Price Controls?
A thought experiment
Kamala Harris favors imposing government price controls, for example, on rent, gas, and supermarket prices. That is, the government would cap what could be charged. Here are arguments in favor and against.
Arguments in favor
More money in people’s pockets. That would enable them to live better, at least in the short run. (See below.)
The decrement in employers’ quality of life would be smaller than the increment in The People’s lives. In other words, a dollar in poor or even middle-class people’s pockets would improve their lives more than a dollar less in employers’ pockets.
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Price controls reduce income inequality, again at least in the short run. That should reduce civil unrest and, from a liberal point of view, is “social justice.”
Arguments against
Limiting prices will reduce supply. Remember the long food lines in the Soviet Union. Another example: You’d be less likely to buy or upgrade an apartment building if you knew the government would cap the rent. Oil companies would be less likely to invest in discovering more oil and more likely to sell gas and heating oil in parts of the world that don’t have price controls, hence the hours-long lines at gas stations in the 1970s in the U.S. when the government did impose price controls.
Price controls would kill jobs. By definition, price controls reduce profit, so businesses would be less likely to hire or expand, and more likely to contract or go out of business.
The black market would grow. Shortages, say of food, would result in hoarding and reselling at higher prices. Ironically, that would benefit the well-off, who could afford to pay more.
Takeaway
I try to think long-term: What will do the most good not just now but in the long run? So, this thought experiment leads me to conclude that price controls are a bad idea.
Advocating price controls does get votes for political candidates. That’s because there are fewer rich voters than poor and middle-class voters who’d get lower prices in the short term. But I believe Harris would be wise to forgo some votes in favor of free-market pricing, which almost all economists believe, in the long run, serves us all.
I read this aloud on YouTube.
Marty Nemko holds a Ph.D. specializing in the evaluation of innovation from the University of California, Berkeley. He is the author of 34 books including, Thought Experiments and What’s the Big Idea? 39 reinventions for a better America. Reach Marty at mnemko@gmail.com
