Knowledge And Decisions

Rent control is not unique in affecting the quality of the product. General price controls during World War II brought on a proliferation of inferior off brands, some made by brand-name producers who did not want to damage the long-run reputation of their regular label. Sometimes the quality deterioration took the form of deteriorated service, leading to much contemporary comedy based on arrogant butchers, insolent salespeople, etc. In general, price control involves articulating not only a price — which is easy — but also articulating the characteristics of a product. Although it may seem easy to define a product such as an apartment or a can of peas, actual experience demonstrates the crudity of articulation as compared to unarticulated experience. An apartment is not simply a physical thing, but involves a multitude of associated services, changes in the quantity and quality of which affect operating cost, the vacancy rate, and the price that can be charged in an uncontrolled market. When rents are forcibly lowered by the government, costs are voluntarily lowered by the landlords through declines in the quantity and quality of service, so that the “product” itself changes. A perfect legal specification of a product, perfectly monitored, would make this impossible. But the pervasiveness of this deterioration — including total abandonment — indicates the limits of articulation and third party monitoring.

In the absence of rent control, tenants monitor changes themselves and communicate their reactions to the landlord not only verbally but — more convincingly — through changes in the vacancy rate. They can even monitor services of which they are generally unaware, in the sense that they might not list them if asked to articulate what they want in an apartment building. For example, many tenants might not articulate a concern for management’s monitoring of people who enter the building — and yet if the building becomes a hangout for loiterers, hoodlums, or addicts, the vacancy rate would rise. Conversely, if the management officiously screened all entering guests, the same negative reaction would occur. In other words, a service which is seldom articulated must not only be performed but performed within limits on either side, if the landlord is to minimize his vacancy rate and maximize his rental income. The multiplicity and importance of these auxiliary services is most dramatically seen, not in uncontrolled markets where they become routine, but by their absence in rent-control buildings and in government housing projects. Typically there is far more explicit articulation of housing rules in such places but far less effective monitoring.

Even a simple can of peas cannot be exhaustively defined and completely monitored under price control. The flavor, appearance, texture, and uniformity of peas within a can and from one can to the next, depend on the selection and control of crops and the sorting and processing of the peas. In an uncontrolled market, these are all adjusted according to the incremental cost of each improvement and the incremental value of the improvements as revealed by how high a price the consumer is willing to pay for brands which reliably supply the desired characteristics. If this price is forcibly set below the market level by a third party, the supplier has incentives to supply less of these qualities and thereby reduce his production costs.

Just as a price forcibly set below the market level tends to reduce the quality of the price controlled product, so a price forcibly set above the market level tends to increase the quality of the product. Minimum wage laws tend to cause employers to hire fewer but better qualified workers — that is, they make less skillful, less experienced, or otherwise less desirable workers “unemployable.” Higher quality workers and more “unemployability” in a given work force are the same things expressed in different words.