Submitted by Walter E. Block, Chair and Professor of Economics Loyola University New Orleans
Demand curves slope in a downward direction. This means that the higher the price, the less of an item, or good, or service, will be sought. The more road blocks, hurdles, thumb tacks, placed in the way of any given action, the less likely it will occur. Economists do not agree on many things, but on this insight there will be nary a dismal scientist who will not acquiesce.
Yet, there are several public policies in place that are incompatible with this common-sense understanding.
Consider first residential rental units. New York City, San Francisco, Cleveland and another half dozen major cities are now offering free legal advice to tenants threatened by eviction. At present this benefit is afforded mainly to those accused of a crime who cannot afford a lawyer, on the ground that such legal aid is needed to provide equal justice for rich and poor alike. Now, it is being extended to renters.
Some commentators even think that this strengthens the hands of tenants and reduces homelessness. They reckon, however, in the absence of downward sloping demand curves. They think only in terms of immediate, not long term effects. Yes, give them free legal advice and fewer people will be evicted; one point for the tenant.
But look at this from the point of view of the landlord, or, the would-be investor in residential real estate. It now becomes more difficult to evict non-paying, or obstreperous tenants. Will they be more or less likely to build, upgrade, repair, apartment dwellings? To ask this question is to answer it. They will tend to seek greener pastures elsewhere. They will try to convert extant dwellings into condominiums, commercial space, etc. But, with less residential housing available the situation of renters will become more dire, not less. Remember that downward sloping demand curve: with a lowered supply, rents will rise not fall, and a given square footage will accommodate fewer people, not more. More homelessness, here we come.
The same analysis applies to other efforts to “help” tenants. Under economic freedom, landlords may demand as much as several months’ worth of security deposits. This will indemnify them if there are damages. It will also protect them from bankruptcy since it typically takes months to evict non payers. This problem arises especially during the Christmas season; judges are particularly reluctant to toss people out onto the street during these times. Curiously, they do not at all have the same attitude regarding robbers during December. But what are non-paying tenants other than thieves of accommodation?
Next consider the labor market. In France in particular, and other countries as well, the law makes it more and more difficult to fire employees. The authorities want to protect workers, and, also, do not relish increased unemployment statistics. This “remedy” of theirs also fails to take into account downward sloping demand curves; it looks, only, to the immediate run, avoiding long run effects. For when barriers are placed in the way of laying off wage earners, less of it will occur. How do rational profit seeking entrepreneurs react? Why, by not hiring workers in the first place! Instead of offering full time employment, they take on only part timers. Firms resort to contracting out to smaller firms, or to the individuals themselves. The latter take on what are called “gigs” so as to escape these unwarranted legislative enactments.
These laws are also discriminatory. Workers can quit with no by your leave. Unless and until employers can sever relationships with employees as easily, justice, to say nothing of full employment, will not prevail.
Let us attempt to make this point in an unrelated arena of human interaction. Suppose a law were passed and fully enforced mandating that no divorce would be allowed, ever, for any reason whatsoever. The immediate effect of course would be to preserve marriage. Without the possibility of divorce, more marriages would stay intact than otherwise (we abstract from the effect of such a law on the rate of infidelity). But what would be the long run effect of such a law on this institution? Demand curves slope downward even in this milieu. Place more barriers against an act, weddings in this case, and fewer of them will occur.
If society really has the best interests of tenants, of employees, and, also, of spouses, it will not in effect charge higher “prices” for them. The very opposite policies would be pursued.