Government Intervention, Favors for the Rich, and Economic Damage

Whether we're looking at TARP bailouts, Obamacare, or tax loopholes, a common theme is that politicians implement a policy by arguing they want to help the less fortunate. When the dust settles, however, it is often the case that politically well-connected rich people are the big beneficiaries. The overall economy tends to be weaker, meanwhile, and the specific sector suffers because of resource misallocation, so poor people actually fall farther behind. A good example is rent control. The Wall Street Journal has an editorial citing the case of Bianca Jagger to illustrate how the law has become a giant rip-off that deprives landlords of their property rights while lining the pockets of the elite. Those lower on the income scale, by contrast, suffer because of a housing market crippled by government intervention.

Jetsetter and social activist Bianca Jagger has lost her legal bid to keep her knock-down-price rental at 530 Park Avenue. A New York state judge last week ordered Mick's ex to pay $708,600 in back rent and other fines to her landlords. Ms. Jagger spent nearly 20 years in the two bedroom apartment—rent-stabilized at $4,600 a month. But then she complained about poor upkeep. The landlords in turn noted that Ms. Jagger, in the U.S. on a tourist visa, shouldn't pay the lower rent since New York isn't her "primary residence," one of the criteria under rent control laws. A state appeals court sided with them in 2008 and last week another court upheld the decision and said she could be evicted. As part of the fine, the judge ruled that Ms. Jagger owes $246,468 for the "fair market use and occupancy" over the years she was in dispute with the landlords. They said the apartment would have gone on the open market for $8,800 a month. The case sums up the insanity of regulating prices in one of the world's most competitive and dynamic real estate markets. Rent control, a "temporary" World War II-era measure that survives into this century, creates housing shortages, drives up prices for non-rent control real estate and contributes to middle class flight. As Ms. Jagger perhaps found out with her moldy apartment, artificially keeping down rents gives landlords the rational financial incentive to skimp on upkeep. Worse than that, rent control disproportionately subsidizes the affluent. A Harvard University study in the late 1980s found that rent-controlled apartments were in some of the cities best neighborhoods, that 94% of its tenants were white and roughly three-quarters were families without children.