Price Controls Make A Statement About Society

The Economic Imagination
Price Controls Make A Statement About Society
Art Carden
Jul. 8 2011 - 7:20 am

Economics has a reputation for being a "dismal science" in part because highlights the ways in which various utopian schemes are impractical or impossible (Sandra Peart and David Levy point out that it's also because some of the early classical economists made " radical claims about the equality of all men," but that's not my focus here).  The last refuge of the interventionist defeated at every turn by the laws of supply and demand is to say that while his or her program might have unintended consequences, it "makes a statement about the kind of society we live in."

Interventions make statements, to be sure, but they aren't statements to be proud of.  In the case of various forms of interference with the market–minimum wages, redistribution, price controls, immigration restrictions, and so on­the messages are unmistakable and unflattering.

Consider price controls, which legislate maximum prices that suppliers can charge for rental apartments or "essential" supplies after natural disasters. Basic microeconomics shows how price controls create shortages. What kinds of messages do price controls send about the kind of society in which we live?

They say that our society doesn't know the lessons economics has to teach.  Price controls create shortages, and they also drive a wedge between the price of a good or service and what people are willing to pay or accept.  Suppose someone is willing to pay $10 for a gallon of gas after a storm but is only allowed to pay $2 in cash.  If he values his time at $8 per hour, he will be willing to pay with $2 in cash and an hour of time spent standing in line.  The cruel irony of this is that the entire difference between the legal maximum price and the price people are willing to pay for every gallon that is supplied will evaporate as people stand in line for gas.  Everyone is unambiguously worse off relative to where they would be without price controls.

They say that our society is elitist.  Price controls inflict positive harm on precisely the people we wish to help, and for what?  So that people removed from the situation can feel good about themselves?  Excusing others' suffering in the name of your ideals is neither virtuous nor compassionate.  The Foundation for Economic Education's Sheldon Richman once said that advocating policies when you don't understand their unintended consequences is "the intellectual equivalent of drunk driving."   If you're advocating price controls and don't understand what the laws of supply and demand have to say about your proposal, you aren't courageous or compassionate.  You're dangerous.

They say that our society is violent.  Trade is a fundamentally peaceful undertaking that unites people who might even dislike one another.  Government intervention is literally the imposition of someone willing to use force to prevent people from cooperating. Michael Munger explains more about "euvoluntary exchange" in a recent EconTalk podcast.

They say that our society is superficial.  The economist Wilson Mixon characterizes this as the attitude that it is "better to feel good than to do good."  To give at the office is one thing.  To "give" at the voting booth is another, especially when your "giving" is actually hurting the people you think you're helping.

People who advocate price controls and other interventions often do so because they want to send a message about the kind of society we live in.  In light of how price controls create shortages, though, I don't think the messages are the ones people want to send.  Or receive.

http://blogs.forbes.com/artcarden/2011/07/08/price-controls-make-a-statement-about-society/