Tyler Cowen's Idea #6: Secondary Consequences

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- [Tyler] Secondary consequences --
simple two words.

- [Alex] Rent controls are popular
with renters all over the world

because they appear
to offer lower prices

with few adverse consequences.

In the long run, however,

extensive rent controls
can cause entire cities to crumble.

You can see that today
in Mumbai, India.

All of the predicted consequences
of rent control

can be seen in Mumbai.

There is a shortage
of rental housing,

very, very little new rental housing
is being constructed,

and the stock of old rental housing
is crumbling and falling apart.

There's a remarkable sign
from the owners.

Take a look.

"...portions of the said building
are in ruinous condition,

likely to fall,

and dangerous to any person
occupying or passing by the same."

It's falling apart.
It's beginning to crumble.

Now, in part, that's a threat
to try and get the tenants to leave,

but it's an all too believable threat.

- [TV announcer] Another deadly
building collapse in India.

A five-story apartment building
fell in Mumbai early Friday morning

while people were fast asleep.

It's unknown exactly how many people
are still underneath the rubble.

Rescuers have been digging
for survivors all day long.

- [woman] There's really
no incentives for them

to maintain the existing stock,

and you see
really bad deterioration

of the buildings
that are under rent control.

- [Tyler] So a classic
economic example is rent control.

You cap the price,
the quality tends to go down.

I won't go through
the whole analysis,

but I think it's one
of the key core economic ideas --

that you need to look
not just at the first stage

of what happens,
but at later stages.

It also ties into this idea --

don't always be so sure
of what you're doing,

that you can't always calculate
the secondary, tertiary,

and later consequences.

Again, very important
economic idea.

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