Month: April 2017

A Twisted Tale of Rent Control in the Maximum City

Walking around Mumbai it’s common to see some lovely, older buildings (circa 1920s perhaps) that are rentcontrol1in a great state of disrepair. A well maintained building can last for hundreds of years so why are these buildings falling apart? The answer is rent control. Bombay passed a rent control act in 1947 that froze rents at 1940 levels.

More than fifty years later, rents remained frozen at 1940 levels. It wasn’t until 1999 that the Act was modified slightly to lift controls on some new construction and to allow rent increases of 4% per year. After a fifty two year freeze, however, a 4% increase was a pittance. Thus, even today there are thousands of flats where tenants are paying rents of 400-500 rupees a month (that’s $6 to $8 a month!)–far, far below market rates.

The rent control law meant that there was virtually no construction of rental housing (WP) for decades and a slowly dilapidating housing stock. (Ironically, the only free market in rental housing is in the rentcontrol4slums.)

The nominal landlords have neither the incentive nor the funds to maintain the buildings so every year during monsoon season some of the buildings collapse and people die. As the World Bank put it, the monsoons are Natural Hazards but the collapses are Unnatural Disasters:

Rent controls in Mumbai may have initially benefited tenants at the expense of landlords, but over time everyone suffers. Rent controls cause landlords to forgo maintenance and neglect their properties, and tenants not only live in dilapidated buildings but die when they collapse in heavy rains. Even if tenants are willing to either pay higher rents or to maintain the building, each tries to not pay his share of the expense (free riding), especially if appropriate retrofitting involves structural changes to the entire residential structure and not to individual apartments. Tenants also may lack the legal authority to make changes to their building’s structure.

Consider the photo at top, it’s an elegant building on a nice plot in a highly desirable part of town but take a closer look and you can see that it is falling apart (second photo). Several businesses and flats operate in the building. Now read the sign on the wall.

rentcontrol3I don’t doubt that the sign is largely accurate but it also illustrates another aspect of rent control. Rent control transforms a mutually profitable exchange into a zero-sum war of misery. As I discovered in my investigations, a remarkable and sometimes hilarious example is illustrated by this very building.

The tenant, called the “victim lady”, in the Bombay High Court case that she initiated alleges that her landlord has vexed her with many frivolous lawsuits and harassed her in various and sundry ways:

It is alleged that the Respondent, on the pretext of reading books and doing meditation, continues to sit near the window of the victim lady reading law books and passing unwanted remarks stating that he will become a better lawyer by reading law books and will teach the victim lady a lesson. The Respondent is also alleged to have killed the kitten to whom the victim lady regularly used to feed. He is also alleged to have called three men to remove coconuts from the coconut tree and in the process broke number of flower pots belonging to the victim lady and destroyed the garden maintained by her.

In addition, and the judges of the High Court find this especially distasteful, the landlord “has also cast aspersions on the judiciary by making certain statements” about the “inefficiency of the judicial system”. Indeed, in his affidavit-in-reply, the respondent doubled down arguing:

…”the judiciary is perceived as inefficient by most citizens of India” as a justification for what he had stated.

Where could the respondent have gotten such absurd ideas? How dare he claim to know what most citizens think!

The Respondent may be free to express his views about the judiciary, but obviously had no right to project his views as of “most citizens in India”. What survey or research has been made by the Respondent to ascertain the views of “most citizens in India”, has not been disclosed, and considering the number of the citizens in India it is impossible to believe that the Respondent has made any survey or research on these aspects, so as to be able to make an authoritative statement of what “most citizens” feel. The impropriety is so obvious that we do not wish to comment upon the same any further…[to which, of course, the judges then proceed to comment further, AT]

The landlord does come off as a troublesome fellow but dig a little deeper and it’s not hard to see the source of his frustration. The judges, to give credit where credit is due, careful sift through the history of the case and they learn that the landlord has not actually filed many lawsuits against the plaintiff. Instead of many lawsuits, it turns out that there is only one very, very lengthy lawsuit.

Now, coming to the details given in part-B of the petition classified as “facts of the case”, there is reference of the suit bearing RAE No.537/4434/63, but this suit has, admittedly, not been filed by the Respondent and apparently the same has been filed by the grandfather [emphasis added, AT] of the Respondent….It is clear from the averments in the petition itself that the legal proceedings are pending between the parties since the year 1963.

Since landlord junior “came in picture in the year 1998 only”, and was only filling in the shoes of landlord father, who was only filling in the shoes of landlord grandfather, junior can’t be said to have initiated many lawsuits against the tenant. Thus, despite the landlord’s clearly outrageous comments about the inefficiency of the judiciary and whatever else junior may have done to the kitten, the judges throw out the tenant’s petition. The lawsuit that began in 1963 moves forward!  Perhaps to be taken up by the next generation.

Addendum: I talk rent control in Mumbai with Amit Varma on his excellent podcast, The Seen and the Unseen.

How to invest to fight global warming

Here is a query from a loyal MR reader:

If you had net assets in the six figures, and were very concerned about global warming (some combination of wanting a good life for your children, and believing human civilization is valuable over a time horizon longer than your lifetime), how would you invest those assets?

Some thoughts I’ve had:

Invest in renewable energy companies: Extremely hard industry to figure out where your money would have most value added. Not easy to invest in Tesla.

Invest in water utilities: a lot of the problems with water are regulatory rather than investment.

Buy a house in an urban center: NIMBYism means that this likely just crowds out someone else, with unclear impact on carbon reduction

Housing ETF: Might have more political impact than personal purchase but difficult industry to figure out.

Give money to politicians: Does money actually impact political results?

Buy a house with access to water and a lot of guns: Not an ideal solution

Quit your job and become an activist: seems to have been moderately effective in recent years.

What non-complacent answers am I missing? How would your answer change if someone had 5 figure assets? 7 figures? 8 figures?

My answer is pretty simple: invest in fighting indoor air pollution in developing nations.  (Here are further research sources.)  The burning of wood indoors, for instance, leads to pretty significant carbon emissions, as does the burning of charcoal, dung, and plant residue.  These burnings are also harmful to human health, accounting for perhaps as many as four million (!) deaths last year, maybe more.  Some of the problem is inadequate ventilation, but also safer and cleaner gas stoves, among other technologies, represent a better and environmentally friendlier option for many of these households.  Pilot projects in India, Kenya, and China have shown positive results.

The nice thing about this target is that you can save lives even if global warming can’t really be stopped.  And rather than (implicitly or explicitly) taxing poor people in poor countries, you are helping them out.  The broad steps one wishes to take are consistent with these locales become wealthier rather than poorer regions.  Here is a paper on indoor air pollution and carbon emissions in Nigeria.

That said, I do not know which are the best non-profits or commercial projects in these areas — could any of you help out in the comments?

Another option would be to continue to apply pressure to Indonesia to limit the burning of their forests: “Indonesia’s carbon emissions from the 2015 forest fires were bigger than the daily emissions rate of the whole European Union, a study reveals.”  This would involve working through international organizations and perhaps NGOs in Indonesia itself, again your suggestions are welcome.

*Colossal*, the movie (full of spoilers)

I’ll have to put this under the fold, because I can’t say anything without giving away everything…OK, people, this is one strange movie.  The movie is mostly about U.S.-Korean relations, and U.S. foreign policy more broadly, albeit in cloaked form.  To cut to the chase, Anne Hathaway from NYC (but born in a rural area) symbolizes Hillary Clinton, and the character of “Oscar,” who loves his trashy red state, is Donald Trump.  The two engage in a series of pitched personal battles, and, through an obscure mechanism, this translates into two giant monsters fighting in the streets of Seoul, and destroying parts of the city through their wanton carelessness (yes, really).  So the movie is about how disputes in domestic American politics can wreck other parts of the world and Americans don’t really give a damn.  Oscar even uses Seoul as a hostage, repeatedly, to get his way in town, and later he takes joy in trashing parts of Seoul.  Oscar also loves to blow things up, if only to signal his irresponsibility, and he will blow up his own property too, just so he can push others around, because he feels so small in life.  He obtains his explosives through illegal trade with Mexico, which he decries but engages in nonetheless.  The red state trashers stand with Oscar no matter what.

The movie indicates that a much-younger “Hillary” made her first appearance in Seoul 25 years ago (1992!), but at the time no one noticed her import.  Recently she has come back, in the form of the giant monster, and the city grows to realize that she will save them from Oscar, the evil robot.

There are numerous references to Godzilla, which of course is a movie about (among other things) America destroying parts of Japan.

The movie’s ending has Hillary saving them from Trump, and Koreans crying with joy, but of course it didn’t work out that way.  And to watch this movie right after the Syria and Afghanistan bombings…

That all said, I wish it were a better film.  It is more interesting than masterful.

I read quite a few reviews of this one, but only Vogue has any clue at all.  I’m glad I saw it, but unsure whether I should recommend it to you.

*The New Koreans*

Back in Gyeongju, Kim had the spy arrested, tortured, and executed…The rest of Kim’s story, as far as we know it, is true: He conquered Baekje in 660 and Goguryeo in 668 with the help of the Tang armies, then had to give the Tang the Manchurian half of Goguryeo.

Modern nationalist historians have criticized Silla for relying on China’s help in the first place, saying it set a historical pattern whereby Koreans instinctively call on outside powers to help solve internal problems.

That is from the new book by Michael Breen, The New Koreans: The Story of a Nation, a very good introductory treatment to that part of the world.

What I’ve been reading

1. Mark Zupan, Inside Job: How Government Insiders Subvert the Public Interest.  This is now the very best book on how special interest groups subvert the quality of public policy.

2. Historically Inevitable: Turning Points of the Russian Revolution, edited by Tony Brenton, contributors include Dominic Lieven, Orlando Figes, and Richard Pipes.  I, for one, often find it easier to learn history through counterfactual reasoning.  “What if they hadn’t put Lenin into that train?, and so on, and so this is my favorite from the recent spate of books on 1917 in Russia.

More generally, there are people who very much like counterfactual reasoning (say Derek Parfit), and people who don’t care for it much (say Jim Buchanan).  The two types often don’t communicate well.  The counterfactual deployer seems like a kind of smart aleck, caught up in irrelevancies and neglecting “the real issues.”  In turn, the non-poser of counterfactuals seems stodgy and unable to understand the limitations of principles, how one might handle the tough cases, and what might cause one to change one’s mind.  Being able to bridge this gap, and learn from both kinds of thinkers, is both difficult and yields high returns.

3. Mary Gaitskill, Somebody with a Little Hammer, Essays.  Short pieces, never too long, strong throughout, mostly on literature (Nicholson Baker, Peter Pan, Norman Mailer, Bleak House) with some essays on movies too.  This will make my best of the year list, and she remains an underrated author more generally.

4. Jace Clayton, Uproot: Travels in 21st-Century Music and Digital Culture.  An original and consistently interesting extended essay on how “World Music” is evolving in digital times.  A must-read for me, at least.

5. Johan Chistensen, The Power of Economists Within the State.  I haven’t read this one, but it appears to be a very interesting look at the role of economists within government, for the case studies of New Zealand, Ireland, Norway, Denmark, and other cases (in less detail).  “Economists in government” remains an underappreciated topic, so I expect this book is a real contribution.

6. Julie Schumacher, Doodling for Academics: A Coloring and Activity Book.  It’s funny, for instance one panel has the heading “Find and color the many readers who will enjoy your dissertation.”  The images include a rat and a snake in the grass, but there aren’t even so many of those.

Saturday assorted links

1. The butterfly killer is convicted.

2. “At Gujarat Technological University, Sachin Sharma and Dharmesh Shah have designed a visual animal detection system that uses algorithms based on histogram of oriented gradients and cascade classifiers running in OpenCV. Cow training data came from public image datasets (like the KTH Animal Dataset), and in total 900 images of cows were input into the classifier.”  Link here.

3. Excellent Adam Tooze post on the gravity equation and how to think about the course of globalization and trade over distance.  I agree there has been a growth in the relative ability to trade across borders, but still not, given that a border is crossed, a relative boost over greater distances.  The entry of some former “zeros” into the global trading system is a once-and-for-all effect due to internal reforms, and the preferred way of measuring the trade elasticity over distance is I think to exclude such cases.  These issues are all debated in the literature.

4. Canada signs free trade agreement with itself.

5. Advanced distribution jobs keep growing.

Old globalization, meet the new globalization…

France is careening toward a nail-biter presidential election this month that pits a crowded field against anti-E.U. titan Marine Le Pen. But E.U. funds pay her salary, support her assistants, and underwrite the conferences and books she churns out to attack the 28-nation bloc. Key British leaders of the successful Brexit campaign got their financial lifeline from Brussels euros. Elsewhere in Europe, self-identified fascists are paying for rallies to further the future of the “white race” by breaking up the E.U. — all thanks to E.U. money.

…[these parties] get millions because of their heft in elections for the European Parliament, an institution that is short on power but flush with cash.

Here is the Washington Post story by Michael Birnbaum.  I say that Hegel, and works of Continental philosophy that use the word “totalizing,” should be raised in status!

Addendum: Here is more from Farrell and Newman.

Bertrand Russell on complacency

A great many of the impulses which now lead nations to go to war are in themselves essential to any vigorous or progressive life. Without imagination and love of adventure a society soon becomes stagnant and begins to decay. Conflict, provided it is not destructive and brutal, is necessary in order to stimulate men’s activities, and to secure the victory of what is living over what is dead or merely traditional. The wish for the triumph of one’s cause, the sense of solidarity with large bodies of men, are not things which a wise man will wish to destroy. It is only the outcome in death and destruction and hatred that is evil. The problem is, to keep these impulses, without making war the outlet for them.

All Utopias that have hitherto been constructed are intolerably dull….[Utopians] do not realize that much the greater part of a man’s happiness depends upon activity, and only a very small remnant consists in passive enjoyment. Even the pleasures which do consist in enjoyment are only satisfactory, to most men, when they come in the intervals of activity. Social reformers, like inventors of Utopias, are apt to forget this very obvious fact of human nature. They aim rather at securing more leisure, and more opportunity for enjoying it, than at making work itself more satisfactory, more consonant with impulse, and a better outlet for creativeness and the desire to employ one’s faculties.

That is from Principles of Social Reconstruction, 1916.  The pointer is from Alex, our Alex.

When usury laws are counterproductive

We study the effects of interest rate ceilings on the market for automobile loans. We find that loan contracting and the organization of the loan market adjust to facilitate loans to risky borrowers. When usury restrictions bind, automobile dealers finance a greater share of their customers’ purchases, which allows them to price credit risk through the mark-up on the product sale rather than the loan interest rate. Despite having little effect on who receives credit, usury limits therefore have a substantial effect on who provides credit and on the terms of credit granted. Usury limits may harm defaulting borrowers, who face greater liabilities in default than they would if loan contracts were unconstrained.

That is from a new paper by Brian Melzer and Aaron Schroeder, via Kevin Lewis.

Dave Donaldson has won the John Bates Clark Award

Here is the award citation, here is one excerpt from it:

Donaldson’s paper “Railroads of the Raj: Estimating the Impact of Transportation Infrastructure?” (American Economic Review, forthcoming) investigates the economic benefits from building transportation infrastructure studying the case of railways in 19th century India. This paper is widely viewed as both a methodological breakthrough and substantively important paper in the field. Donaldson assembled a new and rich data set from archival sources about the expansion of railroads in India through the 19th and early twentieth century and the volume of inter-regional trade in the same period. He then uses the data to look the effect of access to railroads on real agricultural incomes. To check that this effect does not come from building railroads where the growth was predicted to be, he uses the fact that a number of proposed lines did not get built or did not get built when they were proposed to be built. Assuming that the proposal was based on what the contemporary experts thought were the areas of greatest demand for transportation, these un-built railroads should also have an effect if they were any good at predicting growth. He finds no such effect.

The second part of the paper builds a quantitative model where the effect of trade on real agricultural GDP is fully captured by one sufficient statistic: the share of expenditure that each Indian district allocates to goods produced in the district. When that share is low, it indicates that the relative price of imports in the district is low, and in turn, that the welfare gains from trade are large. Controlling for shocks to technology (mainly rainfall in this case), he finds that observed changes in real GDP following access to the railroad move almost one for one with the sufficient statistic predicted by the model, thereby making the case that the benefits of the railways is indeed the result of increased trade.

There is much more of interest at the link.  Here are copies of the papers, overall I am delighted to see a Clark Award that so prominently features economic history, not to mention India and trade.  Donaldson is at Stanford, here is his home page.  An excellent pick, but this one was a surprise to me.

Tim Harford on disruption and complacency

Here is one bit:

I am reminded of a study of college friendships conducted by psychologists Angela Bahns, Kate Pickett and Christian Crandall. They found that students in a large, diverse campus sought out and befriended other students very much like themselves. In smaller universities with fewer friendship options, young people had more varied groups of friends because the alternative was to have no friends at all.

Our bias towards the status quo is not new — but perhaps we are taking advantage of new opportunities to indulge it.

Here is the full FT piece.