Understanding Kamala's Economic Plan - Price Controls
Segment # 227
It’s day 2 of the DNC and after Joe’s speech, we are all a little confused about what policies are in and what policies are out. For the past month Kamala has been trying to distance herself from many of the policies affirmed last night. We have Kamala saying one thing in the past and something very different now. We do know that she recently promised price controls to fight price gauging or as she said price gaging. So at least we can take a look at that.
Ok, so why would anyone impose price controls when it is so disastrous to the people you represent? It's like almost everything the Dems and their corrupt media are proposing... it’s a con job to get elected.. Politicians may implement price controls as a populist measure to appear responsive to public concerns about rising prices, especially for essential goods and services. Price controls can provide short-term relief that is politically appealing, even if economists warn of long-term negative effects.
Understanding Kamala's Economic Plan - Price Controls
Politics is often a clash of differing approaches of governance embellished with pledges to do this or that. Sometimes candidates are open about their plans which provably will destroy the standard of living of the very voters from whom they seek support. Some would characterize this openness as stupid, others might call it ideological blindness. It is curious when it has been proven every year that a corrupt media will cover any lies, political flip flops or culpable wrong doing. We are where we are, and Kamala has openly stated that price controls would be a central part of her economic plan. Socialism (which she supports price controls) has never worked and will hurt you even more than what Biden did in the past four years. With an economy suffering with inflation, teetering on recession, and a ballooning national debt, price control is disastrous and basically suicidal.
Here is a quick primer.
Several prominent economists have made strong statements against price controls:
Milton Friedman, a noted free-market advocate, generally opposed price controls but accepted a very limited role for temporary controls in specific circumstances to break inflation expectations during disinflation.
David Henderson, research fellow at the Hoover Institution, stated that price ceilings below the free-market price cause buyers to demand more and sellers to sell less than they would at the free-market price, resulting in shortages.
Robert Hall, Stanford economist, noted that many price control interventions are on behalf of high-cost disappointed rivals, so the interventions tend to raise prices.
Larry Samuelson, Yale economist, said that while antitrust intervention may be warranted in some markets, it's unclear if this would actually reduce inflation.
Daron Acemoglu, MIT economist, stated: "Effective price controls, by definition, would reduce price increases, but they would most probably create other huge distortions."
Oliver Hart, Harvard economist, said: "They could reduce inflation but the consequence would be shortages and rationing."
In a 1992 survey, 73.9% of economists disagreed with the statement "Wage-price controls are a useful policy option in the control of inflation."
76.3% of economists in the same survey agreed that "A ceiling on rents reduces the quality and quantity of housing available."
These statements reflect the general consensus among economists that price controls, while potentially providing short-term relief, often lead to unintended negative consequences such as shortages, reduced quality, and market distortions. Price controls Government-enforced restrictions on market prices
Definition
Restrictions enforced by governments on prices for goods and services to maintain affordability, slow inflation, ensure minimum income, or achieve a living wage.
Primary Forms Includes price ceilings (maximum price) and price floors (minimum price), with rent control and minimum wage as well-known examples.
General Consensus- Western economists generally agree consumer price controls in market economies don't accomplish intended goals, but minimum wages have support among some economists.
Price controls have a long and largely unsuccessful history spanning thousands of years. Here are some key points about the history and impacts of price controls:
Ancient History
Price controls date back to ancient times. Some early examples include:
The Code of Hammurabi prescribed prices for goods in Babylon around 1750 BCE
Egyptian authorities regulated grain production and distribution in the 3rd century BCE
The Roman Emperor Diocletian attempted to set maximum prices on all commodities in the late 3rd century CE, with little success
Modern History
Price controls continued to be used in more recent centuries:
Colonial governments in America controlled prices on commodities needed by George Washington's army, resulting in severe shortages
During World War I and II, many countries including the US imposed broad price controls
Western countries commonly used price controls into the 1970s
The US last used broad price controls from 1971 to 1974 under President Nixon
Several countries have implemented price controls in recent years, often with negative consequences.
Here are some notable contemporary examples of price control failures:
Venezuela:
Venezuela's extensive price control regime, implemented under Hugo Chavez and continued by Nicolas Maduro, has been disastrous. These controls led to severe shortages of basic goods, including food and medicine, as well as a thriving black market. The policy contributed significantly to the country's economic collapse and hyperinflation
Argentina:
Argentina has repeatedly used price controls to combat inflation, including the recent "Precios Cuidados" program implemented since 2013. This policy has resulted in:
Shortages of price-controlled products
Quality differences between controlled and uncontrolled products
Creative evasion by producers (e.g., changing package sizes)
High enforcement costs
Despite these controls, Argentina's inflation rate remains above 50% annually
Zimbabwe:
In 2019, Zimbabwe attempted to control prices of basic goods to combat hyperinflation. This led to widespread shortages as businesses couldn't afford to restock goods at the mandated prices. Many shops simply closed rather than sell at a loss
Egypt:
Egypt has used price controls on bread and other staples for decades. While intended to help the poor, these controls have led to inefficiencies, shortages, and a significant fiscal burden on the government
India:
India's attempts to control pharmaceutical prices have had mixed results. While aimed at improving access to medicines, these controls have sometimes led to quality reductions and shortages of certain drugs
These examples demonstrate that despite good intentions, price controls often lead to unintended consequences such as shortages, quality deterioration, black markets, and reduced investment. They highlight the challenges of implementing effective price control policies, especially in the long term.
Impacts and Failures
While often implemented with good intentions, price controls have generally failed to achieve their goals and led to negative consequences:
They distort market signals, leading to inefficient allocation of goods and services
Price ceilings typically cause shortages by artificially increasing demand while reducing supply
Price floors create surpluses and can lead to unemployment (e.g. with minimum wages)
Controls on gas prices during the 1973 oil embargo led to long lines and station closures in the US
In command economies like the Soviet Union, price controls resulted in consumers waiting hours in line for scarce goods
Modern Economic Consensus
Most economists today view broad price controls as ineffective and counterproductive:
They fail to reduce retail prices in the long run and instead reduce supply
Controls can lead to black markets, reduced quality, and declines in investment and innovation
Targeted social programs and sound fiscal/monetary policy are seen as better alternatives for addressing affordability concerns
In summary, while price controls remain in limited use today (e.g. rent control), their long history demonstrates they are generally unsuccessful at sustainably lowering prices and often create more problems than they solve. Economists widely recommend against their use as a policy tool in most circumstances.
What are the main arguments against price controls?
Key arguments against price controls:
Distortion of market signals and resource allocation: Price controls interfere with the natural supply and demand dynamics of a free market. They distort price signals that normally guide production and consumption decisions, leading to inefficient allocation of goods and services
Shortages and surpluses: Price ceilings typically cause shortages by artificially increasing demand while reducing supply. Price floors create surpluses
Reduced quality and quantity: For example, rent controls can reduce the quality and quantity of housing available
Black markets: Price controls often lead to the development of black markets as people try to circumvent the regulations
Reduced investment and innovation: Controls can discourage companies from investing in production or developing new products
Administrative costs: Implementing and enforcing price controls requires government bureaucracy and resources
Ineffectiveness at controlling inflation long-term: While controls may temporarily suppress price increases, they don't address the underlying causes of inflation
Negative economic impacts worsen over time: The costs and distortions caused by price controls tend to increase the longer they remain in place
Better alternatives exist: Most economists believe that targeted social programs and sound fiscal/monetary policy are more effective ways to address affordability concerns and inflation
Historical failures: Past attempts at broad price controls, such as in the 1970s under President Nixon, are widely regarded as unsuccessful
While price controls may provide some short-term benefits to certain groups, economists generally view them as ineffective and counterproductive policies that create more problems than they solve in the long run.
What are the potential consequences of price controls on small businesses?
Price controls can have several negative consequences for small businesses:
Reduced profitability: Price ceilings limit the prices businesses can charge, potentially cutting into profit margins and making it difficult to cover costs
Decreased investment: With lower profits, small businesses may have less capital to reinvest in their operations, expand, or innovate
Quality deterioration: To maintain profitability under price controls, businesses may be forced to cut costs by reducing the quality of their products or services
Supply shortages: Price ceilings can lead to excess demand, making it difficult for small businesses to keep up with customer needs
Increased regulatory burden: Complying with price control regulations can create additional administrative costs and complexities for small businesses
Distorted market signals: Price controls interfere with natural supply and demand dynamics, making it harder for small businesses to make informed decisions about production and inventory
Reduced competitiveness: Price controls can protect inefficient businesses while penalizing more innovative or efficient ones, distorting competition
Black market pressures: Small businesses may face pressure to engage in illegal transactions to circumvent price controls, risking legal consequences
Difficulty attracting investment: Price controls in certain sectors can discourage both domestic and foreign investment, limiting growth opportunities for small businesses
Long-term industry stagnation: Over time, price controls can lead to reduced innovation and development within an industry, potentially harming small businesses' long-term prospects
These potential consequences highlight why many economists argue that price controls, while sometimes implemented with good intentions, often create more problems than they solve for businesses, especially smaller ones with less financial cushion to absorb the impacts.