If there were one issue to bring together economists of all stripes, it would be opposition to rent control laws. "In many cases, rent control appears to be the most efficient technique presently known to destroy a city—except for bombing," said left-leaning economist Assar Lindbeck in 1971. And yet, President Joe Biden appears to be proposing rent control laws at the federal level.
‘Big Boy’ Presser Reveals Rent Control Proposal
In the years following the Vietnam War, Foreign Minister Nguyen Co Thach confirmed that the "romantic conception of social" devastated the Vietnamese economy. The most egregious policy had been rent controls. "The Americans couldn’t destroy Hanoi, but we have destroyed our city by very low rents. We realized it was stupid and that we must change policy," Thach said.
In his "Big Boy" press conference on July 11, President Biden confirmed that if he is re-elected in November, the federal government is "going to make sure that rents are kept at 5% increase" and "apartments and the like and homes are limited to 5%." The president added: "We’re going to make a lot of changes that I’ve been talking about, because we’re going to continue to grow this economy."
For decades, there has been plenty of data and research into the issue of rent control laws. The conclusion? They limit housing affordability by preventing new and old supply from coming to the market, driving urban shortages nationwide. Homelessness rises, poverty rates balloon, and the economy is worse off, forcing the government – ostensibly at all three levels – to resolve a problem officials created in the first place.
This is not a controversial summary either. Keynesian economist Paul Krugman would agree, writing in The New York Times back in 2020: "Almost every freshman-level textbook contains a case study on rent control, using its known adverse side effects to illustrate the principles of supply and demand." Unfortunately, because home prices are at record highs and rents are slightly below the all-time high established last year, public policymakers are resurrecting this idea again.
A 2019 Stanford study assessed the situation in San Francisco and concluded that rental housing supplies fell by 15% and rent control "likely drove up market rents in the long run." To show what eliminating rent control laws can do within a couple of years, the province of Ontario abolished rent controls for buildings constructed after 2018. What happened? According to the Toronto Regional Real Estate Board (TRREB), the supply of condominiums and apartments soared more than 55% year-over-year in March.
Rent controls, like any other type of price control, bolster demand and constrain supply. The end result is scarcity, shortage, and suffering. The president does not seem to be aware of the literature available in the public realm.
Inflation Is Not Going Away?
Everyone rejoiced when the consumer price index (CPI) fell 0.1% for the first time since the onset of the coronavirus pandemic. The annual rate eased to a smaller-than-expected 3% in June. This led to investors guaranteeing that the Federal Reserve would cut interest rates at the September Federal Open Market Committee (FOMC) policy meeting. Is the inflation war over? Not quite.
According to the Bureau of Labor Statistics, the producer price index (PPI) – a gauge of prices paid for goods and services by businesses and passed onto consumers – rose at a higher-than-expected 0.2%. Core producer prices, which strip the volatile energy and food components, advanced 0.4%, topping the consensus estimate. The PPI has risen in five of the last six months. On a year-over-year basis, the PPI and core PPI climbed to 2.6% and 3%, respectively.
What's more, is that the federal statistics agency revised previous PPI data higher. The May headline PPI was adjusted up from negative 0.2% to 0% and the core PPI was altered higher from 0% to 0.3%.
The PPI is a crucial inflation measurement because it is early in the supply chain and can function as a precursor to future inflation trends. So, while the CPI and personal consumption expenditure (PCE) price index might be heading downward, the PPI is signaling something completely different.
Stocks Love Trump or Biden?
It is an age-old battle in the neoteric political coliseum. What economic doctrine is better for the United States: Trumponomics or Bidenomics?
The Dow Jones Industrial Average, the S&P 500, and the Nasdaq Composite Index have hit record highs multiple times this year. Champagne is flooding the stock exchanges and the sidewalks of Wall Street. If you have been resting on the sidelines and waiting for the Eccles Building's restrictive policy to work through the equities arena, you might have missed an impressive bull run.
In other words, traders love Bidenomics! Or do they? Stephen Moore's Committee to Unleash Prosperity crunched the numbers and compared the indexes' performances between President Biden and former President Donald Trump. When the stock returns are adjusted for inflation, it is clear that Trumponomics was the winner on The Street.
Here is a breakdown:
Dow Jones
Biden: +6.4%
Trump: +43.7%
S&P 500
Biden: +15.7%
Trump: +54.7%
Nasdaq
Biden: +7.3%
Trump: +116%
What is funny is that while interest rates are at their highest levels in 23 years, financial conditions are the loosest they have been since December 2021, according to the Chicago Fed National Financial Conditions Index. At the time, the benchmark federal funds rate was 0%. The data continue to show that inflation is imbibing everything, even record stock market returns.
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