Some Basic Economics

by Don Boudreaux on March 27, 2007

in Economics, Regulation

The economics of steel daggers and rent-control: here’s my latest column in the Pittsburgh Tribune-Review.

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{ 9 comments }

M.J. McGrath March 27, 2007 at 8:05 am

Good article. Rent control has ruined New York City. Henry Hazlitt made a great case against rent control in his book, "Economics in One Lesson." I am always baffled how rent control would "make sense" to anyone.

Matt C. March 27, 2007 at 8:15 am

I think its a great article. Thomas Sowell always points out how "open" space laws increase housing prices, especially in the Bay Area of California. Then you have politicians howling that minorities and poor are leaving and/or can't find affordable housing.

Similarly with Rent Control you have high end apartments being built because Rent Control laws don't cover them, at least in NYC. Add on top of that outrageous laws that make it impossible for landlords to sell the building or even upgrade it. You end up with a bunch of dilapidated buildings where the landlord has "done runned oft."

M. Hodak March 27, 2007 at 8:34 am

Excellent article, but I would be a little careful with the steel daggers = greater safety line. Economists, after all, should not ignore empiricism for consistency, and the assertion that that safety laws might reduce safety is now a testable hypothesis with actual data.

Most people, knowing that deaths per million miles have steadily dropped since the advent of safety regulations, might be inclined to think the regulations have actually helped. They would think that even if the safety features increased moral hazard, their net effect may still have been positive. I'm not saying I necessarily agree with these assertions. I'm not steeped enough in the regulatory literature to know if they have been adequately tested; you might be. I'm just suggesting that even brilliant thought experiments like Dr. Tullocks can come off as ivory tower hypotheticals if they tend to counter real world data, or people's perceptions of it, that suggests the contrary.

Rent control, for instance, is rich with real-world data supporting the secondary effects you mentioned. Most people, at least those who can read, could relate your explanation to what they understand as the reality of urban disinvestment.

Jim Dew March 27, 2007 at 11:01 am

Maybe we should avoid using the term "economics" altogether. It does make a lot of people's eyes glaze over.

mz March 27, 2007 at 2:45 pm

M. Hodak's view is discussed in Russ's podcast with Sam Peltzman. Peltzman studied the effects of safety regulations on automobile safety and found negligible effects. He notes that automobile safety was increasing before safety regulations were enacted. Thus attributing increased safety since the adoption of safety regulations is dubious.

Craig March 27, 2007 at 8:40 pm

Perhaps I'm getting it backwards, but doesn't the dagger theory contradict your opposition to tougher sentences, e.g. for things like rape? I believe you have argued (or perhaps it was your colleague, so I may be off base here) that tougher sentences for rape would encourage rapists to engage in more serious crimes than they otherwise would have since the potential punishment is severe already (hey, when in Rome!).

So one set of ill consequences would deter people from bad behaviour and another would encourage more of it? I don't necessarily disagree with either position, but what am I missing here?

Tense Alcyoneus March 27, 2007 at 11:04 pm

Wow. I'm a frequent critic of Boudreaux, but this article is excellent.

Global Warming March 28, 2007 at 12:15 am

Craig:

I do not think there is as much of a contradiction as you think. The steel dagger thought experiment does not demonstrate that absolute punishment absolutely prevents bad behavior. Rather, it shows that changing the costs changes behavior. The apparent incongruence of the two examples disappears if marginal cost are considered.

In the criminal context, the argument goes that punishing rape the same way you punish murder may deter rape, but will likely not deter murders that follow rape. The point is that if the marginal cost of bad behavior is zero, then the bad behavior is more likely to take place than if the cost of bad behavior is greater than zero.

The steel dagger thought experiment is consistent with this hypothesis. It suggests that increasing the safety of automobiles will encourage bad behavior by driving down the cost of bad behavior, and suggests that, if the goal is to decrease bad behavior, increasing the cost of bad behavior may be more effective.

Does this help?

march March 28, 2007 at 12:32 am

mz,

I understand that attributing increased safety with increased regulation is dubious. I was suggesting something different–that it's not obvious that the additional moral hazard arising from safety regulations wasn't at least offset by the benefits of the added safety features. It is likely that airbags may have caused more crashes, but may still, on net, saved lives. The mere fact that it's a close call, as Peltzman's study suggest, makes this example far less convincing than one like rent control, where the benefits don't come close to the costs.

Again, I'm not saying I agree with safety regulations. Personally, I think they're superfluous and costly. My point is rhetorical, not substantive.

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