Grant McDermott bio photo

Grant McDermott

Assistant Professor
Dept. of Economics
University of Oregon

Email Twitter LinkedIn   Scholar   ORCID GitHub
As should be clear from some of my previous posts, I think that some areas of our economy are in need of regulation; others distinctly less so. Here is an article describing some cases that fall into the latter category: A License to Shampoo: Jobs Needing State Approval Rise

Apart from the more ridiculous stories of occupational licensing, perhaps the most interesting insight is that the call for more regulation is coming from the practitioners themselves. They argue that "regulation will boost the prestige of their professions, provide oversight and protect consumers from shoddy work." Of course, the cynical economist in me says it would be remiss of us not to highlight problems of rent-seeking. Still, this is an admirably balanced article and not simply an anti-Government rant. 

A quote I rather enjoyed:
Mr. Lykins says it's in the public's interest to insist manicurists are well-trained. "Have you ever had a nail fungus? It's terrible," he says. "That's why we're there."
[Snaps fingers, bobs head]

(HT: Adam Ozimek)

===

I've also been meaning to describe a particularly daft case of regulation that I've come across here in Lisbon. Across the city there are many decrepit and abandoned buildings, literally right in between thriving office blocks. This was really puzzling to me at first as, Portugal's wider economic troubles notwithstanding, I couldn't understand how you could get such variation within the same neighbourhoods... even the richest parts of the city are afflicted. From asking my Portuguese friends there are various reasons for this problem, including a rush out to Lisbon's outer suburbs that left the central parts of city suddenly much emptier than they had ever been. However, here is aspect worth retelling as cautionary note for all would-be rent controllers: 

(The precise details may be a little off here, but not so much that it materially affects the story.)

After the Carnation Revolution in 1974 overthrew the authoritarian Esta Nova regime created by Antonio Salazar, the left-leaning revolutionaries instilled a new law whereby property rent was fixed from the time that a person first moved in. Tenants may have celebrated this ruling at first, but of course this also meant that landlords had no incentive to invest in maintaining or renovating their buildings over the years that followed. I believe the law has since been amended to allow for rent increases in line with inflation, but long-established tenants (particularly in the south of the city) are still paying absurdly low rentals. This includes historic neighbourhoods like the otherwise beautiful Alfama... even buildings that would constitute prime real estate right in the financial district.

The same tenants that benefited from decades of low rentals now have to live in dangerously decrepit buildings. Worse, there is a very real social problem at stake, since the housing "shortage" has pushed up prices for residents in functioning buildings all over the city. As with abandoned neighbourhoods around the world, there is a lingering problem of crime in places where no-one is investing and actively living. 

[UPDATE: Here is an article discussing the same problems behind  the abandoned buildings of Lisbon. Here's another.]

THOUGHT FOR THE DAY: Dumb regulation will make everyone's lives worse off, no matter how good the underlying intentions.