Question

The issue of rent control adds politics to the issue of pricing, for it asks us whether governments should fix prices below the free-market price. The two political positions most directly at issue are: Classical Liberalism: People should be treated as self-responsible adults who are able to trade freely for the goods and services they need and want. Paternalism: Like a father (pater) or mother (mater), the government should use its power to set prices at a level the poorer can afford. Does this seem an accurate characterization of the difference between the two parties? The classical liberals believe people should be equal in freedom and self-responsibility, while the paternalists believe people should be equal in wealth and bargaining power?

Answer 1

Classical liberalism is based on the concept of lassiez faire policy which limits the role of government. Least government intervention is required in the economy. Interplay of market forces of demand and supply will establish equilibrium and clears the market. Any disequilibrium will be automatically cleared by the market. The market is in perfect competition. Hence government should not interfere in the working of the market through price control or other measures.

Whereas paternalism argues for government intervention. Here the role of the government is that of a parent towards its children (citizens). Intervention of government is required to ensure welfare of the society as a whole.

Rent control becomes necessary when market forces fails and can result in rapid increase in rent due to excess demand and lack of adequate supply. In this situation government intervention is required to fix rent below market price so that people with low income can also afford it. Classical liberalism alone sometimes fails and in such cases paternalistic policies are required. Paternalism alone can also be harmful because when government starts controlling everything, people do not have any incentive or competition to improve their productivity.