One of the perennial, and pernicious, political ideas is that if things are “too expensive” then we can fix that by just passing a law to make them less expensive. We see this just about everywhere and its sadly not limited to the more idiot sector of the left. Although of course it thrives there. Venezuela is a complete and total mess because Hugo Chavez and Nicolas Maduro thought they would make life cheaper by limiting prices by law. Payday lending doesn’t exist in certain states because people like Elizabeth Warren insist that interest rates should not go “too high”. Those usury laws mean that interest rates are infinite – as the lending simply isn’t available at all. And yes, people over on the right have made the same sort of mistake – Nixon tried to fix gas prices after all.
Price fixing just always leads to things getting more expensive. As David Friedman explains:
The result – that price control results in a cost to the consumer, pecuniary plus nonpecuniary, higher than the uncontrolled price – does not depend on the details of the [supply and demand] diagram. Consumers cannot consume more gas than producers produce, so the nonpecuniary cost must be large enough to drive quantity demanded down to quantity supplied. Quantity supplied is lower than without price control, so cost to the consumer must be higher.
Tim Worstall, “Memo For Would Be Price Fixers – Price Controls Always Make Things More Expensive”, Forbes.com, 2016-08-16.
June 3, 2018
QotD: Price controls just make things more expensive in real terms
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