Money runs the world. It is the basis of the economy. People need money to live, businesses need money to operate, and the government needs money to run the country. Obtaining money for citizens is done through employment. Businesses earn revenue through the sales of products or services. The government gains money through taxes. There is a flow to the economic system. Normally this flow is smooth and systematic. However, there are times when the flow is interrupted by some type of lag in the system. A lag in any system can wreak havoc. Bouncing back can sometimes be difficult. When there is a lag in the economy it means that there is something seriously wrong. Whatever the root of the problem is, it will cause an undesirable shift in the entire economy.
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That shift will affect supply and demand across the board. Supply and demand are the drivers of the economy. They apply to services, goods, and labor. Basic laws of supply and demand say that when demand for a product or service is low, the price will fall. When supply is high the price will be high. However, when the supply falls, the price will fall as well. When demand for products or services is low, it can also affect the amount of taxes a business pays. That will affect the government. Of course, when demand is low it will not only affect the business, but it can also affect employees. When demand for products or services is low, it can cause a low demand for labor. People could lose their jobs. Unemployment will cause a lull in spending.
If people stop spending money, it is not just a problem for that person. On a larger scale, it can cause issues for the economy as well. When the state of the economy indicates that there is a steady and extremely noticeable loss of revenue for businesses, there is going to be a significant loss for the government as well. When this happens, the government must assess the problem. It is important to understand why the economy is in a negative state in order to plan to correct it and avoid a deep recession. A recession would unleash horrible consequences for the country and its people. It would mean a steady decline of spending, resulting in a decline in wages, and a decline in taxes paid into the government. Since the government runs off collecting taxes, it would be detrimental to the country. At that point, government intervention is unavoidable. Government intervention comes in the form of government controls.
Government controls can come in many different forms. These controls ae imposed in order to help facilitate more money being put into the economy. Controls can serve more than one purpose. They can help the government and the people. One such control is rent control.
Government control involves the government setting price floors and ceilings. Price floors give a minimum price that can be paid for a good or service. Price ceilings are the opposite. They are the maximum that can be paid. Use of price controls can be beneficial to the consumer. It ensures that they are not paying too much for a good or service. Price floors can help ensure that a certain amount of quality is evident. One way that the government uses ceilings and floors is when it practices rent control.
Rent control can be beneficial for consumers and producers, however, it can also be harmful. Benefits of this type of program are great for the consumer. Anyone that is eligible to live in a rent-controlled dwelling can rest assured that they will not be overcharged for their rent. Rent control can provide tenants with stability and fair rents in cities where the rental housing market is unable to stabilize rents on its own (Barton, 2019). It helps lower the rates of homelessness. Rent control can be life changing for those that are less fortunate.
Life changing can be good and bad. For some, being able to live in rent-controlled housing allows them to maintain a stable life. Unfortunately, it can be stifling. Once someone lives by these means, it can be difficult to get out of the situation. Society shows a trend that some people get stuck in the low-income bracket due to the programs that incentivize it. However, every situation is different. When the economy is not doing well, the effects can last a very long time, making it difficult to pull yourself up. On a personal level, rent control is a good thing. However, it is not always the same for everyone.
Producers may have different experiences with rent control. Dependent on the price floors and ceilings, they can either make money or lose money. It really depends on numbers. Rent controlled units will always be occupied. There is a high demand for them these days. That is good for those that producers of rentals. However, it can be bad for the housing market. When people get comfortable with their low rent, it can have a negative on the housing industry. Instead of moving to more expensive places to live or purchasing houses, people will choose to stay in the lower rent bracket because it is more affordable (Williamson, 2018). Here is also the issue of land value. If everyone chooses to stay in rent-controlled housing, the demand for new housing will fall (Williamson, 2018). This causes a lull in housing development. That is bad for businesses that provide this type of service. Then there is a chain reaction. It causes a loss of potential business for lenders, investors, and the government. Negative results of that will spill into the economy. This is a necessary practice in today’s market. However, it can be both helpful and harmful. Government should try to make sure that these programs are beneficial to both producers and consumers.
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Depending on the situation, government controls can sometimes hit producers harder than consumers. Price floors and ceilings can have a negative impact on a business. They can affect the levels of supply and demand in the market. Having a price ceiling on a product can cause a producer a loss in possible revenue. They may want to sell a product for a price that is above the price ceiling in order to maximize profits. Due to the price ceiling they will be looking for alternative ways to bring in more revenue.
Sometimes they choose to use illegal or unethical means. Tie-in sales is an alternative method that is used in the economy to assist businesses to boost sales. Tie-in sales involve a supplier selling products to consumers with the agreement to purchase a certain amount of something else (Kaserman, 2007). An example of a type of tie-in sale would be when someone purchases something at a lower price then normal, however in order to get that price, they must purchase a certain amount of something else at a fixed price. This practice can be beneficial for either party, or it can be harmful.
For the producer, it can boost revenue and help them to reach the sales level that they desire. However, they will have to increase production in order to keep up with that type of practice. That will cost money. However, if they are sure to make enough money via the tie-in sale, they will benefit. For the consumer, this practice can possibly result in them receiving a good deal. However, they may not have wanted to purchase the second item. Unfortunately, due to their demand for the product, they had no choice. Tie-in sales can be good or bad. It just depends on the situation.
Each situation is different. This also applies to the state of the economy. Everything is not cut and dry. Finding a solution is not as easy as we wish. Our government must look at the entire picture in order to assess how to address the situation. Once that is done, they can try to predict how the different possibilities will affect the economy. Looking at past like situations will help, but it will not guarantee the desired result. When the economy gets to a point that it does not look like it will repair itself, it will be necessary for the government to step in and try to remedy the situation. Government controls can be helpful. The people will need help. Businesses will need assistance. Controls can help by offering a bit of ease for everyone.
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- Kaserman, D. L. (2007). Efficient Durable Good Pricing and Aftermarket Tie-In Sales. Economic Inquiry, 45(3), 533–537. https://doi.org/10.1111/j.1465-7295.2007.00022.x
- Rent Control Feeds Inequality in San Francisco. (2018). Reason, 50(2), 12–13. Retrieved from https://search.ebscohost.com/login.aspx?direct=true&AuthType=ip,shib&db=fth&AN=129212032&site=eds-live&scope=site&custid=thco
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