The Heresy of Recommending Rent Control
Ouch. It pains me to have to write that title, let alone continue to write a blog post about it. All of my training as an economist gone down the drain, for how can an economist possibly write a post about rent control without first loudly and definitively decrying it?
But Gulzar Natarajan says that rent control may well be needed in markets, and trust me on this, GN knows a thing or twenty about the practice of economics. So let's find out why he says what he does!
Unhindered, unfettered markets will "play out" the best outcome over time, but the key words in there are "over time", not "best outcome". Here's a fun thought experiment for you to think about: if you had to choose between letting markets play out the best outcome for vaccine procurement during the second wave, or having the government step in and buy up vaccines left, right and center, what would you choose?
Now, you might say that vaccines in the second wave was a special case. Healthcare markets in India, you might say, should have no intervention, and "the energy" of the free market should be allowed to guide outcomes. The poor in our country in the future will thank you for your brave call, but what about the poor in the country today?
Note that everybody in the country was poor when it came to access to vaccines during the second wave.What do you want from a market? Maximal coverage at minimal prices such that the market remains a viable, self-sustaining phenomenon, or maximal profits? Well, depends on who is answering, and for which market. And if you honestly think that both answers are necessarily the same (even if in the long run), come with me to Agra. I own this awesome building, and I think you might be interested in buying it.
"Everyone knows what to do, but the problem is to win elections after doing it". Study political economy, not just economics.
"Theory should not become the enemy of the practical. This might be a case of saving capitalism from the ideologues of free-market capitalism"
Strong words, perhaps, but I found myself nodding in agreement."Experts and commentators should wake up to the reality of a world where market interventions are inevitable. Public debates should be anchored around those second-best interventions that generate the least distortions and inefficiencies. Instead of ignoring realities, public policy discussions should be conducted in this constrained space."
Fit your theory to the world you live in, in other words. Fitting the world you live in to the theory you like is rather problematic in practice.Studying economics without working in public policy is a little like watching YouTube videos about cooking without ever stepping in the kitchen. That's where the heat is, and you'll have to face up to that heat sooner or later. That's just how it is.