Fast track to shortages and poverty 46

 The fastest way to wreck an economy is to impose price controls. 

They are coming now to American states and cities. 

Read about it here. An extract:  

Economists have long memories, and they point to price controls in the past that have had very negative consequences, such as gas lines in the 1970s that were caused by price caps on gasoline that made selling unprofitable.

"You had gas lines in the ’70s…. The tougher thing is to think of cases where there was not a shortage due to price controls," said George Mason University economics professor Dr. Tyler Cowen, author of "Discover Your Inner Economist."

Rent controls are among the most pernicious of price controls, economists say.

"In many cases rent control appears to be the most efficient technique presently known to destroy a city – except for bombing," said Swedish economist Assar Lindbeck, a former socialist who has been researching rent control since the 1960s.

"In New York City, the Bronx basically fell to pieces because of rent control. You even had the extreme of landlords burning down their houses."

The South Bronx lost 40 percent of its housing stock in the 1960s and ’70s, largely due to arson. Many buildings were suspected to have been torched by the landlords themselves, who found that their buildings were literally worthless: There was no way to make a profit due to rent controls, and nobody would buy a building that could not make a profit.

Burning the building allowed them to collect insurance money and pay off debts.

"The reason people ask for [rent control] is that those with contracts gain in the short term … It’s a way that politicians can buy votes," Lindbeck said. "But the policy really hurts people entering the market – young people and immigrants."

Posted under Commentary by Jillian Becker on Tuesday, March 17, 2009

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