Windfall Profits and That Which Is Not Seen - Art Carden - Mises Institute

Windfall Profits and That Which Is Not Seen - Art Carden - Mises Institute: "The apartments cost you $450 a month to maintain, and you can rent them out for $500 a month for a monthly profit of $50 each. Suppose now that the demand for Cambridge apartments skyrockets, and you can now charge $1,000 a month for the exact same apartment. The rent controllers maintain that it isn't fair that you can now enjoy such higher rents without really changing the product you offer or 'working for it.' Since people supposedly aren't entitled to what they don't 'work for,' the rent controllers step in and cap rental prices at $500 a month. Everyone should be happy because you're still earning a 'reasonable' profit on each apartment, consumers are still able to get cheap apartments, and the Cambridge housing stock has not diminished."

"People will try to get apartments by making bribes or other side payments. Landlords may let their property deteriorate. Landlords may withdraw from the housing market and convert their apartments to offices."

"In this situation, rent controllers objected to windfall profits for the landlord. But what of the renter who has the good fortune to secure for $500 an apartment for which someone else would gladly pay $1,000? This is just as much a windfall as anything else. Moreover, the rent-control board either consigns the second renter to the winds of fate — he will, in all likelihood, be banished to a waiting list — or shuts him out of the housing market altogether because his willingness to pay is not allowed to manifest itself through the market process."

"High profits induce others to enter a market. In this case, high profits signal that there is quite a bit of money to be made in the Cambridge housing market. One of the fundamental precepts of economics is that people respond to incentives; something has to induce people to engage in productive activity (supplying apartments, in this case)."

"If we did nothing else, therefore, the consequence of fixing a maximum price for a particular commodity would be to bring about a shortage of that commodity. But that is precisely the opposite of what government regulators originally wanted to do. For it is the very commodities selected for maximum price-fixing that the regulators most want to keep in abundant supply. But when they limit the wages and the profits of those who make these commodities … they discourage the production of the price-controlled necessities while they relatively stimulate the production of less essential goods."