discussion week2

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Question: In your opinion, what would happen in the short and long term if the government did away with controls on housing (rent controls) and wages? e.g. equilibrium price/quantity, supply/demand, consumption, equity, availability, etc.

In order to understand what would happen in the short and long term if the government eliminated rent and wage controls, we first need to understand the impacts they have on our economy toady. I will start with rent control:

• It is a known fact that rent control creates a destructive shortage of apartments by setting the price below the market’s equilibrium price.
• We are told rent controls are put into place to keep apartments affordable for low and mid-income tenants. Although I am sure the idea was well intentioned, in most cases, I feel it is more of a political strategy to win over voters.
• Due to the shortage of apartments and housing in rent controlled environments, the left over demand floods the un-regulated markets causing property owners and landlords to charge unreasonable rents to subsidize the fear of potential regulation in the future. This further skews the price stability of the housing market for a given area.
• Last, rent control diverts investment in dwellings, which may need it the most, and tenants are forced to live in sub-standard dwellings. If an investor purchased a rental property for income purposes and is now limited to unreasonable returns, what keeps them from cutting their losses and diverting their funds to other investments that promise a greater return?

If the government eliminated rent control, I feel to following effects would be prevalent now and in the long run:

• The market system would inevitable regulate itself, finding an equilibrium between ...

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• Last, many current minimum wage workers may be inspired to work harder at mastering their skill or educating themselves to become more productive members of society versus sitting back and waiting for another pay raise in the form of an increase to the minimum wage.

There is a place for limited oversight and regulations to control the “greed” aspect that is found in capitalism, but it is just irresponsible for governments to uphold policies that were mandated decades ago for economic conditions that no longer apply. Polices like rent and wage control need to be proven legitimate with facts, otherwise abolished. The bottom line is rent and wages, like the prices of everything else, are set in response to market conditions of supply and demand. We need to get back to basics and have trust in the free market system that made this country great in the first place.

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