The Perils of Price Controls

The Perils of Price Controls

by Richard A. Epstein (Peter and Kirsten Bedford Senior Fellow and member of the Property Rights, Freedom, and Prosperity Task Force)

Why is there a shortage of cancer drugs in the United States? 

Last week in the New York Times, veteran health correspondent Gardiner Harris wrote of the recent sharp and puzzling shortages of critical drugs used for treating a wide range of life-threatening cancers and bacterial infections. The total number of shortages has increased from 58 vital drugs in 2004 to 211 in 2010. These shortages have prompted some wholesalers to hoard certain scarce drugs, which has only aggravated the problem.

 

Harris reports that public officials and policy makers are now anxiously preparing a set of proposals to deal with these shortages. One such proposal calls, not surprisingly, on the federal government to take on a greater role in stockpiling dry ingredients of key drugs, which in times of need could be released to hospitals where pharmacists could then convert them into injectable compounds. A second legislative proposal, introduced by Senator Amy Klobuchar, a Minnesota Democrat, would give the Food and Drug Administration the power to demand that drug companies give the FDA early warnings when they anticipate a cutback in the quantities of goods they ship to the market. Still a third proposal calls for removing restrictions on importing generic drugs from overseas in order to ease the current shortages.

 

One of the real difficulties in understanding these shortages is that they appear to stem from multiple causes. Some shortages come from the failure of various suppliers to meet FDA inspection standards for safety. Other shortages appear to stem from the scarcity of drugs in their cheaper generic forms. Harris says that the FDA attributes this shortage to "capacity problems at drug plants or lack of interest because of low profits." Low profits follow inexorably from price caps. These caps in turn interact with safety issues, creating possible synergistic effects, Let’s tackle each cause of the drug shortages separately, starting with the pricing issues.

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Rent Regulation -- Beyond the Rhetoric

Rent Regulation -- Beyond the Rhetoric

In New York City more than one million housing units, representing more than half the private rental market and one‐third the total housing stock, are subject to rent regulation. This scale of regulation is unique among American cities and is highly controversial.

Proponents claim rent regulation protects affected tenants from otherwise likely excessive rent increases in New York’s tight housing market and helps make housing affordable for low‐ and middle‐income households who otherwise could not live in their own home in New York City. Critics claim the regulations give substantial benefits to upper‐income households who could afford unregulated rents, cause rents to be higher among unregulated units than would otherwise be the case, encourage some families to stay in apartments longer than they otherwise would, curb construction of new housing, discourage landlords from properly maintaining regulated units, and lower property values of buildings with regulated units, thereby depriving the City of New York of property tax revenue.

Current rent regulations trace their origins to federal price controls imposed on the city’s rental housing market in 1943 during World War II. The federal rules applied to housing built before February 1947. In 1951 New York State opted to assume the controls on the pre‐1947 housing stock on grounds that the local housing market continued to experience a low vacancy rate. In 1969 rent regulation in a modified form (rent stabilization) was applied to housing built after 1946. The rules that applied to both older and newer housing have been altered several times since, with periods of full or partial vacancy decontrol and other modifications. Nevertheless, the justification for all rent regulation remains the tight local housing market. The legal basis for current rent regulations is the continuation of a vacancy rate of 5 percent or below as an indication of a housing “emergency.”

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Rent Control as a Price Control

Rent Control – Rent Control as a price Control

 

Price control:
The setting of maximum prices by law. This may affect particular markets, for example domestic rents are often subject to special controls, or apply in an economy generally. As it is administratively impossible to set millions of prices from first principles, price controls have generally worked by covering a limited number of essential goods, and imposing limits or a total ban on price increases. There is a danger that this will induce firms to divert resources towards goods whose prices are not controlled, and to change the specifications of goods to introduce new products to which the rules do not apply.

http://www.enotes.com/econ-encyclopedia/price-control

 

Rent control:
Government control of rents for houses and flats. This may involve setting the levels of rents, or restricting increases. It has been widely adopted, mainly for motives of income distribution, based on the assumption, often but not always correct, that landlords are richer than tenants, so that controlling rents produces a more equal distribution of real incomes. During inflationary periods lags in adjustment tend to make controlled rents fall below market-clearing levels: this produces excess demand, and necessitates protection of security of tenure for tenants. In the long run rent controls discourage investment in housing for rent, and also discourage maintenance work on rented housing, so that its quality deteriorates. A general situation of excess demand for housing impairs labour mobility, as sitting tenants are unable or unwilling to move.

 

http://www.enotes.com/econ-encyclopedia/rent-control

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The Way Through Rent Madness

The way through rent madness

We prefer rules that protect families, not apartments

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No tenant advocate, no landlord association, no sane policymaker would design a rent regulation system like the one afflicting New York City today. Needy families struggle in vain to find affordable apartments, while Manhattanites earning six figures linger for decades in spacious units at laughably low rents. Some tenants shell out six times as much as their neighbors down the hall.

The system sets American capitalism on its head and instead has an obscure body called the Rent Guidelines Board arbitrate for 2.5 million New Yorkers and their landlords—after a cacophonous ritual of dramatic pleading and political pontificating (otherwise known as a hearing).

Nonetheless, neither the state Legislature nor Gov. Andrew Cuomo has any intention of letting rent laws expire on June 15. Their mission, therefore, must be to make the best of the current system while easing the city toward a more sensible one. Fortunately, they do not need to do much to accomplish the latter goal.

Eight years ago, when the rent laws last came up for renewal, measures were kept in place to free vacant apartments from the shackles of government control while protecting tenants who depend on regulated rent. Tenants could stay in their apartments and pay the regulated rent (or an even lower “preferential rent” set by the landlord) as long as they wanted, unless the regulated rent reached $2,000 and their income was $175,000 or greater for two consecutive years. If a $2,000-plus apartment became vacant, regulation would cease.

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Sample Market Tenant Article 1

Just some nonsense content for testing purposes. 

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Aenean vitae cursus justo. Phasellus eros lacus, laoreet eu elementum eu, fermentum vitae leo. Donec porta magna vel odio molestie eleifend vitae eu nunc. Sed accumsan erat at tellus vestibulum fermentum. Proin consectetur sapien id eros adipiscing, et aliquam velit viverra. Morbi turpis velit, suscipit id ipsum ut, venenatis rhoncus tellus. Vestibulum rutrum, neque eu bibendum condimentum, nulla ipsum consequat eros, non cursus enim ligula nec leo. Fusce neque metus, elementum tempor turpis vel, malesuada fermentum sem. In ipsum mauris, fermentum vitae felis id, auctor fermentum mi. Aenean sed tincidunt libero.