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I'm not real clear on why a 1997 article from a routinely discredited right-wing think-tank on this issue is Hacker News....but since we seem to be playing "cite old biased articles", here's the sordid history of how unregulated landlord greed drives out affordable housing:

http://www.tenant.net/Community/history/hist-toc.html

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Routinely discredited? Right-wing? Cato is clearly libertarian. I suppose that tends to the right, but it's not "right wing" in the traditional sense.

Examples of how Cato has been discredited?

Cato tends to be a little simplistic in their models. For example, with immigration they say it has no ill effects. Well, in the long-run I'd probably agree with them (save for the fact that natural resources are being split among more people which I think would be made up for in other ways that they cite). In the short term, it takes time for economies to adapt to changing tastes, changing spending patterns, essentially the changing makeup of the marketplace. And that does cause friction in the short term.

Likewise, as much as I defended the abolition of rent control in MA in my earlier comment, it caused a lot of short-term friction that was really chaotic. A better plan would have been to phase market rent in. Landlords had been under rent control for so long that when it was lifted, prices could double or triple. BAD! If you, however, say for the next 10 years you can raise prices by up to 15% per year and then in the 11th year you can charge whatever you want, you avoid the friction that occurs when sudden changes happen.

I'm not someone who thinks we should defend dying industries or mess with pricing a lot, but market economies don't do well with instability. Instability randomly reallocates money from some to others. For example, if you lend me money at a 20-year fixed rate of 7%, the future could randomly reallocate money between us. If interest rates drop, you get lots of money. If interest rates rise, I save a lot of money. Heck, if inflation reaches 9%, you're loosing tons of money! Random reallocation is a bad thing and stability ensures that random reallocations are kept to a minimum.

I dislike the American auto industry, but I'd like to see its death be a lot slower than those who are strictly libertarian. What do you do with a million workers? Well, plenty, but you don't do it fast. However, if the number is in the thousands of workers per year, its easier to find ways to employ them as new industries get created. Heck, even other companies might want to buy pieces of the American auto industry, but can't afford the whole thing. Honda and Toyota might see this as an opportunity to get a new plant or two. Tesla motors might be able to raise the capital in a few years to do more. But an all-at-once situation just creates friction and chaos.

Maybe Cato is right and I'm wrong, but I appreciate stability. I appreciate knowing that everything isn't coming to an end even if I'm loosing out on 5% for that stability. Discredited (as the original author claimed) is harsh, but I think economics is a little more nuanced than any pure philosophy.

I see that you disagree with their viewpoint, but I don't think that you "discredit" them.

Immigration: I don't think you really disagree with Cato. Arguing that immigration restrictions should be eliminated does not necessarily entail that one believes the restrictions should be lifted all at once.

Rent Control: Rent control causes higher prices for everyone except those who happen to have a rent-controlled apartment, because it discourages improvement of existing properties and discourages building new properties. It also encourages over-buying. Someone may pay $2000/month for a 3 bedroom apartment that has been rent controlled since the 1970s, but only use 1 of the bedrooms. That person could find a 1BR apartment within budget w/o rent control, and someone (maybe 3 room-mates paying $1500 each) could share the 3BR place. Overall this is a more efficient distribution of resources, the benefit of which occurs immediately. I don't really feel sorry for someone getting a huge apartment for way below market price.

Interest Rates: I'm not sure I understand what you mean, since interest rates vary based on unpredictable Fed action and unpredictable market forces all the time. Banks (lenders) hedge against this by buying/selling instruments to even out their Fed risk and by buying insurance to hedge against many of the other risks.

American Auto Industry: What makes you think there would be a chaotic "all at once" situation? That is part of the fearmongering on the part of the firms seeking rents (and the politicians they have bought). Recall how Dubya told everyone that if the US didn't invade Iraq there was an "imminent threat to US national security"? The automakers used that exact strategy to obtain a bailout.

Stability is an interesting concept. It's the essence of "conservatism", wanting to preserve the status quo. Marx warned about this in his manifesto. Anyone who has managed to get a leg up will fight to preserve it at the expense of productive change.

In today's world, this includes the people who thought they were investment geniuses because the value of their home increased 40% the year after they bought it, it includes the overpaid workers who convince themselves that a hard working person immigrating to the US is somehow unamerican, it also includes the politicians who enjoy the huge donations they have been getting from the financial services industry and don't want to see endangered.

So if you put aside the "I want to keep my small advantage at all cost" conservatism, and you do away with the Bush-style fearmongering about imminent threats to "stability", what you find is that the world really isn't all that scary, and often times the meddling that is done to try to prevent "instability" actually does far more harm than good. The Iraq war is a case in point.

Note that "stability in the middle east" is the motto of those who want to go and turn it upside down with bombs and nation building! The same applies to domestic policy.

Just addressing the on-topic portion of your comment (not that the rest wouldn't be worth commenting on, just not enough time or energy) - I really don't understand your criticism of rent control.

"It causes higher prices for everyone not under rent-control."

Yes, but that's almost the whole point of rent control - people aren't being displaced by the folks bidding up the price of all the other apartments to absurd levels. The article makes it sound like without rent control everything stabilizes into this beautiful bell curve with housing for everyone, but it doesn't actually provide any evidence for this (other than showing less populated and geographically confined cities without rent control).

"Discourages improvement of existing properties"

Because the properties are certainly more important than the people living in them, right? I mean, our goal as a society should be as many improved properties as possible.

"Discourages building new properties"

This one baffles me: new properties aren't subject to rent-control in the vast majority of cases. It seems like rent-control is almost a direct stimulus to build new properties.

"I don't really feel sorry for someone getting a huge apartment for way below market price."

What about feeling sorry for someone who has made their home somewhere for 20+ years and is now getting shoved out because they made a tv show that was set in the neighborhood and a bunch of young overpaid professionals want to play cool for a couple of years?

The point is that rent control (over time) drives up the price of rental dwellings, a phenomenon which greatly harms the poor. Here's why:

In many cities, new buildings are exempt from rent control if they are "luxury" buildings. So the supply of luxury housing increases. Meanwhile, the incentive to build non-luxury buildings is greatly diminished b/c those buildings fall under mandatory rent control. Also, there is a bigger incentive to turn buildings into condos, etc., to avoid having to deal with rent control. Not sure where you heard that new properties are exempt in most cases. This may be due to the fact that most are luxury buildings.

So there is a finite amount of rent-controlled housing, and since it's such a great deal, the landlords have little incentive to improve the fixtures, furnishings, etc. They will rent the place without improvements, so there is no reason to spend the money on them. Thus the places deteriorate over time and begin to become more and more slumlike.

Rent control also encourages over-consumption of housing space. My 3br apt example above explains one example.

Without rent control, supply and demand can function properly. Maybe this means that cheaper housing is located a bit further from the highest rent area of a city. More likely, if there is demand for cheaper housing, someone will figure out a way to build it. The huge number of condemned buildings in major cities is evidence of the resources that have been completely wasted b/c nobody had the incentive to improve the places enough to make them liveable!

If you rent, it's not a permanent home. This has many advantages -- if you get laid off you can easily move with a month's notice. You don't have to worry about long term upkeep, you don't have to worry about hiring a realtor or trying to recoup your investment if the market dips. The other side of the coin is that sometimes prices change to reflect other realities. An increasing price probably means that the area is thriving and (surprise) the space is actually worth more. Once you get into declaring that things should be priced by public officials rather than based on the market price (what they are actually worth to someone else who's willing to pay for them) you are stepping onto a very slippery slope.

New properties are exempt at least in NYC and SF, the main cities the article harps on. I don't know about elsewhere.

A place deteriorating over time happens, but from the POV of the tenant whose alternative is getting booted to the curb, this seems like a reasonable tradeoff, doesn't it?

The over-consumption of housing space is a pretty lame argument, and it's contradicted by the point that other people are making about a black-market rising up for illegal subletting & etc.

"Supply and demand functioning properly" is a bit heartless in this context, don't you think? I mean, we don't exist so that some theoretical system can work in a way we can easily describe. When people get kicked out of the place they live, that has a cost - even if we haven't figured out how to put a price tag on it yet. I'm more than happy to say "screw the newcomers" in favor of the established citizenry.

As for rent control being a slippery slope: this is bullshit (sorry). Despite free-market dogma to the contrary, reasonable government policy is not the enemy of the good. See: the recent credit crunch. What would something similar look like for a community? Let's see: an area of town becomes trendy, young folks with lots of disposable income bid up the prices like mad, all the old tenants leave, an economic downturn hits or the neighborhood loses its trendiness, all the young folks who have no real ties leave, and then...

I have no problem with a program designed to subsidize housing for people with tax dollars. If the democracy decides that people with attributes x, y, and z deserve a $2000/month housing subsidy, that's fine. It's no different than the subsidy given to mortgage debtors (tax breaks), parents (the child tax credit), electric car owners (tax credit), student loan debtors (student loan interest deduction), farmers (direct subsidy), etc., etc.

But consider how paternalistic any of these programs are compared to simply giving the person cash to spend on whatever he/she wants.

Also, the above programs are taxpayer subsidized so the burden is distributed across all taxpayers. Rent control, on the other hand, screws over the building owners only, effectively making a single building owner personally provide a $1000+ subsidy to a hundreds of people. Compared to a broad, taxpayer-subsidized program, this is equivalent to a 70% additional tax just on landlords, this is on top of that person's fair share of income and payroll tax already being paid!

The biggest problem, though, is the distortion caused by rent control... which causes all of the problems in my above post.

To make obvious the issue of price controls leading to shortages, consider this: During the 1970s when Nixon instituted price controls on gas at the pump, there were massive lines outside gas stations. This was not due to the "evil Arabs" withholding gas. It was due to the price controls: People who would have decided to carpool or walk if the price had been at market price decided to buy gas at Nixon's price. This led to huge lines.

That's a fair point, though I disagree about the parallel to gas prices (housing isn't a commodity, and rent control only applies to existing tenants). I've been in the position of defending 'rent control' on this thread, but really all I'm committed to are the ideas that the op was a terrible article that proved nothing, and that not displacing people from their homes is a worthy societal goal. If there are better ways to accomplish that than rent control, I'm all for them.

Fair enough. On a slightly tangential note, I think that the idea of "uprooting from homes" is a bit of an unfortunate cliche. In reality, it is home ownership that shackles people to jobs they hate, etc. If you rent, you can move whenever you want. If you own a home, you can't move if the job market declines or you find a better offer elsewhere unless you hire a Realtor and go through a major home sale project... and if the local economy is in decline, you're probably not the only person trying to sell your house and so you may end up selling it at a big loss (as was the case in post-industrial Flint, Michigan).

I realize that landlords have been vilified in the past, but who is really benefited by suppressing the mobility of the population? It's businesses (whose workers can't leave), it's politicians (who don't have to worry as much about people packing up and leaving in response to bad policies, corruption, etc.), and it's banks -- most people pay at least the value of their home in mortgage interest, and are effectively enslaved to the bank, an unrelenting landlord who can inflict the equivalent of modern-day debtors prison in the form of foreclosure credit destruction and confiscation of any equity earned since purchase.

How many people are tremendously afraid of losing their job because they might lose their house (their biggest investment)? How many people put up with unfulfilling, soul-sucking work just to make that house payment?

Consider how this has all changed -- how many more debt slaves were created -- when the housing market tanked. Home ownership is not the American dream, nor is being part of a community for the long term, nor is having the same job for 30 years and then retiring with a gold watch and a pension.

True freedom is in being able to take a better offer and being able to reinvent one's self whenever one wants. But our entire financial system, it seems, was based on the idea of encouraging long-term debt (mortgages) and the stasis that accompanies it.

So I think the ideal that you are striving for with not uprooting people from their rental apartments is not only illusory but destructive. Price changes contain information, and preventing price changes simply hides information, keeps people in the dark, etc.

Maybe being uprooted will (metaphorically) allow the plant to catch flight and land somewhere better... Maybe rental real-estate prices are so high because tons of rich people are moving in and they all plan on sending their kids to private school, leading to the destruction of the public schools -- this is the case in SF where most people with money would never send their kids to SF public schools even though it costs $2K/month to rent a dumpy 1BR apartment and so objectively it's a "rich" area.

I agree with basically everything you've said here, except the conclusion that all this means allowing people to avoid being uprooted from their homes is destructive. This is mainly because I don't think that the argument that "rent control traps renters in their low-rent apartments" holds any water - the alternative would have been displacement from the increased rent, and the tenant still wouldn't have been able to find a place in the same area (this terrible articles assertions aside). Also - price changes contain information, sure, but how is that information being hidden in a rent-control environment? With increase-on-vacate and no rent-control on newly constructed units, it seems like it's pretty rare that rent-controlled units would be so highly concentrated in an area to mask the true market value.

I agree that the item you mention is not a particularly strong argument, but I wanted to mention some examples of how rent control blocks a price signal that might even be useful for the beneficiary of rent control. I think it's uncontroversial that it blocks the price signal to renovate the buildings and to build new affordable housing as discussed above.

But if you agree on the major point that the social engineering geared at getting people to live/work in one place for a long time is on the wrong track, then our differences seem focused on rent control.

I should mention that in my last building in SF there was a guy who had lived there in a rent controlled apartment since the 1970s. After the first year I lived there, a letter arrived in the mail informing me that rent would increase by exactly 1.5%, the maximum increase allowed by law, and that the landlord was pushing for "utility cost pass-through", a rent-control exception that allows slightly bigger increases in cases of utility price jumps. So I was a beneficiary of rent control.

Back to the guy. His apartment had a view of the bay and golden gate bridge from every window, including the bathroom. It could probably be rented for $3500+/month because of the amazing views. He was a wealthy lawyer, arch-enemy of the landlord and heavily involved in the tenants union, and completely not in need of any help paying rent. With rent control he was probably paying under $1000/month for his apartment and had been for years. He will probably live there until the day he dies.

I'd have been far less skeptical of rent control if there had been an immigrant family living in that apartment or someone who worked at the local Walgreens.

Maybe I should have been more clear. I agree that social constructs designed to chain people to a given location are bad; I disagree that rent control is one of these constructs. It might be true that people tend to hang on to apartments that they otherwise wouldn't because they're getting a great deal, but this is a voluntary choice, not the company store. The bit about "allow[ing] the plant to catch flight and land somewhere better" seem like a little bit of movie logic. Many people do derive real value from being established in a community, and would be hurt by being forced to move.

Why does the debate always veer back to renovation of the buildings? Do you really think that adding stainless-steel appliances to an apartment is a more desirable goal than not displacing established residents?

As for your personal experience with the wealthy lawyer, here's the balancing anecdote: I live in the Mission, a part of town where rents are rapidly increasing (I'm sure I'm guilty of driving up prices). There are plenty of people down here who can only afford to stay in their homes because of rent control, and stories of tenant intimidation are plentiful.

For renovation, it's not just stainless steel appliances, it's little things over time. In 1 or 2 years it's not really noticeable but over 5-10 years it starts to take a toll. Even the building I used to live in used a large tarp on the roof rather than fixing some leaks that would drip through the ceiling of my apartment and cause bubbles in the drywall when we had heavy rain.

In the mission, I would prefer if a subsidy was just given to the poor via tax dollars. Say it's a $200 per household subsidy. Maybe it makes sense for that family to pay it to the landlord, but maybe it makes sense to find a cheaper apartment and spend it on a TV. If it turns out that the TV was the chosen decision, that helps drive down the price of rent b/c maybe the landlord will have a slightly harder time raising rent prices. If, on the other hand, the tenant chooses to allocate the money to housing, it will help drive up housing prices. The upside of driving up housing prices is that it now becomes more worthwhile for someone to convert their house into apartments, which in turn increases supply and would tend to help keep prices affordable.

Of course it's not just stainless steel appliances - the thrust of the argument is that it's silly to think of buildings as more important than the people inside them.

Direct payment like you're advocating is a political non-starter. As paternalistic as it is, taxpayers don't like the idea that their money could be spent on anything, they want it to go only to the things they approve of.

Well, the extreme case of non-upkeep is the vacant buildings in NYC, etc. When nobody can make a profit from a building, it gets abandoned. This isn't an overnight process. It starts by using a tarp on the roof instead of fixing the roof, and it ends when the building is abandoned and nobody has to pay any rent or fix any broken pipes, etc.

I agree that the public would rather "force evil landlords to do x" than achieve the social goal in a minimally economically distortionary way. It similar to how politicians give handouts to people who drive hybrid cars while at the same time fighting a hugely expensive war to prevent oil prices from increasing to the point where people would just buy electric cars because they were cheaper!

Oh my. Two minutes of web search:

http://www.accuracy.org/article.php?articleId=51

http://www.cato-unbound.org/2008/11/12/matthew-yglesias/poli...

http://davidbrin.blogspot.com/2006/05/cato-hypocrisy.html

http://www.socsec.org/publications.asp?pubid=325

http://www.sierraclub.org/sierra/200207/thinktank.asp

http://www.acsh.org/publications/pubID.498/pub_detail.asp

http://www.no-smoke.org/pdf/catoinstitute.pdf

http://www.fair.org/index.php?page=1409

http://www.iwpr.org/pdf/CATORIB.PDF

http://www.exxonsecrets.org/html/orgfactsheet.php?id=21

http://www.allacademic.com/meta/p_mla_apa_research_citation/...

http://yglesias.typepad.com/matthew/2005/01/im_friends_with....

http://www.businessweek.com/bwdaily/dnflash/dec2005/nf200512...

http://legacy.library.ucsf.edu/tid/vdh56a00

http://www.nationalreview.com/comment/comment-fonte050902.as...

http://www.skepdic.com/refuge/junkscience.html

http://en.wikipedia.org/wiki/Steven_Milloy

http://web.archive.org/web/20011122034255/http://www.tnea.or...

http://www.pkarchive.org/global/swedenomics.html

http://www.atimes.com/atimes/Asian_Economy/EG12Dk01.html

Trying to pretend that Cato in practice is anything but a shill for big business (including, in particular, the fucking tobacco industry) and the greedy is moronic.

How does opposing the automotive bailout and the financial bailout constitute being a shill for big business? I'd say it's quite the opposite!

The right is inherently anti-union (hence not supporting automakers in this case) and pro-corporate. And all of Cato's positions about "personal responsibility" vs. government regulation (of tobacco, or oil, or whomever else pays them) is obviously a tactic to influence public opinion against regulation under the guise of being pro-individual. It's total bullshit. They're about as libertarian as my left nut.

What would an actual libertarian position be? How would it be argued? What regulation (and what bailout(s)) would it favor?

Their defense of the tobacco industry has always been centered around the rights of the individual. Just because Phillip Morris pays a few dollars to keep the institute running does not mean Cato's arguments are unfounded. All think tanks have financial backing from some faction or another, and (surprise!) it's usually the people who agree with the think tank's point of view.

Just because a think tank accepts money does not make their arguments wrong. As an individual, it's up to you to research both sides and decide on which makes the more compelling case.

"Just because Phillip Morris pays a few dollars to keep the institute running does not mean Cato's arguments are unfounded."

lol

"As an individual, it's up to you to research both sides and decide on which makes the more compelling case."

Yup. If you don't give equal time to paid shills you're not being Fair and Balanced.

What source is not a paid shill? Everybody has to pay the bills. Sure there are organizations that don't pay or pay very little, but they don't get the best and the brightest and they can't spend money to keep their people informed.

Do you think people should be allowed to smoke? Should they be allowed to eat Doritos? Should they be allowed to skydive?

Do I think people should be able to have a burning stick in their mouth that increases their risk of getting cancer (which will drive my insurance costs up as well, potentially) and even more so to people who are unfortunate enough to be stuck in an enclosed area with them (e.g. waiter/waitress in a non-smoke-free resturant/club)? No, not at all. If governments didn't make so much money off the cigarette taxes, I'm sure they would be illegal by now.

Eat Doritos? Until they're shown to be poisonous or something, sure.

Skydive? Sure, just not over houses or heavily populated areas.

socially liberal & fiscally conservative != right wing

you are correct sir, if you have two variables, you get a whole plane of possibilities, not just a line ;) I guess its too late to teach basic math to the masses though.

When the squares actually visit LineLand though, who do they hold their noses and vote for? My guess is that they generally vote Republican (like, for instance, Milton Friedman), or did at one time. Perhaps that's changing?

Cato actually has done some studies on the libertarian vote. It went overwhelmingly for George Bush in 2000, but swung about 20 points democratic in 2004. I'm not sure that they've updated the study for 2008, but my gut (and surveys of self-identified well-known libertarians) tell me Obama won the vote.

If you like market economics, don't care if your neighbor is gay, and don't feel like occupying countries on the other side of the world, there is really nobody pandering to you. You tend to move around.

Edit: Here's the paper comparing the 2000 and 2004 elections that I mentioned

http://www.cato.org/pub_display.php?pub_id=6715

Kerry did 18% better than Gore among libertarian voters, despite not having a libertarian bone in his body. Bush won the demographic in both elections, but lost 13% between 2000 and 2004, for a 31 point net swing.

Interesting. It would be fun to have numbers for the past, too, to see how much 'bouncing around' there was, and what it could be correlated with.

http://www.cato.org/pubs/pas/html/pa580/pa580index.html

page 13

Keep in mind that these are "soft libertarians", people that consider themselves economically conservative and socially liberal, but don't necessarily go around trolling message boards with anarchist philosophy.

2004 seemed to be unusually bad for the republican percentage of the libertarian vote. The only worse year was 1992, when Ross Perot, Clinton, and Bush I all got a third (well, I think 2008 will be bad, too).

I don't see that "libertarian" entails "anarchist" or even "trolling message boards."

I'm a liberal and don't fully agree with the argument that rent-control is necessarily and uniformly bad-- although New York's 1940s rent control system sucks-- but I thought it was a well-written and interesting article.

I think economic articles on HN are fine, because economies are systems, and hackers have an innate interest in systems that are not always silicon-based.

The problem is that economics turns into politics, and that attracts a wide range of people who are not hackers, and don't really care about it. And of course, yes, it's a system, but it's a big, hairy complex one that is also impossible to do repeatable experiments with in many situations. Even lots of good economics blogs, by real, serious, respectable economists are full of stuff like "my view is that... " or "I feel that ..." or "I think...".

I'd really like pg to comment on this in a definitive way, though. I'll start posting my own economics articles if it's deemed to be ok, and we'll see what happens.

I think that if it doesn't involve political parties or politicians, it might work.

I mean, it's going to be hard to have a board about startups without talking about market theories, techniques of persuasion, economic trends, role of government in the creation of wealth, distribution of wealth, rational versus irrational buyers, etc. All of these are both economics and politics. We have to be able to talk theory, or the board is just going to be technical fluff, like who's got the best SCM system or what famous author X says about Facebook.

I'm really interested in why things work (or don't).

I'd say if it's directly related to startups, it's probably ok. This article isn't about startups at all. Neither are most other economics articles. Some are, and the ones that are are pretty evident.