Freedomnomics: Why the Free Market Works and Other Half-Baked Theories Don't John Jr. (the dot read aloud .txt) 📖

circumstances, a landlord might take the risk for a few months, but if someone were to overpay for several years, the penalty could be so huge that it would provide the tenant with an easy means to blackmail the landlord. Even if both the landlord and the tenant agreed to the overpayment, in such situations the landlord bears sole legal responsibility. The tenant is considered a victim.

This legal distinction is common in cities with rent control. Landlords who break rent-control laws in Los Angeles, for example, pay triple damages to the tenant. James Gordon of the Berkeley Rent Control board explained the law’s rationale to me: “Depending on tenants to bring charges of overcharging works very well,” he said.119 He added that even though a complaint from a single tenant of illegal payments was not enough to ensure a landlord’s conviction, “we do win most of these types of cases and the word of several different tenants is usually sufficient.” Ultimately, illegal overpayments are rare, he explained, because landlords are so likely to be held accountable. They cannot even rest soundly after the tenants move out, since tenants can sue to recover payments even after leaving the apartment.

Sadly, left with no other choice, we had to put Confederate to sleep. What can the tale of my late kitty cat teach us about economics? It indicates that rent-control laws, by establishing clear legal categories of “perpetrators” and “victims” in deals agreed to by both parties, create distrust by landlords toward their tenants. Even when both sides would benefit from an under-the-table deal, the landlord knows the tenant will have a steadily growing incentive eventually to break their agreement and report the landlord to the authorities. And this distrust, in turn, creates an incredibly effective self-enforcement mechanism for the law.

The notion of creating self-enforcement through distrust may seem unusual, but we see the same mechanism at work in other realms, such as minimum wage regulations. Minimum wage laws naturally result in higher unemployment, since law-abiding firms will hire fewer workers if they have to pay more for them. Since some unemployed workers are willing to work for less than the minimum wage, and non-law-abiding firms want to hire them, it would seem that relying on workers themselves to enforce minimum wage laws would be doomed to failure. What can you do when both sides want to break the law?

Yet, self-enforcement of minimum wage laws is extremely effective. Only a fraction of 1 percent of U.S. citizens covered by the minimum wage are paid too little, and these rare violations primarily involve innocent mistakes by employers rather than outright lawbreaking. This law is successfully enforced by just a thousand federal agents who are additionally responsible for enforcing regulations on overtime pay, recordkeeping, and child labor standards. This result reflects the incentive that workers have to report the violations themselves. Although perhaps they first agree to the low salary because they badly need a job, the longer they work, the greater incentive they have to sue their employers, who are often forced to reimburse them double the amount of the underpayment. Thus we find that 75 to 80 percent of registered minimum wage violations are reported by the workers themselves.120

The self-enforcement mechanism, however, breaks down when it comes to illegal aliens. This group constitutes the overwhelming majority of workers who are paid less than the minimum wage. But why do companies prefer to hire illegals? Clearly, illegal aliens work for lower wages than U.S. citizens do. But firms have another, less widely-discussed incentive to hire them: they can count on illegals not to sue them at a later date for underpayment. Unlike U.S. citizens and legal residents, illegals risk being deported if they draw attention to themselves by filing lawsuits. The principle is similar to that of a street gang that requires someone to commit a violent crime before it will accept him as a full member. Like companies who hire illegals, the gang knows that it’s safer to associate with others who would have something to lose by snitching to the police.

Gunlocks and safe-storage laws

It seems indisputable that requiring gunlocks on handguns saves lives. President Bush clearly thinks so—although he may be perceived as a trigger-happy Texan cowboy, his administration distributed more than 32 million gunlocks by the end of 2005.121 Furthermore, Bush approved the 2005 federal legislation helping to protect gun makers from reckless lawsuits, a bill that also required that all handguns be sold with locks.122 State officials are increasingly adopting this view—eighteen states now impose criminal penalties on individuals whose guns are used improperly by juveniles.123 Unfortunately, all these efforts are counter-productive because gunlocks and self-storage laws cause more deaths than they prevent.

Economists have found that other safety regulations have the same unintended effect of decreasing safety and increasing fatalities.124 This is because some people offset the safety regulations by taking greater risks. One example is car safety regulations—some people drive faster and more recklessly when they feel safer inside their car. Car safety regulations reduce the number of injuries and deaths per accident, but they also lead to a greater total number of accidents. Overall, the number of deaths has stayed the same or actually increased with the adoption of car safety regulations.125 A similar problem is evident with safety caps for medicine bottles. In the 1980s, child-resistant bottle caps actually resulted in “3,500 additional poisonings of children under age five annually from [aspirin-related drugs] . . . [as] consumers have been lulled into a less-safety-conscious mode of behavior by the existence of safety caps.”126 Some evidence even indicates that more children are being injured on playgrounds despite safety improvements because bored kids “are taking more risks in order to have fun.”127

There is a similar trade-off for gunlocks. Locks may reduce accidental deaths, but they also make it more difficult for people to use guns defensively. And this encourages more criminal attacks, while simultaneously increasing the attackers’ success rate. After these gunlock laws were adopted,