Affordable rents, higher wages and a healthy environment are tantalizingly close – all we have to do is vote for it, right? We achieve good things by majority rule. So, let’s be happy for our referendums, whatever they may be.
Unfortunately, if good government was that easy, we’d already have these things. But governing is hard and requires a thoughtful deliberative process in which diverse stakeholders, often in opposition to one another, bring their beliefs and needs to the table. American democracy works because of, rather than despite, compromise. Minority interests are not left out, and we are less likely to suffer from what’s called “the tyranny of the majority.” This is good because what is popular is not always right, and what is right is not always popular.
Referendums give us what is popular. Without going through a deliberative process with diverse stakeholders, it’s less likely that they give us what is right. In 2020, frustrated citizens denied the City Council the chance of doing what was right, using a deliberative process. Using a referendum, a political subgroup that had the cultural momentum of energized activists won the day with minimum wage increases, rent control and stricter building standards. The results of this referendum gave us what was popular. But was it right?
Supply and demand arguments usually fall on deaf ears when people are suffering. But economists tell us that wage and price controls do an excellent job of limiting supply (i.e. increasing suffering) and that’s exactly what happened following the referendum. A minimum wage increase put business in a more precarious position; they then cut workers’ hours, laid off staff and raised prices, adding to inflation. In housing, there were fewer building permits, a scuttled temporary emergency shelter, and accelerated rent inflation in Portland’s surrounding communities – effectively exporting housing inflation to renters outside of Portland. The inflation for surrounding communities would likely have happened regardless of Portland’s referendum, but was nonetheless predictable because of the less efficient allocation of resources that come with price controls.
Consider the three-bedroom apartment for rent, controlled to the low price of a one-bedroom, and rented to a single person who wants the luxury of extra space. An efficient allocation of resources? Higher prices penalize people who wish to use space frivolously. If you want what everyone else needs, you better pay for it. As any retailer knows, discounting increases demand and moves products off the shelf. That’s what our rent control does. As a landlord myself, I can attest to having been swamped with applicants for my recent vacancy, none of whom happened to be from Portland and many of whom may not have applied if it was priced at the market rate. We have a moral obligation to protect our citizens. We have no obligation to subsidize new ones.
Why are Portland property owners subsidizing wealthy Bostonians? I’ve illustrated two issues, but haven’t touched on the many others, including disincentives to maintaining our housing stock, the moral hazard to landlords who had been keeping their rents below market rates and the chilling effect on investment and entrepreneurship. The City Council was likely aware of the many arguments.
Was the average referendum voter? If not, doesn’t that mean that our referendums are no more than beauty pageants of the well-intentioned and uninformed? Are we just taking people’s temperature on what they think sounds morally sound? The Maine chapter of the Democratic Socialists of America will be putting before us another referendum which will double down on the results of the last one. Will Portland yet again be subjected to the tyranny of the majority?
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