. I'm not a lawyer but I've seen enough fair housing act noticed when buying, selling, and renting housing.
Interesting, but since no money is changing hands I wonder if there are exceptions. I mean I can see some people preferring people sleep on the streets than see a faith-based test allowed to exist, but surely those people's irrationality doesn't prevail?
I mean, you could ask the same question for a race-based test, and come to the same basic conclusion: that it is "irrational" to prevent it.
I think you have to leave look a little deeper to reach a correct conclusion. Namely: I don't think significantly more free housing would in fact be offered without these regulations. So it would not be rational to allow this type of discrimination. The regulation in essence provides an anchor "price" for free housing, while not distorting the "market" very much. This is a good type of regulation to have.
Yes. When a good or service is always available to anyone who can pay the price, all one needs to do is find the money and one can get it.
When prices are set artificially low, both current and long term go down which results in perpetual shortages. Since getting the thing now depends not just on being able to come up with the cash, but relies on the pen of a bureaucrat, corruption seeps in and becomes endemic.
This charity is able to get it done by requiring adherence to a specific religion which serves both as a selection and an enforcement mechanism.
If one is tempted to think of generalizing this, I would recommend reading about both Western socialists waxing poetic about USSR's "solutions" to housing shortages and the reality of housing in the Soviet Union. Unfortunately, city & urban planning programs as well as architecture schools tend to produce a lot of credentialed people who parrot the former.
"all one needs to do is find the money" is the mechanism that keeps some people out of the housing market, or at least makes their lives pretty hard. Middle-class families can find the money, but the poor do not and usually cannot (for whatever reasons) raise their value on the job market enough.
A case can be made for rationed housing at extremely low prices. If you let anyone in, you would get a cash-flow problem and distort the market, but not if you limit it to the poor.
> Yes. When a good or service is always available to anyone who can pay the price, all one needs to do is find the money and one can get it.
This sounds nice but breaks down because shelter is a human need, it is not a new iPhone.
I am aware that the solution to housing crises is build build build, and that the more profit is in developing housing the more there is being built, but pretending a place to live is like any other common good is cold and wrong.
> pretending a place to live is like any other common good is cold and wrong.
Does it help if you pretend that it's not? Do you get more investments into housing, and in the end, more houses, if you consider housing different from other markets?
I am not pretending anything, I am merely pointing out that shelter, like food an water, is a basic human right (although judging by HNs donwvotes, they'd be fine with starving and dehydrating people as long as someone is making a massive profit).
I think many here disagree with you about it being a human right, because unlike the earlier human rights, it's not "leave people be" at its core, it's "you have to do X for people". If anything, it's a human entitlement, but that doesn't have the same ring to it, I suppose.
And then there's the next part: how good and how much? What's the housing that everyone supposedly has a right to? 100sqft? 500? 1000? And of what quality, and where? Do they get to choose the location?
> If anything, it's a human entitlement, but that doesn't have the same ring to it, I suppose.
This is nonsense you just made up. Positive and negative rights are both rights, as is common understood in English but especially as defined within political science and philosophy. [1]
> Due to the fragile nature of the formation and the large number of people wishing to visit it, a daily lottery system is used to dispense only ten next-day permits in person at the Kanab visitor center. Additionally, ten online permits for each date are available four months in advance of a planned trip.
There will be a perpetual shortage.
This is not a bad thing ... unless you don't care about preserving things for the future.
Do you still think rationing is bad? Or is my example not a case of rationing?
Bavaria is majority Catholic. "Demonstrate financial need" is likely a much stronger selection mechanism.
You didn't answer my question about why, if there's a wait list for this place, and since it's proven to be economically sustainable, other housing isn't built along these lines.
> corruption seeps in and becomes endemic
After 500 years, is the Fuggerei endowment fund corrupt?
Corruption can seep in whenever the person making the decision isn't the person making the profit. Even in a free market.
>Bavaria is majority Catholic. "Demonstrate financial need" is likely a much stronger selection mechanism.
According to wikipedia bavaria is only 49.6% catholic. I'm not sure how excluding more than half the population on the basis of religion can be justified.
German Catholic is pretty strong still. Church runs a lot of hospitals and kid/youth things, daycare and so on. They require Catholic employees, they frown upon non married couples and so on.
My point is that the requirement to demonstrate financial need is likely a significantly stricter criterion than the requirement to be Catholic, so the latter shouldn't be singled out.
It’s not obvious to me that this is economically self-sustaining, that is to say it could be recreated starting from scratch today (without the initial grant from the Fuggers).
After 500 years, is the Fuggerei endowment fund corrupt?
I do not know about their internal workings. As I said, in this special case, verified adherence to the rules of a specific religion may help. However, history is filled with examples of catholic clergy dispensing with favorable judgements in exchange for things of value. How do you know if a more "deserving" person was not passed over for someone else who may be had a good connection or promised personal favors etc.
Regardless, I was referring to the situation when someone tries to replicate something which seems to work in a 160 person case at a grand scale.
You implied the corruption was inevitable. Either the endowment fund is corrupt already, or your assertion about 'inevitable' is meaningless.
History is filled with lots of examples of corruption. Including in free markets.
You were referring to the existence of a years-long waiting list, as if it were a meaningful evidence they should raise rents in order to avoid the artificial scarcity you think is universally bad.
How would raising the rent change the wait time for ground floor housing? By forcing poor people to move out because richer people want to move in?
That doesn't sound like a good thing.
According to standard economics, since there's a demand, why isn't there other, new housing along these lines - where costs are paid for by investments and entrance fees rather than rents?