Economics is a remarkable science. In most sciences, exceptions to a hypothesis invalidate the hypothesis. For example, If a mineralogist said, “All diamonds are hard,” finding a soft diamond would invalidate the claim.
Not so with economics.
Rent controls have often been promoted and adopted to aid affordability, have failed in this mission. Yet, here they are again being proposed.
While it’s good news that some more economists have started incorporating “real world dynamics,” we’ll have to see what “Bidenomics” models say. That’s not looking promising. (By Jake Johnson, a staff writer for Common Dreams.)
More than 30 U.S. economists have signed a letter expressing support for strong federal tenant protections and rent control as housing costs remain sky-high, even amid broadly cooling inflation.
The profound economic and social consequences of government intervention in the nation’s housing markets have been documented in study after study over the past twenty-five years.
Due to this hard-earned experience, states and local jurisdictions from Massachusetts to California have banned or greatly constrained rent control.
Nevertheless, a number of communities around the country continue to impose rent controls, usually with the stated goal of preserving affordable housing for low- and middle-income families.
Rent control does not advance this important goal.
On the contrary, rent control has reduced both the quality and quantity of available housing in many communities.
Rent control falls under the broad category of “government price controls.”
Most prices for most things are market controlled. In a capitalist economy, a seller or owner charges an amount that will maximize his/her profits.
This takes into consideration the number of customers each price level will attract. For example, an apartment renting for $1o million a month will entice few, if any, renters, while the same apartment renting for $1 thousand a month might attract thousands of renters.
Many factors are involved, among which are: Number and size of rooms, number of full or partial bathrooms, location, condition, views, furnishings, and other lease terms.
By their very purpose, government price controls create prices that not only don’t consider these elements realistically but largely ignore the owners’ need for profits.
Since the whole purpose is to cut rents below market rates, which squeezes landlord’s profits, the landlord can’t set prices according to the number and size of rooms, bathrooms, condition, etc., so to remain profitable, he must set those criteria to the price — exactly backward of everyday capitalism.
While he can’t change the location, he often can subdivide the rooms’ sizes and bathrooms and primarily cut back on condition. Rather than improving or even maintaining condition to obtain higher rents, he now must allow condition to deteriorate to allow for lower rents.
Government rent controls comprise the Communist approach to housing with predictable results. The slumification of available housing, in which poorer condition and lower prices attract poorer and poorer residents, willing to accept degraded condition in exchange for too-low prices.
The economists note in their letter, released Thursday, that the median rent in the U.S. “has surpassed $2,000 for the first time, and there is not a single state where a worker earning a full-time minimum wage salary can afford a modest two-bedroom apartment.”
“We have seen corporate landlords—who own a larger share of the rental market than ever before—use inflation as an excuse to hike rents and reap excess profits beyond what should be considered fair and reasonable,” the letter continues. “Renters are struggling as a result.”
This is the classic economists’ “cart-pulling-the-horse” scenario.
Problem: Apartments are unaffordable for lower-income people. Solution: Cut the rental cost of apartments.
That this never has worked and cannot work does not deter the economists who seemingly view Socialistic control as a reasonable strategy for aiding the poor.
A more reasonable, Capitalistic solution would be:
Problem: Apartments are unaffordable for many lower-income people. Solution: Increase their net income.
This can be accomplished by reducing the amount of money people must give to the government while increasing the amount of money people receive from the government.
The federal government is Monetarily Sovereign. It cannot run short of dollars. Even if all federal tax collections dropped to $0, the federal government could continue spending, or even triple its spending, forever.
So rather than taking dollars from landlords, who are monetarily NON-sovereign, the same dollars should be taken from the government.
Rather than cutting rents by XX dollars, increase renters’ net income by those same XX dollars. The net affordability result would be the same, but landlords would not be forced to skimp on the things that make apartments more attractive.
Here are some ways in which net income can be increased:
Eliminate the FICA tax. It comes out of workers’ pockets.
Provide comprehensive, no-deductible health care insurance to every man, woman, and child in America.
Provide Social Security to every man, woman, and child in America.
Provide tax deductions to renters similar to the mortgage tax benefits homeowners receive.
All of these would allow low gross-income renters to afford heretofore unaffordable apartments while allowing the market, not the government, to determine rents.
And none of them requires the socialistic government control that rent controls demand.
Although nothing that economists do surprises me, I am astounded to see the name James K. Galbraith in the misguided list.
He fully understands the power of Monetary Sovereignty to solve the rent problem. I plan to contact him to get his responses; if he responds, I’ll print them.
The letter’s signatories—including Mark Paul of Rutgers University, James K. Galbraith of the University of Texas at Austin, and Isabella Weber of the University of Massachusetts Amherst—call on the Federal Housing Finance Agency (FHFA) to require rent regulations as a condition for federally-backed mortgages and reject the “economics 101 model that predicts rent regulations will have negative effects on the housing sector,” likening it to typical arguments against raising the minimum wage.
Yes, the arguments against raising the minimum raise are similar in that they require the private, for-profit sector to pay for a net-income problem that the no-profit-needed federal government easily can and should solve.
And if the problem is “corporate landlords” controlling vast swaths of rental apartments, anti-monopoly laws could include local rental properties.
“Empirical research on local rent control policies in San Francisco, CA and New York, NY found that rent regulations lower housing costs for households living in regulated units,” the economists wrote.
“In Cambridge, MA, empirical research showed that the repeal of rent stabilization laws resulted in an average rent increase of $131 for tenants.”
Yes, of course, prices went down. That is the whole purpose and the whole problem. The economists’ “solution” makes the tacit assumption that all landlords are price gougers who should be punished or, at least, seriously controlled.
Given that “Fannie Mae and Freddie Mac mortgages on the secondary market support nearly half of the rental units in the U.S.,” they argued, “Government Sponsored Entities (GSEs) have the influence needed to meaningfully change the trajectory of the housing crisis.”
The “housing crisis,” like inflation itself, is almost entirely due to a lack of supply, exacerbated by price controls. Shall we also cure the “food crisis” by forcing farmers to receive less for their crops?
The economists’ letter is part of a broader push by tenant rights groups and housing justice organizations to secure federal protections against egregious rent hikes and wrongful evictions.
Rent controls don’t differentiate between “egregious rent hikes” and reasonable rent hikes. They are a huge knife that slices through rents, regardless of egregiousness.
Earlier this week, 17 U.S. senators wrote to the FHFA that “renters also have too few protections, making them vulnerable to steep rent increases and deteriorating housing conditions—factors that are out of their control.”
While rent increases can be prevented by rent controls, have these same economists even considered what will happen to “deteriorating housing conditions.”
More than 140 academics, over 70 climate researchers, and dozens of local elected officials have joined the call for nationwide rent regulations.
Perhaps these “academics” need a refresher course in supply and demand.
Tara Raghuveer, director of the Homes Guarantee campaign at People’s Action, said Thursday, “Tenants are coming for rent regulations, and everyone from senators to economists agrees: tenant protections are common sense.”
Tenants don’t understand the relationships among income, profits, supply, and condition, but senators and economists should.
“Due to lack of regulation, affordable housing is lost quicker than it can be built,” said Raghuveer. “Corporate landlords call the shots with federal financing through Fannie Mae and Freddie Mac. That’s why tenants spent this summer organizing to win what we need: federal tenant protections like caps on annual rent increases.”
Builders and landlords go where the money is. Give renters more money, and more housing units will be built. No one wants to build a housing unit that will receive government-limited rent.
In late May, the FHFA requested public input on tenant protections at multifamily properties with mortgages backed by GSEs.
Tenants with the Homes Guarantee campaign responded by knocking on more than 4,000 doors at GSE-backed properties and organizing more than 2,000 comments supporting tenant protections and rent regulations.
Next, shall we knock on 8,000 doors and ask eaters whether farmers should cut their food prices??
“The system as we know it today has failed everyday people, many of whom make impossible choices between rent and food, their homes or their medications,” said Raghuveer.
“The status quo is not working for the people, it is only working for the profiteers, and it is time for change. It is time for the federal government to change that system, correct the imbalance of power between landlords and tenants, protect tenants, and stabilize the American economy.”
Isn’t this exactly what the purveyors of Communism promise? “We, the government, will protect you from those greedy business owners charging you too much.”
It simply is nonsense that punishes the people it’s supposed to help.
If you were in a burning building and people yelled at you, “Get out, the building is on fire,” I assume Bjorn Lomborg and Jordan B. Peterson would call that “panicked fearmongering.”
It is the only conclusion I can draw from the ridiculous Trumpian article published under their names.
Stop the panicked fearmongering if we want to make the world betterBy Bjorn Lomborg and Jordan B. PetersonAugust 4, 2023, 6:31pm Updated
The meaningful exchange of truly diverse ideas and perspectives has withered over recent decades.
Unorthodox thinking is increasingly trashed or disregarded, even as the chattering class’s fear- and force-predicated approaches repeatedly prove inadequate to cope with the true complexities and crises of the modern world.
We need instead to foster and promote critical thinking and constructive discussion.
Here is an example of the “unorthodox thinking, ” “critical thinking,” and “constructive discussion” the authors seem to promote: Unorthodox, yes. Critical, huh? Constructive, no. Thinking. Absolutely no.
We are making every effort to ensure that our new Alliance for Responsible Citizenship (ARC), an international coalition of politicians, business leaders, public intellectuals and cultural commentators, will help ensure that a broader range of perspectives can be heard globally.
It’s not the “range of perspectives” that is the problem. It’s the unscientific perspectives that killed hundreds of thousands of Americans.
Consider the world’s response to the pandemic.
A panic-stricken lockdown orthodoxy far too soon took hold, and those whose policy proposals deviated quickly were labeled “COVID deniers.”
Governments that went the farthest were feted by public intellectuals and in newspaper opinion pages.
Thus, we saw increases of inequality in income distribution and wealth, widespread loss of employment, substantive declines in spending and general deterioration in economic conditions; serious declines in mental health and wellbeing, delayed and diminished access to healthcare, and record high levels of domestic violence.
The problems mentioned in the previous paragraph were due to people sickening and dying from COVID, not to “panicked fearmongering.”
There seems to have been insufficient “fearmongering.”
Too many people, especially Republicans, agreed with Lomborg and Peterson and did not take “orthodox” vaccine, mask, and crowd avoidance information seriously.
Lomborg’s and Peterson’s “unorthodox,” “broader ranges of perspectives” killed thousands of Americans.
“Many experiments and facts have proven that masks are lifesavers for confined spaces with high population density and less ventilation.“
The education of children was particularly affected: School closures, on average, robbed children of more than seven months of education.
The huge impact on kids’ knowledge could end up costing $17 trillion in lifetime earnings, per research by the World Bank, UNESCO, and UNICEF.
Poor children, girls, and children with disabilities suffered the largest losses.
Sadly, school classrooms are the “confined spaces with high population density and less ventilation that have proved to cost lives.
The question became, Would you risk your children’s lives for seven months of education?
We need to have a serious conversation about our manner of response before the next crisis (pandemic or otherwise) to ensure that the cure is not much worse than the disease.
Consider, too, the alarmist treatment of climate change.
Campaigners and news organizations play up fear in the form of floods, storms, and droughts while neglecting to mention that reductions in poverty and increases in resiliency mean that climate-related disasters kill ever fewer people: Over the past century, such deaths have dropped 97%.
Heatwaves capture the headlines. Globally, however, cold kills nine times more people.
The higher temperatures arguably characterizing this century have resulted in 166,000 fewer temperature-related deaths.
Fear-mongering and the suppression of truly inconvenient truths are pushing us dangerously toward the wrong solutions: Politicians and pundits call en masse for net-zero policies that will cost far beyond $100 trillion while producing benefits a fraction as large.
We need to be able to have an honest discussion of costs and benefits — a true reckoning with the facts to find the best solutions.
The disingenuous, highly misleading comment that more people die from cold than heat does not recognize what is happening to the world.
Consider just one effect, the melting of Antarctic ice: The chart shows that if all the ice in the Antarctic were to melt, sea levels would rise by 187 feet (57 meters).
Do you live 187 feet above sea level?
Well, you may say not ALLthe ice will melt. Maybe only 10% will melt, raising sea levels by “only” 18 feet.
Then again, we haven’t considered Arctic and Greenland ice.
“If you look at where humanity lives, a great proportion of humanity lives at the coastlines worldwide.
“The megacities are along coastlines: New York, Los Angeles, San Francisco.”
And that’s just sea-level rise. What about other problems?
The environmental conditions in the Arctic affect weather systems across the world.
The North and South poles act as the “freezers of the global system,” helping to circulate ocean waters around the planet in a way that helps to maintain the climates felt on land, Moon said.
“What happens in the Arctic doesn’t stay in the Arctic.”
The jet stream, a band of strong winds moving west to the east created by cold air meeting warmer air, helps regulate global weather.
In the continental U.S., the jet stream forms where generally colder and drier Arctic air meets warmer and more humid air from the Gulf.
But as temperatures in the Arctic warm, the jet stream, fueled by the temperature differences, weakens.
Rather than a steady stream of winds, the jet stream has become more “wavy,” allowing hot temperatures to extend usually far into the Arctic and frigid temperatures further south than usual.
The variability in the climate in the Arctic, specifically the weakening of the polar vortex, keeps cold air closer to the poles,
It likely led to the Texas freeze in February that led to millions without power and hundreds of deaths.
The study cited an “increasingly frequent number of episodes of extremely cold winter weather over the past four decades” in the U.S., despite temperatures rising overall.
As though sea level rise, species extinction, and more extreme weather aren’t bad enough, we also should look at disease:
Mosquitoes and other biting insects transmit many of the most important, devastating, and neglected human infectious diseases, including malaria, dengue fever, chikungunya, and West Nile virus.
As temperatures rise, malaria could be coming to your neighborhood.
And then there’s food:
Recent research suggests thatadverse weather has canceled up to 30% of the expected increase in European crop growth.
But it is worrying that the most pronounced changes tend to be in countries, such as those in sub-Saharan Africa, including South Africa, that are at high risk of climate impacts on food availability and affordability.
This is particularly clear in the case of barley, maize, millet, pulses, rice, and wheat.
The countries most at risk of food shortages are also worst affected by rising temperatures.
This seems to bear out the finding from the world’s premier climate science advisers, the Intergovernmental Panel on Climate Change (IPCC), that the higher average global temperatures and more extreme weather events associated with climate change will reduce the reliability of food production.
No, Messrs. Lomborg and Peterson, the warnings about COVID and global warming should not be written off as simply “panicked fearmongering.”
When you disseminate false information from such right-wing sources as Fox News, Breitbart, QAnon, Donald Trump, and the GOP, you not only stain whatever reputations you may have, but you endanger lives.
If you prefer to follow the anti-science, right-wing, unorthodox voices,, you have my permission to inject yourself with ivermectin, bleach, and hydroxychloroquine, and by all means, avoid vaccination.
The purpose of credit ratings is to assess the likelihood that an issuer of a debt document will adhere to the terms of the document.
The U.S. debt documents consist of Treasury bills, bonds, and notes, including the Federal Reserve Notes you carry in your wallet, aka “money.”
The value of U.S. debt/money is determined by the U.S. government’s full faith and credit,which includes:
A. –The government will accept only U.S. currency in payment of debts to the government
B. –It unfailingly will pay all its dollar debts with U.S. dollars and will not default
C. –It will force all your domestic creditors to accept U.S. dollars if you offer them to satisfy your debt.
D. –It will not require domestic creditors to accept any other money
E. –It will take action to protect the value of the dollar.
F. –It will maintain a market for U.S. currency
G. –It will continue to use U.S. currency and will not change to another currency.
H. –All forms of U.S. currency will be reciprocal; that is, five $1 bills always will equal one $5 bill and vice versa.
The key to the downgrade is item “B,” the “not default” claim.
The following article from Investor News attempts to explain why federal Treasuries were downgraded from AAA to AA+.
Credit Rating Alert: Why Did Fitch Downgrade U.S. Debt?Story by Josh Enomoto
Primarily, the negative reassessment focuses on “the expected fiscal deterioration over the next three years,” a matter worsened by increasingly bitter political infighting.
The matter was not “worsened” by political infighting. The matter was entirely political infighting.
As you will see, that was the sole reason for the downgrade.
Per the agency’s official statement, a “steady deterioration” in standards of governance during the past two decades imposes a dark cloud as policymakers struggle to navigate the extraordinarily difficult post-pandemic environment.
Specifically, “[t]he repeated debt-limit political standoffs and last-minute resolutions have eroded confidence in fiscal management.”
“Standards of governance” is the polite way to say that the GOP has become Trump-nuts, with such stellar brains as Matt Gaetz, Marjorie Taylor Greene, Lauren Boebert, Marsha Blackburn, et al leading the way.
Really, would you lend to those people?
The debt limit is 100% political. It is how the party not holding the Presidency exerts political power over the competing party. It has no other purpose.
As well, the combination of economic shocks and initiatives involving tax cuts and spending programs spiked the overall debt load.
Tax cuts and spending programs are irrelevant to the federal government’s ability to pay all its dollar debts.
Even if the total “debt,” which stands at about $30 trillion, were instead only $1, that would have no effect on the federal government’s ability to pay.
As the creator and issuer of the U.S. dollar (aka Monetarily Sovereign), the government has the infinite ability to create enough dollars to pay all its dollar-denominated debts.
If, for instance, you sent a $50 trillion, or $100 trillion, invoice to the U.S. government today, it could pay that invoice today simply by passing laws and pressing computer keys.
Alan Greenspan: “A government cannot become insolvent with respect to obligations in its own currency.”
Alan Greenspan: “There is nothing to prevent the federal government from creating as much money as it wants and paying it to somebody.”
Alan Greenspan: “The United States can pay any debt it has because we can always print the money to do that.”
Ben Bernanke: “The U.S. government has a technology, called a printing press (or, today, its electronic equivalent), that allows it to produce as many U.S. dollars as it wishes at essentially no cost.”
Quote from former Fed Chairman Ben Bernanke when he was on 60 Minutes:Scott Pelley: Is that tax money that the Fed is spending?Ben Bernanke: It’s not tax money… We simply use the computer to mark up the size of the account.
Statement from the St. Louis Fed:“As the sole manufacturer of dollars, whose debt is denominated in dollars, the U.S. government can never become insolvent, i.e., unable to pay its bills. In this sense, the government is not dependent on credit markets to remain operational.”
This infinite power is true not only of the U.S. federal government but also other Monetarily Sovereign entities. Consider the European Union, which is monetarily sovereign over the euro:
Question: I am wondering: can the ECB ever run out of money?Mario Draghi: Technically, no. We cannot run out of money.
No Monetarily Sovereign entity can run short of its sovereign currency unless it wishes to.
Some elements of today’s Republican Party would like to see the U.S. economy fail, so they can claim, before elections, that the economic failure is the Democrat’s fault.
In addition, Fitch took into account the Federal Reserve’s efforts in combating historically high inflation into account regarding its latest credit rating decision.
“While headline inflation fell to 3% in June, core PCE inflation, the Fed’s key price index, remained stubbornly high at 4.1% yoy,” wrote the agency. As a result, this framework will likely preclude benchmark interest rate cuts until March of next year.
All inflations are caused by shortages of crucial goods and services, most often oil and food. So-called “core inflation” refers to this:
“Inflation is based on the consumer price index (CPI), covering the inflation of all the goods and services except the volatile food & fuel prices, excise duties, income tax, and other financial investments.
It guides the government in forecasting long-term inflation trends for a country.
Using “core inflation” as a forecasting tool is nonsensical because the primary causes of inflation are those “food & fuel prices, excise duties, income tax, and other financial investments.”
It’s like predicting a baseball team’s wins while omitting runs-scored-and-allowed to get “core victories.”
In a possible reality check, the Fitch downgrade also incorporated recession risks. Based on the aforementioned tighter credit condition and a projected consumer spending slowdown, the U.S. economy may slip into a mild recession in the fourth quarter of 2023 and Q1 of 2024.
The predicted “mild recession and consumer spending slowdown have absolutely nothing to do with the federal government’s ability to service its Treasury paper. Zero.
The only thing that affects debt service is the federal government’s willingness to service its debt.
As The Wall Street Journal pointed out, the Fitch downgrade represents the first by a major credit rating agency in more than a decade. In theory, the unfavorable reassessment clouds the outlook for the global market for Treasurys, which stands at $25 trillion.
Indeed, the WSJ states that “America’s reputation for reliably making good on its IOUs has cast Treasury bonds in an indispensable role in global markets: a safe-haven security offering nearly risk-free returns.”
The U.S. dollar is a safe-haven security only if the government wants it to be a safe-haven security. All those other factors — total debt, spending, inflation, taxes, etc. — are meaningless to that safe haven.
There is but one question: Will the Republican party refuse, for political reasons, en masse, to authorize future payment. Period.
Treasury Secretary Janet Yellen blasted the Fitch downgrade as “arbitrary.” Yellen noted that the agency demonstrated deteriorating U.S. governance since 2018 but didn’t say anything until now. “The American economy is fundamentally strong,” she emphasized.
The downgrade was not arbitrary. The crazies have taken over the GOP, and Fitch merely is allowing for that craziness by, in effect, saying, “You have a political party that cares nothing about America’s credit rating, and instead, will do everything it can to destroy it.
If I were Fitch, I too would have downgraded the U.S. credit rating, not because of any economic problems but solely because of the political situation, notably the craziness of the Trump-led GOP.
The New York Times op-ed writer and Nobel laureate Paul Krugman chimed in, calling the credit rating decision “bizarre.” Also, former Secretary of the Treasury Larry Summers, in an interview with Bloomberg, stated, “I can’t imagine any serious credit analyst is going to give this weight.”
Sorry, guys, it’s not bizarre. It’s legitimate and will continue to be legitimate so long as the Republicans are enslaved to their MAGA wing.
On paper, the credit rating falling appears rather ominous. However, Axios — while not dismissing the relevant concerns leading to the decision — stated that the Fitch downgrade is “largely symbolic.”
It’s symbolic but also a warning. If you invest in a T-bill, T-note, or T-bond, buy U.S. dollars, or sell something to the U.S., and will be paid in dollars — and if the crazies decide not to raise the so-called “debt ceiling” — you will lose money.
Also, it’s important to remember that credit rating agencies don’t always issue accurate prognostications. For instance, in October of last year, Fitch stated that it expected a mild recession to materialize in Q2 2023.
However, CNN recently reported that the economy picked up steam in Q2 “despite punishing rate hikes and still-high inflation.”
The wrong prediction of a mild recession may have been based on “core inflation,” which is irrelevant. If it was based on predicted shortages of oil and food, and those didn’t materialize, Fitch should have stated that.
Bottom line: People are discouraged from buying the obligations of a crazy debtor. Wouldn’t you be?
That unpredictable craziness, and not the size of the so-called “debt,” “core inflation,” or any other factor, are solely responsible for the value loss of the federal government’s full faith and credit.
Eliminate the useless — no, harmful — debt limit, and/or get rid of the crazies, and the U.S. credit rating instantly will be AAA again.
Rodger Malcolm Mitchell
Monetary SovereigntyTwitter: @rodgermitchellSearch #monetarysovereigntyFacebook: Rodger Malcolm Mitchell
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The Sole Purpose of Government Is to Improve and Protect the Lives of the People.
Page 1.
As federal debt (red) has risen, so has the economy (blue — GDP). Higher federal debt leads to higher GDP growth. The reason: GDP=Federal Spending +Non-federal Spending + Net Exports.
Page 2. The reason:
Economic growth and federal debt growth have been extraordinarily high since the end of the COVID recession. Despite efforts to reduce Federal Debt growth — efforts that, if successful, would reduce GDP growth — federal debt and GDP have continued to grow rapidly.
Page 3.
There is no relationship between federal debt and inflation. No data suggest that “too much” federal spending causes inflation.
Page 4.
A strong relationship exists between inflation (green) and oil prices (gray) as dictated by oil supply. Shortages cause price increases. Inflation is a general increase in prices. All inflations throughout history have been caused by shortages of crucial goods and services, usually energy and food.
Page 5.
Changes in federal debt (incorrectly called federal “borrowing”) do not reduce the availability of lending funds (yellow). There is no relationship between federal debt and the amount of lending.
Rodger Malcolm Mitchell
Monetary SovereigntyTwitter: @rodgermitchellSearch #monetarysovereigntyFacebook: Rodger Malcolm Mitchell
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The Sole Purpose of Government Is to Improve and Protect the Lives of the People.
The chart shows that if all the ice in the Antarctic were to melt, sea levels would rise by 187 feet (57 meters).
#Monetary Sovereignty - Mitchell 