Price Controls: The Emperor, The Councilwoman, and The King
It is upsetting when prices go up, and usually we complain to each other and, eventually, to our political leaders. After all, inflation consumes our savings by making our money worth less, and it consumes more of our incomes as we try to pay for life’s essentials like housing, food, and services like day care. Often the instinct of political leaders is to try to stop prices increases by just imposing a limit on them. Wouldn’t it be nice if prices for things just stopped going up? Wouldn’t it be helpful if an all-powerful leader just intervened in the market and saved us from rising prices for housing?
The Emperor
Diocletian (240-311AD) became Roman Emperor in the late third century and faced dramatically rising prices in the Empire, and he tried to do just that: fix prices by issuing an edict. Diocletian’s edict reads almost like something issued from the Occupy movement (all quotes are from an article about the edict in an article by Roland G. Kent):
Who therefore can be ignorant that an audacity that plots against the good of society is presenting itself with a spirit of profiteering, wherever the general welfare requires our armies to be directed, not only in villages and towns, but along every highway? That it forces up the prices of commodities not fourfold or eightfold, but to such a degree that human language cannot find words to set a proper evaluation upon their action? Finally, that sometimes by the outlay upon a single article the soldier is robbed both of his bounty and of his pay, and that the entire contributions of the whole world for maintaining the armies accrue to the detestable gains of plunderers, so that our soldiers seem to yield the entire fruit of their military career, and the labors of their entire term of service, to these profiteers in everything, in order that the pillagers of the commonwealth may from day to day carry off all that they resolve to have?
Outrageous! And what was the solution for rising prices in the 4th century? Price controls.
Being justly and duly moved by all these considerations above included, since already humanity itself seemed to be praying for release, we resolved, not that the prices of commodities should be fixed.
What follows the edict is a list of items and their maximum prices.
And wages were included in the fix as well.
And how was the edict going to be enforced?
It is our pleasure that if anyone have acted with boldness against the letter of this statute, he shall be subjected to capital punishment.
Ouch. And you thought incentive zoning was bad!
How’d the whole price fixing thing work out for Diocletian? Well according to Kent,
The price limits set in the Edict were not observed by the traders, in spite of the death penalty provided in the statute for its violation; would-be purchasers, finding that the prices were above the legal limit, formed mobs and wrecked the offending traders’ establishments, incidentally killing the traders, though the goods were after all of but trifling value; the other traders, rather than sell at prices which would bankrupt them, hoarded their goods against the day when the restrictions should be removed, and the resulting scarcity of wares actually offered for sale caused an even greater increase in prices, so that what trading went on was at illegal prices, and therefore performed clandestinely.
The Councilwoman
Price controls don’t work. They didn’t work for an all-powerful ruler who enforced them with a sword and they didn’t work in totalitarian Eastern Block countries and they didn’t work for President Richard Nixon in the early 1970s in this country. Price controls always raise prices. They do and always will. Still, Councilmember Sawant is the leading proponent of price controls for rental housing, and she is followed by some of her colleagues who advocate for inclusionary zoning. 
Rent control works the same way whether it is direct price fixing by government of what landlords can charge or by other means like inclusionary zoning, a mandate that requires that new development be required to build price controlled units. The dynamic of how inclusionary zoning functions as rent control is described well in a journal article called, “The Economics of Inclusionary Zoning Reclaimed”: How Effective Are Price Controls?. In the case of inclusionary zoning, the requirement functions like a penalty or tax for creating market rate housing.
With the exception of a few unrealistic cases, taxes raise the price that buyers pay, decrease the price that sellers receive, and lead to a decrease in quantity supplied. When the effective tax is large enough, development will be discouraged altogether.
The demand curve slopes downward because as consumers have to pay more, they will buy less, and the supply curve slopes upward because as producers receive more, they will supply more resources for residential development.
The King
Why do Councilmember Sawant and her protégé Jess Spear think that they can stem the tide of prices when even a Roman Emperor could not? As remarkable as she is, I don’t think even Sawant could make price controlled housing work. Perhaps she and her colleagues should take a lesson from another historical figure, English King Canute. To show the limits of his power to control everything, he
Commanded that his chair should be set on the shore, when the tide began to rise. And then he spoke to the rising sea saying, “You are part of my dominion, and the ground that I am seated upon is mine, nor has anyone disobeyed my orders with impunity. Therefore, I order you not to rise onto my land, nor to wet the clothes or body of your Lord. But the sea carried on rising as usual without any reverence for his person, and soaked his feet and legs. Then he moving away said: “All the inhabitants of the world should know that the power of kings is vain and trivial, and that none is worthy the name of king but He whose command the heaven, earth and sea obey by eternal laws”
But there is one sure way to stop the rising tide of housing prices that doesn’t require edicts, price controls, or trying to command the waves: make lots more housing! And with added subsidies like those created by the Multifamily Tax Exemption and the Housing Levy the problem of housing prices could get a lot better. The authors of the journal article point this out.
To make this happen we need a plan to reduce the number or rules and restrictions on building more housing and more effectively use subsidies. Please sign the petition asking the Council to make this a priority.
