Thursday, September 16, 2010

Good Questions From My Students

I've been teaching two introductory classes, and my students have asked me some really good questions, which is part of what makes teaching worthwhile. For example:

Why are there price supports for milk, but not for, say, steak? I don't know; the just-so story I suggested was that milk is sold primarily directly to consumers, who are a very dispersed interest group (so they find it difficult to organize to oppose the regulation). Steak is an important input for many restaurants, so perhaps they form an effective counter-lobby against ranchers. Bryan Caplan's answer to why such a clearly inefficient regulation would exist would be (in part) "voters are rationally irrational and support the policy", but I don't think that's true here. I don't think most voters are even aware milk price supports exist. It has to be some sort of classic lobbying battle.

Is there regional variation in minimum wage laws that correlates with homelessness rates? One student said that she had lived in Hawaii, where the minimum wage exceeded the federal wage and homelessness was rampant. I guessed that if one were to run the data, one would not find a relationship (although I don't think there'd be a causality problem--how would high rates of homelessness cause a higher minimum wage?), but it sure would be interesting to check. 

Why do some cities have rent control, but not others? Why New York and Santa Monica, but not Atlanta? I don't really have any good answer here. Anyone have any ideas I could run by the students?


Eric Gottlieb said...

My (highly limited) understanding of the price support situation for milk is that a lot of small farmers who had been in business for a long time were on the brink of folding and so were able to extract supports in this way. Also, there are supports for steak, at least in some places. Out west, ranchers can graze their cattle on federal land for way below market price.

I suspect homelessness in Hawaii has something to do with the weather. Miami also has a large homeless population.

As far as rent control, I'm sure it has something to do with ridiculously high rents, people demanding a solution to the problems that creates, and politicians responding. I guess if there were a sufficiently large supply of cheap housing in sufficiently safe neighborhoods, rent controls would be less likely to emerge. Of course, once they are in place, it's hard to get rid of them, even if rents fall.

Love your blog and your receptive attitude to your students. Wish we could have kept you at Rhodes.

Mike Hammock said...

This (somewhat old) review of the program suggests that its inception was really barely-concealed government-enforced collusion. I don't think there are beef price supports per se, but you're definitely right that there are subsidies for all sorts of things, either in cash or in kind. For example, loggers can cut timber on federal lands, buy it at below-market rates, and use free government-provided logging roads to remove the timber.

Weather would be my first guess as well; San Diego is another place with a high rate of homelessness. It would be fun, however, to throw this stuff into a regression (with weather, rates of mental illness, the minimum wage, and other variables) on the right hand side and see what falls out as significant.

A student suggested that it was continued in New York City because of the big increase in population during WWII (when the national rent controls were implemented). I don't know if that's true, but I would guess that you're right--places with the biggest increase in rents were the most likely to implement rent control. One of the unintended consequences of rent control is a reduction in stock of housing, as older buildings are eventually abandoned and condemned, and no one finds it worthwhile to build new ones (so the policy actually has the opposite of its intended effect in the long run--it makes it more difficult to find housing).

Thanks for the kind words. I miss Rhodes, too, although I don't miss the three hour drive!