Freeman

ARTICLE

Perspective: Unexpected Consequences

MAY 01, 1987

Government intervention inevitably makes conditions worse, the late Ludwig von Mises often explained, even from the viewpoint of a program’s original backers. The current depressed state of U.S. shipping offers a dramatic example.

Congress passed the merchant marine law in 1886, and the Jones Act of 1920, to protect U.S. shipping. Yet from the point of view of the U.S. shipping industry, these laws have made conditions worse, not better.

The 1886 law forbade foreign ships from transporting people between two U.S. cities. The 1920 law required all ships engaged in U.S. coastal trade to be built in the United States and to sail under the U.S. flag. But the drafters of these laws could not anticipate future conditions. Ships are no longer a primary means of travel; the cost of building and manning U.S. ships has skyrocketed, especially because of rising U.S. labor costs; and U.S. coastal cities now include such popular tourist ports as Oahu, Hawaii, and Anchorage, Alaska.

Because of the high cost of construction in the U.S., foreign shipping now enjoys a substantial cost advantage. As a result, relatively few U.S. ships now engage in world trade. And by taking advantage of loopholes in the maritime laws, foreign ships now carry much of the lucrative U.S. tourist traffic to Alaska and Hawaii.

Foreign ships can carry passengers on a round-trip cruise from Los Angeles to Los Angeles, via Hawaii, where brief stops are allowed. Although foreign ships cannot pick up one-way passengers in Seattle who want to cruise to Alaska and fly back, they can pick them up a few miles away in Vancouver, British Columbia. Meanwhile, Seattle, Washington, which once flourished as a seaport, finds much of its port facilities lying idle, as the bulk of the Alaskan cruise business bypasses Seattle to sail from Canada.

Government legislation, intended to promote and encourage the U.S. shipping industry, has had unexpected consequences. It has not only led to the decline of the very industry it was supposed to help, but also to the encouragement of foreign competition.

In Marc Connelly’s 1930 Pulitzer Prize winning play, “Green Pastures,” God complains that every time he performs a miracle, he soon has to perform several others to solve the problems caused by the first one. Such has been the case with the “miracle” of maritime regulation. Government should stop subsidizing, regulating, and controlling shipping and shipbuilding and let consumers decide which ships and what shipping routes to support with their business.

BBG

Rent Control

The battle lines over rent control seem to be clearly drawn. On one side stand the landlords; on the other side are the tenants. And the issue seems clear enough: Should powerful landlords be prevented from raising rents above reasonable levels? When viewed in these terms, rent control attracts many adherents.

But there is another way to look at the rent control issue, and a third party which is almost completely ignored. This third party is the prospective tenants effectively locked out by rent control. Controls prevent these people from bidding for apartments, thereby creating a housing shortage. These people have to wait for someone to vacate a controlled apartment, crowd into uncontrolled housing, or live in another community.

Thus, the real rent control issue is: Should outsiders be prevented from bidding for apartments?

Of course, when apartments are decontrolled, prospective tenants tend to bid up the rents of previously controlled units. But in so doing, they provide incentives for new construction. As time passes, this new construction relieves the housing shortage created by rent controls, and brings rents down to market-clearing levels. When rents are controlled by supply and demand, and not by political edicts, landlords have no more power than their ability to offer attractive apartments at reasonable rents in a competitive housing market.

It is difficult to identify the prospective tenants locked out by rent control. Thus, they have no organizations and no politicians eager to champion their cause. But they surely include many people who, frustrated by the housing shortages created by rent control, pursue careers in more hospitable parts of the country. These people will get by, and many of them will prosper, but the rent-controlled community will be poorer without them.

BJS

Soviet Monopolies

“Government-owned services, though not adequately developed, were in a monopoly situation, dictating to consumers the kinds and range of services, their quality, cost, duration of fulfillment, and so forth.”

From an article in the Soviet newspaper Tass, November 19, 1986, announcing a new Soviet law permitting citizens to engage in limited forms of private enterprise.

Hungarian Candor

“In your opinion, should Hungary resemble more the capitalist countries or the socialist countries?”

“It should resemble more the capitalist countries.”

“In the Hungarian economy, what changes are needed?”

“Fundamental.”

“Agree or disagree: Only prices of luxury goods should be determined by market forces.” “Disagree.”

“Do you want little differences in earnings or big gaps?”

“Big gaps.”

“What layers of society get bigger-than-average earnings now?”

“Those with the biggest mouths.”

from an official Hungarian public opinion interview, as reported in The Wall Street Journal (January 8, 1987).

ASSOCIATED ISSUE

May 1987

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