George Leef reviews for Forbes a new book, Flaws and Ceilings, that dissects the problems with government price controls.
Despite centuries of economic analysis showing that price control laws invariably cause resource misallocation and harm many of the supposed beneficiaries, politicians and activists still press for floors (“flaws” in the title’s play on words) and ceilings. The book’s overarching theme is that such price controls are never the solution to a perceived social or economic problem, whether it is low earnings by some workers, the cost of rental housing, the price of energy, “unaffordable” university tuition, transportation costs, or any other.
Politicians and activists who sincerely want to improve matters for poorer people should cross price control measures off their list of policy options.
The world has had a great deal of experience with price controls. In 301 AD, Roman emperor Diocletian decreed price ceilings over a wide range of goods and services as a means of stopping rapid price inflation. Violators could be put to death, but rather than solving the economic problem of rising prices, the price controls compounded them by causing severe shortages of goods. Seventeen centuries later, Venezuela is wracked by shortages of staple goods for precisely the same reason – the imposition of price controls by an authoritarian ruler.
As the Coynes explain in their chapter on the economic and political consequences of price controls, prices play a crucial role in solving the economic problem of getting the greatest value from the use of limited resources. Whenever government officials dictate that something must sell for less than the price that would clear the market, the result will be a shortage and whenever they dictate that something must sell for a price that’s more, the result will be a surplus. There is no getting around economic reality.