Framing the Debate
To restrict the frame of the debate, the form of welfare to be discussed in this thread will be limited to that to which people are able to care themselves and do have the opportunity to get back on their feet. It should be obvious as to who does not fit into this category, such as the severely mentally handicapped or those who are fully paralyzed.
The reason for this restriction is to narrow the debate. To make it clear, there are two questions to the welfare debate.
1. Should the government have a role in providing/supporting for those who have no capability of providing for themselves?
2. Should the government have a role in temporarily provide for themselves?
Two very different questions. What is most debated is the second question and so that is what will be focused on. There is no issue is debating the first question in this thread as it is apart of welfare, but in context to welfare benefits, most of the discussion refers to the first question.
To make it clear, both sides of this debate have a common end in mind. The difference is in opinion of the effectiveness/results of a mean to an end. Those who oppose welfare want to help people. Those who support welfare want to help people. Certainly there are those who oppose welfare for immoral reasons just as there are those who support welfare for immoral reasons, but the discussion will go best if under the premise that both sides want to help people. It is perfectly acceptable to believe that the opposing side is wrong and that the mean they want to employ will do the opposite of help people, but it isn't acceptable to claim that they want people to live on the streets and die of starvation or that they want to create a dependent underclass to keep in poverty. Nobody wants either of those.
I have no doubt that the people who support welfare programs have good intentions, yet it makes no sense to base worth of a program off the intentions of the program, or to support a program based simply on its intentions. Foreign aid for example had a very valiant intention, yet the result was quite negative.
In his book Losing Ground: American Social Policy, Charles Murray said this:
Let me pose a problem in the form that Einstein used to call a “thought experiment.” Whereas Einstein used the device to imagine such things as the view from the head of a column of light, we will use it for the more pedestrian purpose of imagining the view from the office of a middle-echelon bureaucrat. Our task: To think through how to structure a specific government social-action program so that it might reasonably be expected to accomplish net good.
The experiment calls for us to put ourselves in the role of a government planner who must implement a new piece of legislation, The Comprehensive Anti-Smoking Act. The Act has several provisions common to the genre. It establishes a federal agency to coordinate the federal government’s activities related to the goal of less smoking. A large anti-smoking advertising campaign is planned. Federal matching funds are provided for school systems that teach courses on the perils of smoking.
In addition to these initiatives, the legislation provides for direct, concrete incentives for people to quit smoking. A billion dollars will be appropriated annually for the indefinite future, to be used for cash rewards to persons who quit. We are in charge of designing this effort, with complete freedom to specify whatever rules we wish, provided they are consistent with constitutional rights. After five years an evaluation will be conducted to determine whether the number of cigarettes consumed and the number of smokers have been reduced by the program.
The challenge in this experiment is to use the $1 billion in a way that (in our own best estimate) will meet this test. My proposition is that we cannot do so: that any program we design will either (1) have no effect on smoking or (2) actually increase smoking. I maintain that we are helpless to use the billion dollars to achieve our goal.
The heart of the problem is designing a reward that will induce smokers to quit—and will not induce others to begin smoking, continue smoking, or increase their smoking to become eligible to receive the reward. Let us work through one scenario to illustrate the nature of the conundrum.
Designing the Program
Three sets of choices will decisively affect the success or failure of the program: choices about
-the size of the reward,
-conditions for receiving the reward, and
-eligibility to participate in the program.
What is a first approximation of a program that has a good chance of working?
Choosing the size of the reward. We know from the outset that the reward cannot be small. No one will quit smoking for pocket change, other than those who were going to quit anyway. On the other hand, the theoretical power of a cash reward is plausible—almost anyone would become and remain a nonsmoker in return for a million dollars. We settle on the sum of $10,000 as a reward that is an extremely powerful inducement to large numbers of persons.
Conditions for receiving the reward. We seek a middle ground between conditions that maximize the likelihood that a person has permanently quit smoking and conditions that make the reward so difficult to win that few will bother. Thus, for example, we reject plans that would spread the reward over several years. Eventually we decide to require that a person must remain smoke-free for one year. We make the award a one- time prize, so that people have no incentive to recommence smoking to qualify for another $10,000. A repayment scheme is added: People who begin smoking again will have to give up their award.
Eligibility to participate. The intent of the program is to appeal to the heavy smoker whose health is most at risk. On the other hand, it would defeat our purpose to limit eligibility too severely—to persons, for example, who have smoked three packs a day for twenty years—because in so doing we would disqualify many people in the vulnerable group of moderate smokers who are likely to become heavy lifelong smokers unless something is done. The compromise solution we reach is to require that a person have smoked at least one pack a day for five years.
Now let us consider the results.
After one year: We think ahead a year, and are pleased. The $10,000 reward has substantial effects on the people who are eligible for the program on day one—that is, persons who have smoked at least a pack a day for five years at the time the experiment begins. The effect is not unfailing; not everyone quits smoking to get the reward; and we must assume that not everyone who stops for a year is able to avoid a relapse. Some cheating occurs despite our precautions. But some people quit smoking permanently as a direct result of the program.
We recognize, of course, that we achieve the effect inefficiently. Thousands of persons in the target population quit smoking every year even in the absence of a monetary reward. Under the program, they collect money for doing what they would have done anyway. But the problem posed in our thought experiment says nothing about being efficient; the problem is only to create a program that reduces net smoking.
After two years: We think ahead two years, and are disturbed. For now comes time to examine the effects of the program on people who have been smoking a Pack a day but for a period of less than five years when the program begins.
We find that for all persons who have been smoking less than the required period of time, the program provides a payment to continue. For the person who has been smoking for exactly four years, the payment is $10,000 in return for smoking for one more year. Given that the smoking habit has its own attractions, the payment is exceedingly effective. In fact, we notice an unfortunate imbalance: For the person who has already smoked for five years (our target population), the inducement of $10,000 to quit must fight against the attractions of smoking and is not always adequate to achieve the desired result. For the smoker who has not reached this limit, the inducement to continue smoking is reinforced by those very attractions. Thus the effective power of $10,000 to induce continued smoking for one year in the one population is much greater than its power to induce cessation of smoking for one year in the other.
To this point, we have been concerned only with those who were already smoking at the pack-a-day level. Now we consider the effects of the program on smokers who had been smoking less than that amount. We find that a significant number of smokers increase their consumption to a pack a day, for the same reason. (Everyone who smokes nineteen cigarettes a day increases to twenty, almost everyone who smokes eighteen cigarettes a day increases to twenty, and so on.) This effect is strongest among those persons who think they “should” quit but who doubt their ability to quit without help. For them—through a process of plausible but destructive logic—it seems that the best way to do what they think they want to do (to quit smoking) is to smoke more.
Among those who are nonsmokers, the effects are entirely negative. A considerable number of teenagers who were wavering between starting or not starting to smoke decide in favor of smoking—they can enjoy smoking now, and then give it up when they qualify for the reward.
After five years: When we think ahead five years, we note a final logical by-product of the program. Quitting the habit after five years of smoking a pack a day is generally more difficult than quitting sooner and after lesser levels of smoking. Many people who try to stop when the fifth year is ended find that the $10,000 is no longer a sufficient inducement, though it may have seemed to them a few years earlier that it would be. The rules of the program have made heavy smokers out of people who would have remained light smokers and thereby have induced a certain number of people not only to smoke more and longer until they became eligible for the $10,000 but to become impervious to the effects of the reward once they do become eligible.
What is the net outcome? If 90 percent of the population had been smoking for five years when the program began, we might still argue that the program would show a net reduction in smoking. But only about 15 percent of the adult population smokes a pack a day or more. Let us estimate that a third of this number have been smoking at that rate for more than five years. If so, our plan has the potential for reducing smoking among five percent of the adult population and the potential for increasing smoking among 95 percent of the adult population. It is exceedingly difficult to attach numbers to the considerations we have just reviewed without coming to the conclusion that the program as specified would have the net effect of increasing both the number of cigarettes consumed and the number of smokers.
I suggest reading the rest, but the point of that thought experiment is that there is a lot more to an issue than this than there seems. Policy, especially welfare policy must account for human action to a degree that might be uncomfortable. To many, a policy that could reduce smoking though such means might seem quite achievable, yet after reading such an article it becomes difficult to support any policy through such means. The biggest issue with this topic is that people prefer to simply their logic and accept the intent as the result.
What Constitutes as Welfare
In this debate, it would be any governmental program to ensure a minimal level of well being. It can take many forms in practice but it all stems from four basic methods taken from Wiki.
Subsidy - Subsidizing a good is one way of redistributing wealth to the poor. It is money that is paid usually by a government to keep the price of a product or service low or to help a business or organization to continue to function. In a budget constraint between ‘all other goods’ and a ‘subsidized good’, the maximum amount of ‘all other goods will remain the same but the budget constraint will shift outward for the ‘subsidized good’ because the cost of the ‘subsidized good’ is reduced for the consumer and so they have the ability to consume more of said good. Some people do not want to use subsidies because they want the poor to consume the subsidized good or service in a specific way or because subsidizing goods (such as health care) can lead to an over consumption of the good.
Voucher - A voucher is like a subsidy that can only be consumed in a specific way like a school voucher or section 8 housing. For instance, families who receive school vouchers may only use them to send their children to schools to help pay tuition costs. Schools then exchange the voucher for cash. Similarly, in section 8 housing, families with this voucher can only use the voucher to pay a portion of their living costs in specified units or in a private sector. In a budget constraint between ‘all other goods’ and a ‘voucher good’ our budget constraint will shift out parallel to an amount equal to the amount of the voucher but the money we have to spend on ‘all other goods’ remains capped at the same amount we had to spend before the voucher. Voucher programs can make us worse off because of the cap on our ability to spend on ‘all other goods’ our indifference curves could limit us.
Price Controls –A price control is a set minimum or maximum price of a good or service.
Direct Cash - This is straight cash with no restrictions on how it can be consumed. Direct cash may cause greater budget constraint because the recipient can spend the cash subsidy on all ‘other goods’ or on a ‘subsidized good’. Direct cash increases the entire budget constraint and shifts the indifference curves outward allowing us to maximize individual utility.
The argument from here on will be addressing each form, giving a basic argument, and giving examples of programs that fall under the form and why they do more harm than good. I will not be able to cover all programs or go into full detail on all programs because a thread can only be so big.
Assume this basic scenario. Good A is a bit too expensive for a group of people to afford. Politicians vote for a subsidy that in effect lower the price, and this works for a certain amount of time. But the price of Good A rises again. So politicians decide to increase the subsidy. Then the price of Good A rises again. But hold on a second, why did the price of Good A rise in the first place?
Well if you believe in supply and demand, the decrease in price of Good A created a higher demand which ultimately would raised the price. This effect is really unavoidable. To argue otherwise would be to say that the Black Friday sales don't create increase consumer demand.
Much of higher education is very much subsidized. This has in no doubt has created created a large demand for higher education. Yet really, that claim is false as it really has only created a higher demand for subsidized education. There are two things to pay attention to with this graph. One, that the more people are getting a higher education than ever before. The second is that the slope of enrollment at private institutions is always a a good bit less, sometimes far less than public institutions. Certainly this makes sense given the cost difference, but my point is to not mistake total enrollment for a change demand.
Though it is pointing out the obvious to say the price of education is rising, below is a chart giving the detail. It should be no surprise that the increase in price is a direct cause of subsidization because of the increased demand. But what about private institutions?
To go further, the subsidization of education is doing far more harm than good. The college board did a study showing only 10% of high students would be considered college ready.
“Of those who enroll in developmental education, particularly those who have to enroll at the lowest level, they actually have almost no chance of earning a credential,” says Mary Visher, a senior associate with MDRC, a nonprofit, nonpartisan education and social policy and research organization that’s about to publish an overview of the current research on remedial education.
Community Colleges are the mainstay of that effort, especially in California. Nearly 2.8 million students are enrolled in the state’s 112 community colleges this year, making it the largest higher education system in the world. However, in their 2010 report, “Divided We Fail: Improving Completion and Closing Racial Gaps in California’s Community Colleges,” researchers Colleen Moore and Nancy Shulock found that six years after enrolling in a community college, “only 30% of degree-seeking students had completed a certificate or degree, or had transferred to a university. Most of the other 70% had dropped out; only 15% were still enrolled.”
A column from the Boston Globe states:
As but another step that has been uttered time and again across America in recent years, officials indicated it was time the city school system did a better job of preparing its high school students for success after graduation. That was followed by the traditional hue and cry to raise K-12 education standards.
And last but not least, the traditional basis for pushing all students towards earning a bachelor’s degree was postured once again.
“A graduate of a four-year college will make almost $1 million more than a high school graduate over a lifetime,” Neil Sullivan, executive director of the Boston Private Industry Council, told the Globe. “We need to help students every step of the way earn the prize: a college degree.”
The Wrong Focus
The state of public education has focused on the K-12 system in recent years. During that time frame, higher education has earned a free pass. In fact, the general consensus from most folks is that America’s colleges and universities represent the best of the educational system in our country.
However, Mark Schneider, the vice president for new educational initiatives at the American Institutes for Research, offers a very contrasting viewpoint. In The Costs of Failure Factories in American Higher Education, Schneider asks, “If there is virtually universal agreement that American high schools are failing, how do our colleges and universities measure up against such a low benchmark?”
Turns out not very well.
It can be difficult comparing data but Schneider does his best to compare apples to apples. However, he does note one specific advantage for higher education: colleges generally use a six year window as the norm for completing the four years of study while high school calculations are based on a four year timeframe.
“The median high school graduation rate, for example, is 77 percent,” writes Schneider, “but the median post-secondary graduation rate is more than twenty-five points lower. While American high schools graduate about three-fourths of their students in four years, American colleges graduate only about half of their students in six.”
Schneider indicates that there are also significant differences by type of institution. But the key notion is a simple one: “The low high school graduation rates that have long been decried as a failure of America’s education system are mirrored in even lower college graduation rates.”
In addition, the long-standing differences in high school graduation rates based on race and ethnicity have led to expressions such as “the soft bigotry of low expectations.” But while public education K-12 is often labeled in such a manner, it must be duly noted that colleges and universities also see large gaps in post-secondary completion rates when comparing whites to blacks and Hispanic
College Does Not Work for Many Students
One positive is that the poor completion rates are finally catching people’s attention. The Bill & Melinda Gates Foundation recently launched a new initiative that seeks to sort through the poor completion rates of college bound students, particularly those who have chosen the community college route.
In the Globe article, there is at least some acknowledgment of the “enormous barriers facing urban high school graduates.” Vaznis points out that many of the individuals being discussed within the study are the very first members of their respective families to actually attend college.
The writer notes further that the study did not specifically address reasons for the low graduation rates. But he speculates, quite soundly, that “these students often have financial problems, some are raising children, and others are held back by a need to retake high school courses in college because they lack basic skills.”
In regards to the issue of college preparedness, a short time ago we discussed the words of Marty Nemko, a man dubbed the “The Ralph Nader of Education.” At that time we offered what Nemko calls his ‘killer statistic.’
“For those aspiring college students who finished in the bottom 40 percent of their high school classes, but went on to attempt to secure a four-year degree right out of high school, roughly two-thirds had studied for the better part of eight and a half years without obtaining a diploma.”
In simplest terms, those students who lack the ability to handle the rigor associated with college are unsuccessful when they give college a try.
Nemko adds that “only 23 percent of the 1.3 million high-school graduates of 2007 who took the ACT examination were ready for college-level work in the core subjects of English, math, reading, and science.”
Yet four-year colleges admit and accept funds “from hundreds of thousands of such students each year.” However, according to the data we have just reviewed, those same schools fail to see these students through the process of completing their degree program.
Nemko pulls no punches with his summary assessments.
“Colleges and universities are businesses, and students are a cost item, while research is a profit center.
“As a result, many institutions tend to educate students in the cheapest way possible: large lecture classes, with necessary small classes staffed by rock-bottom-cost graduate students. At many colleges, only a small percentage of the typical student’s classroom hours will have been spent with fewer than 30 students taught by a professor.”
And as for the quality of instruction, well:
“The more prestigious the institution, the more likely that faculty members are hired and promoted much more for their research than for their teaching. Professors who bring in big research dollars are almost always rewarded more highly than a fine teacher who doesn’t bring in the research bucks.”
Square Pegs, Round Holes
Ultimately we have the worst of all potential situations: students who do not have the academic ability to handle the level of rigor that college must demand combined with ill-equipped institutions of higher education that seem incapable of helping these students succeed.
That issue is then exacerbated by education officials who continue to insist that all we must do is simply raise standards further and that by doing so, somehow the square peg, round hole malady facing us will disappear.
Unfortunately, those same officials also insist that the only path to success in life is by way of a college education. It is the same nonsense that brought forth the No Child Left Behind Act and the oxymoron, proficiency for all.
The notion that college is for everyone really just pushes NCLB to the K-16 arena. It is the fundamental belief that every child regardless of innate ability must be placed on a ‘bachelor’s degree or bust’ path, followed by the assumption that every student is capable of such academic rigor.
This is a false and damaging assumption. A bachelor’s degree for every student is no more viable than setting forth a goal of a masters or a PhD for every student. Yet, would we ever in our right minds suggest that such a standard is possible?
It is time that those in charge came to their senses and acknowledged that other approaches to learning are possible. It is time to recognize that hands on vocational schooling and working apprenticeships can be just as viable for helping students learn as the traditional academic teaching tools of reading and writing.
If only our educational experts could grasp that our country needs skilled workers as well as college graduates they might embark on a different path, one that creates multiple educational opportunities for our youngsters based on a goal of helping all students succeed.
What we do not need is more high school or college drop outs. But instead of examining the real issue, a one size fits all approach to education, we opt to tinker with standards and expectations, then set goals that are beyond the reach of many students.
Unless we take a look at providing forms of education that utilize methods of instruction that do not rely on teaching through reading and writing, then Mayor Menino’s goals, however worthy, will simply result in a familiar refrain.
And another summary study with an all-too similar title, Grads Come Up Short in College.
The issue with this is quite apparent. The government is pushing demand in a sector that people typically wouldn't go, and no surprisingly these people are failing. The remedial programs have been a complete failure. Good intentions have not only put millions of people into a debt that they can't pay off with nothing for it, but it has also inadvertently far increased the price of those who would attend college regardless of the welfare. It is common sense to say that if the colleges had 90% of their consumers knocked off, that prices of college would have to go down to entice students.
What is often missed is that by having someone go to college who normally wouldn't go, you are likely denying them an opportunity that they may be more fit for another job, such as becoming a car mechanic, or other various trade jobs. It's not particularly that they shouldn't attend some secondary school, but it may be more useful for many people to go to trade schools.
Housing and Rental:
Again going back to this basic idea of supply and demand, if the price is decreased in that it is subsidized, the demand is of course going to rise. This in turn is quick to create a shortage as the supply of houses at the price demanded can't be met, so the price increase.
Now really, this topic gets far stickier than just that because any subsidy in housing is usually pairing with some form or price control.
The housing bubble is perhaps one of the best examples of the government creating over consumption in the market though making housing more affordable. Both the Clinton and the Bush administration were pushing for laws and regulations that would make it easier for people to own homes. This was seen as a noble cause as many people envision the American dream as owning your own home.
Why is this considered a subsidy? Because the goal was to make a good more available to the lower class, and it was done through government aid. One mean of government aid was interest subsides, but I'm less interested with that aspect and more interested in the primary mean through which the bubble was created.
With loans, risk is the primary reason why low income earners have a difficult time getting them. Making a loan to a homeless man would be considered quite risky as it can be predicted that he would not have the means to repay the principal and the interest. Though to a lesser extent, this same principal is why low income earners are not able to buy homes, their risk is so large that nobody is willing to take them on.
There are certainly a lot of factors in this and many specifics have been disputed, but in any event, in trying to ensure that everyone had a house, it forced the price of houses to increase.
The topic of price controls seem to be something that people seem to be something that people are more able to agree on. This is likely because the effects of price controls are quite immediate and substantial when compared to other forms of welfare. If this isn't apparent, look into the 1937 oil crisis where Nixon putprice controls on gasoline.
As Milton Friedman said after that incident, "We economists don't know much, but we do know how to create a shortage. If you want to create a shortage of tomatoes, for example, just pass a law that retailers can't sell tomatoes for more than two cents per pound. Instantly you'll have a tomato shortage. It's the same with oil or gas."
I'm going to assume I don't have to make the case for goods like gas and food. But some people do believe price controls are applicable to other areas.
The logic works the exact same as with any other good. A price control on labor will result in a surplus of labor, which manifests itself as unemployment.
Now some may argue that labor is different in that it is more diversified and not homogenous, in that the demand of a computer engineer might be higher than an unskilled worker, and this is true, which is why you have to look at who minimum wage affects. According to the BLS.
According to Current Population Survey estimates for 2006, 76.5 million American workers were paid at hourly rates, representing 59.7 percent of all wage and salary workers.1 Of those paid by the hour, 409,000 were reported as earning exactly $5.15, the prevailing Federal minimum wage. Another 1.3 million were reported as earning wages below the minimum.2 Together, these 1.7 million workers with wages at or below the minimum made up 2.2 percent of all hourly-paid workers. Tables 1-10 present data on a wide array of demographic and socioeconomic characteristics for hourly-paid workers earning at or below the Federal minimum wage. The following are some highlights from the 2006 data.
Minimum wage workers tend to be young. About half of workers earning $5.15 or less were under age 25, and about one-fourth of workers earning at or below the minimum wage were age 16-19. Among employed teenagers, about 8 percent earned $5.15 or less. About 1 percent of workers age 25 and over earned the minimum wage or less. Among those age 65 and over, the proportion was about 2 percent.
It should be obvious from this report that minimum wage affects teenagers most. It should be best to note that it affects teenagers who receive worse education far worse. This has a disproportionate affect on black teenagers in that they receive a far inferior education, giving them in turn less skills to compete for a minimum wage job over a white teenager who has received a better education.
Certainly you can argue if the issue is discrimination in education, then fix education through the means best available. I'd agree, but it's rather off topic. Getting rid of the minimum wage would help all teenagers, and many other groups such as the elderly and the mentally handicapped.
As far as the mentally handicapped go, they have actually been allowed to work below the minimum wage for a number of reasons. There is a body of research that shows that a job plays a positive role in their life and that make work jobs do not for whatever reason have this effect. The reason why the mentally handicapped need to be allowed to be paid bellow the minimum wage is that employers were not hiring them at the minimum wage, and though to many this might seem cruel, it is really the minimum wage that ensured that these handicapped people did not get hired. To make it clear, having a minimum wage does not ensure the handicapped are not taken [i]advantaged[/i] of, yet it rather ensures they stay unemployed.
This system falls preys to economics. The controls have been a failure wherever they are implemented. The attempt to keep the price down results in black market that forces people who really need a house to pay extra under the table. A further result is that land lords tend not to maintain their property as there isn't nearly much incentive to do so at the wage control price. It also tends to stop new property development because a housing development subject to rent control simply isn't profitable. These factors have been most attributed to creating the slums of New York city.
Rent control, like all other government-mandated price control, is a law placing a maximum price, or a “rent ceiling,” on what landlords may charge tenants. If it is to have any effect, the rent level must be set at a rate below that which would otherwise have prevailed. (An enactment prohibiting apartment rents from exceeding, say, $100,000 per month would have no effect since no one would pay that amount in any case.) But if rents are established at less than their equilibrium levels, the quantity demanded will necessarily exceed the amount supplied, and rent control will lead to a shortage of dwelling spaces. In a competitive market and absent controls on prices, if the amount of a commodity or service demanded is larger than the amount supplied, prices rise to eliminate the shortage (by both bringing forth new supply and by reducing the amount demanded). But controls prevent rents from attaining market-clearing levels and shortages result.
With shortages in the controlled sector, this excess demand spills over onto the non controlled sector (typically, new upper-bracket rental units or condominiums). But this non controlled segment of the market is likely to be smaller than it would be without controls because property owners fear that controls may one day be placed on them. The high demand in the non controlled segment along with the small quantity supplied, both caused by rent control, boost prices in that segment. Paradoxically, then, even though rents may be lower in the controlled sector, they rise greatly for uncontrolled units and may be higher for rental housing as a whole.
As in the case of other price ceilings, rent control causes shortages, diminution in the quality of the product, and queues. But rent control differs from other such schemes. With price controls on gasoline, the waiting lines worked on a first-come-first-served basis. With rent control, because the law places sitting tenants first in the queue, many of them benefit.
The economic reasons are straightforward. One effect of government oversight is to retard investment in residential rental units. Imagine that you have five million dollars to invest and can place the funds in any industry you wish. In most businesses, governments will place only limited controls and taxes on your enterprise. But if you entrust your money to rental housing, you must pass one additional hurdle: the rent-control authority, with its hearings, red tape, and rent ceilings. Under these conditions is it any wonder that you are less likely to build or purchase rental housing?
This line of reasoning holds not just for you, but for everyone else as well. As a result, the quantity of apartments for rent will be far smaller than otherwise. And not so amazingly, the preceding analysis holds true not only for the case where rent controls are in place, but even where they are only threatened. The mere anticipation of controls is enough to have a chilling effect on such investment. Instead, everything else under the sun in the real estate market has been built: condominiums, office towers, hotels, warehouses, commercial space. Why? Because such investments have never been subject to rent controls, and no one fears that they ever will be. It is no accident that these facilities boast healthy vacancy rates and relatively slowly increasing rental rates, while residential space suffers from a virtual zero vacancy rate in the controlled sector and skyrocketing prices in the uncontrolled sector.
Paul Krugman said:
Economists who have ventured into the alleged real world often quote Princeton's Alan Blinder, who has formulated what he calls ''Murphy's Law of economic policy'': ''Economists have the least influence on policy where they know the most and are most agreed; they have the most influence on policy where they know the least and disagree most vehemently.'' It's flip and cynical, but it's true.
The analysis of rent control is among the best-understood issues in all of economics, and -- among economists, anyway -- one of the least controversial. In 1992 a poll of the American Economic Association found 93 percent of its members agreeing that ''a ceiling on rents reduces the quality and quantity of housing.'' Almost every freshman-level textbook contains a case study on rent control, using its known adverse side effects to illustrate the principles of supply and demand. Sky-high rents on uncontrolled apartments, because desperate renters have nowhere to go -- and the absence of new apartment construction, despite those high rents, because landlords fear that controls will be extended? Predictable. Bitter relations between tenants and landlords, with an arms race between ever-more ingenious strategies to force tenants out -- what yesterday's article oddly described as ''free-market horror stories'' -- and constantly proliferating regulations designed to block those strategies? Predictable.
And as for the way rent control sets people against one another -- the executive director of San Francisco's Rent Stabilization and Arbitration Board has remarked that ''there doesn't seem to be anyone in this town who can trust anyone else in this town, including their own grandparents'' -- that's predictable, too.
Thomas Sowell said:
With all the advances in sophisticated analysis by professional economists, very little of even the basic principles of economics has gotten down to the average citizen and voter.
Many, if not most, of the economic policies advocated by politicians today would never pass muster if the average voter understood as much economics as an economist like Alfred Marshall understood 100 years ago or David Ricardo 200 years ago.
Nothing is more basic in economics than prices — and yet the role of prices is repeatedly ignored or even misrepresented by politicians and the media.
What do prices do?
Prices impose the most effective kind of rationing — self-rationing. Why is rationing necessary? Because what everybody wants always adds up to more than there is.
It doesn’t matter whether you are talking about a capitalist economy, a socialist economy, a feudal economy, or whatever. Resources are limited but desires are not. That is the basic and defining problem of economics.
Prices force you to limit your claims on what other people have produced to the value of what you have produced for other people. Prices force you to limit how much of product A you buy because you need to keep some money to buy product B.
While prices convey these limitations, they do not cause them. No economy — capitalist, socialist, feudal or whatever — can keep consuming more than it produces. Producing more of product A means using up resources needed to produce product B.
Simple and obvious as all this may seem, politicians blithely ignore it when they promise to make the prices of housing or health care or other things “reasonable” or “affordable.”
It is the same story when housing prices are controlled by government. Rent control has allowed some people to take up more housing space than they would if they had to pay the full price that reflects other people’s demand for housing.
The net result, whether in New York or San Francisco or elsewhere, is a lot of apartments with just one person living in each, and lots of families who cannot find a vacant place to move into. Housing shortages have resulted from rent control in cities around the world.
Housing shortages mean that some people are forced to live far from their jobs and commute, and some become homeless on the street. Homelessness tends to be greater in cities with rent control — New York and San Francisco again being classic examples.
Economists have long been saying that there is no free lunch but politicians get elected by promising free lunches. Controlling prices creates the illusion of free lunches.
This is an issue Krugman and Sowell agree on. It should be no surprise that economic law applies to all fields. It shouldn't at all be surprising that there are those who pay the land lord above the ceiling price to get a place. Really there is nothing wrong with that, it is just a correction for an economic imbalance. The same could be said of ticket scalping. If the price of the ticket is $25 normally and they don't fluctuate the price to meet demand, it should be no surprise that ticket scalpers make up this market imbalance by charging $200 for the events that are in high demand. The reason as to why many places don't do this is that they don't want to be called “price gougers”.
Also, going back to the thought experiment with the cigarettes in which it was concluded that any policy proposed would increase smoking, you should also contemplate if any price control must require negative effects such as shortages and surpluses. Like with smoking, it's not a matter as to whether it is good or bad, but it is about the actual effect of the policy.
More Info on Price Controls:
This one doesn't fall prey to causing market imbalances that the previous ones do. Why? Because the people can purchase the money on whatever they choose to. This avoids a lot of the issues of the other forms of welfare, yet for whatever reason it is being applied to sectors that make no sense to apply it to.
Social Security :
The program does currently not benefit anyone but the recipients and the government. It benefits the recipients because they are receiving money. The program certainly benefited the first participants most, as they received a large portion of money without paying much in. It certainly does benefit the people paying into the system in any way as they are not likely to receive the money granted the issue of debt. Despite who's side you are on of that debate, is it rational to assume that there will be some clean bipartisan resolution that won't result in payment reductions. Just look at what happened with the last debt deal.
It also benefits the government because they spend the social security surplus every year. Yes there are Treasury Bonds and U.S Securities to offset what the government takes out, but that is the equivalent to writing yourself a check and thinking you have more money.
I really don't understand the mandate. Why would a retirement program need to have everyone in the entire country participate? I don't really understand. Clearly a large a large majority of the population will save for retirement without the, that has always been the case, but even then, if someone chooses not to save they should be able to.
If there are a few people that they can't care for themselves such as the disabled and therefore cannot save, that's a different matter. But the solution is obviously not to have everyone enter into a national retirement account and having part of that sum go to the disabled. Far better solutions could be offered than that.
Lastly, the return on social security is quite bad compared to what you could be getting on private investments. Even then you could have been using the a more useful purpose. But even granted that you chose to invest in Social Security, it was a bad idea.
The Heritage Foundation states:
-Social Security pays a very low rate of return for two-income households with children. Social Security's inflation-adjusted rate of return is only 1.23 percent for an average household of two 30-year-old earners with children in which each parent made just under $26,000 in 1996.1 Such couples will pay a total of about $320,000 in Social Security taxes over their lifetime (including employer payments) and can expect to receive benefits of about $450,000 (in 1997 dollars, before applicable taxes) after retiring at age 67, the retirement age when they are eligible for full Social Security Old-Age benefits.2 Had they placed that same amount of lifetime employee and employer tax contributions into conservative tax-deferred IRA-type investments-such as a mutual fund composed of 50 percent U.S. government Treasury bills and 50 percent equities-they could expect a real rate of return of over 5 percent per year prior to the payment of taxes after retirement. In this latter case, the total amount of income accumulated by retirement would equal approximately $975,000 (in 1997 dollars, before applicable taxes).
-The rate of return for some ethnic minorities is negative. Low-income, single African-American males born after 1959 face a negative real rate of return from Social Security. For every dollar he has paid into Social Security, a low-income, single African-American male in his mid-20s who earned about 50 percent of the average wage, or $12,862, in 1996 can expect to get back less than 88 cents. This negative rate of return translates into lifetime cash losses of $13,377 (in 1997 dollars) on the taxes paid by the employer and employee.
Social security seems to be a bit of a different issue than others because I can't figure out why anybody would think it is needed. I can already predict some responses, so be sure to be specific.
I really don't see why this program needs to exist. Historically people have always saved their money in case of unemployment.
But even if you were to argue that times are different now and people can't save, then surely people could buy unemployment insurance from private firms. Anybody could buy from them and receive different packages, and I certainly don't see there being any argument as to why nobody would market to the poor, as they are a large group.
I hope that the arguments above at least made you think a bit about the effects of particular programs and their unintended consequences and their actual effect. It is perfectly acceptable to disagree and to provide a rebuttal as to why, but this should really be a subject that people think about more because more than a glance is needed to understand the effects of welfare programs,