Price controls


A badly needed lesson
Thomas Sowell gives a much needed lesson in basic economics.

It so happens there is a history of price controls and their consequences around the world, going back literally thousands of years. But most price control advocates are as unaware of, and uninterested in, that history as I was in the law of gravity.
    
Prices are not just arbitrary numbers plucked out of the air or numbers dependent on whether sellers are "greedy." In market competition, prices signal underlying realities about relative scarcities and production costs.
    
Those underlying realities are not changed in the least by price controls. You might as well try to deal with someone's fever by putting the thermometer in cold water to lower the reading.
    
Municipal transit was once privately owned in many cities, until local politicians' control kept fares too low to buy and maintain buses and trolleys and replace them as they wore out. The costs of doing these things were not reduced in the slightest by refusing to let the fares cover those costs.
    
Municipal transit services simply deteriorated and taxpayers ended up paying through the nose as city governments took over from transit companies they had driven out of business -- and government usually did a worse job.
    
Something similar has happened in rental housing markets, where rent control laws have kept the rents too low to build and maintain rental housing. Whether in Europe or America, rent-controlled housing is almost invariably older housing and more deteriorated housing.
    
Costs don't go away because you refuse to pay them, any more than gravity goes away if you refuse to acknowledge it. You usually pay more in different ways, through taxes as well as prices, and by deterioration in quality when political processes replace economic process.
    
But the lure of the free lunch continues.

This is a lesson that most people ignore. It gets wrapped up in notions of fairness and morality.

Look at history. Anytime there is competition, prices get lower. That is one reason why cartels and monopolies can only work in the short term. If the price gets too high, someone else comes in and undersells them.

Look at what happened to gas prices. Yes they got high, but they have also come down. They will come down even more when the refining capacity comes back on line.

— NeoWayland

Posted: Wed - November 23, 2005 at 05:00 AM  Tag


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