Consider rent control as practiced in New York and San Francisco. The desired effect is lower rent, or at least rents that rise more slowly. The obvious solution seems to be to just prohibit rent increases, disregarding how such a prohibition might affect the behavior of both renters and landlords, resulting in shortages and degradation of quality. But is this a visible hand solution, or just an ineptly applied invisible hand solution?
The basic insight was that a rule can’t just mandate what is desired or prohibit what is undesired, but must consider how people actually respond to the working of the rule. The case of rent control again supplies an example of a situation where neither voters nor politicians seem willing to engage with the reality.
Consider rent control as practiced in New York and San Francisco. The desired effect is lower rent, or at least rents that rise more slowly. The obvious solution seems to be to just prohibit rent increases, disregarding how such a prohibition might affect the behavior of both renters and landlords, resulting in shortages and degradation of quality. But is this a visible hand solution, or just an ineptly applied invisible hand solution?
The basic insight was that a rule can’t just mandate what is desired or prohibit what is undesired, but must consider how people actually respond to the working of the rule. The case of rent control again supplies an example of a situation where neither voters nor politicians seem willing to engage with the reality.
I think the engineering aspects of IHE can be seen most clearly in very large, complex systems like the Internet. I have written about this a few times: see https://realizable.substack.com/p/verum-et-factum-convertuntur-again or https://realizable.substack.com/p/image-of-control-iil, for example.
Probably an invisible thumb.