Person who has taken an undergraduate econ course only: "Price controls are terrible!"
Mathematical economists: "Price controls are bad by definition, under highly restrictive assumptions about human welfare."
Economists who study the actual history of price controls: "It varies and depends."
Regarding the last view, Isabella Weber has done some interesting work: https://twitter.com/IsabellaMWeber
And of course there are duals to price controls such as production subsidies that can smooth things out. And policies that can otherwise influence things. Money is fungible, after all! And thanks to taxation as a general concept, the universe of people paying for all of this is not necessarily the universe of people buying it, so it's not necessarily "the consumers pay in one way or the other".
For obvious reasons (and very good ones), this is something people won't accept unless the shock is really serious, like a war. Anyway, there isn't sufficient productive capacity either, so the shock importance is a moot point.
a.k.a. slavery
> For obvious reasons (and very good ones), this is something people won't accept unless the shock is really serious, like a war.
No kidding.
But again, it depends on what the goal of the price control is. In a war the goal is not to make life easier for the consumer -- the goal in that case is to get the consumer to stop consuming what the war machine needs for itself.
On the case of war, conscription. It's disturbingly similar, but it's different. In peace times it's usually on the lines of "keep producing or your business will be closed", what is not that similar as the working people are not the ones facing the ultimatum (if it's ever done to a small company, then yes, it's like slavery).
> In a war the goal is not to make life easier for the consumer -- the goal in that case is to get the consumer to stop consuming what the war machine needs for itself.
Economies are large complicated beasts that move all kinds of products. When governments intervene, they do it in more than one way and with more than one goal.
Price fixing also goes with rationing so that the population stays fed.
> On the case of war, conscription.
That works for getting labor for the military. It doesn't work for getting producers of things to produce more for less -- unless you put a gun to their heads, they won't do it, not even during war time.
Hum... Does that assumption ever hold?
Willingness to pay is a proxy for your early earnings and ROI. It correlates very weekly to anything else.
Never
Eg. in a desert with a supply of 9 water bottles and 10 potential buyers. All buyers have the same need (buy a bottle of water or die of thirst). In an efficient market, the price of a water bottle would go to the amount of savings of the poorest person + 1 cent. The poorest person will die of thirst.
and the greatest ability to pay. "Need" has a moral component, which the market does not price in.
But still i would argue that price control do more harm than good.
Price floors can work very well at reducing consumption.
If you put a price ceiling of $1 on paintings, owners will hold and not sell.
If you want to kill the market for paintings, this would be very effective at doing so.
You can imagine similar impacts of price floors or ceilings for real goods like land and housing.
How about every standard economics class you can find at a reasonable school? This is covered in high school and university economics courses. Oh, it's not usually stated as "price controls don't work", but it's covered.
It's quite simple: forcing the price of some good while allowing supply and demand to adjust accordingly necessarily causes them to adjust accordingly. Set prices too low and supply shrivels, leading to shortages. Set prices too high and demand falls off and searches for substitutes.
The ostensible goal of price controls is always just that: to set the price of some good so as to alleviate the burden on some class of people (either the producers or the consumers, depending on whether the price is set too high or too low).
The actual goal of price controls, if it's anything other than propaganda value ("look! we care about you! we're doing something you want!"), does get met. So in that sense price controls may work, of course, if the target of the propaganda is too dumb to understand they've been had or if they have no way to reject proposed price controls. But that's not the sense people want -- every consumer wants lower prices, and every producer wants bigger profits (which often, but not always, means higher prices).
All that said, you can make price controls work. Like, if you enslave some people (generally that would be producers, when you want to set an artificially low price on some good or service). Or maybe if automation reaches such levels that marginal costs are zero for most goods in most goods baskets -- I'm not sure if this has been studied.
That said, your big rant isn't a citation, and saying "LOL IT'S IN YOUR HIGH SCHOOL CLASS YOU GOOFBALL" doesn't really count. I'm looking for one prominent economist that has stated the price controls can never work.
You've been replying to questions about specific situations with generalities! That's not compelling.
Hell, oil was at $100+ a barrel for years within the past decade, without the same level of gasoline prices seen today in the US: that suggests there's more to the current situation then just econ-101 "high input prices mean output price has to be high too".
I’m not an economist, and I tend to see economics “laws” more akin to social science than physics. Ie, economists describe plausible mechanisms and principles, but they are not very useful to make predictions.
Manufacturers can set recommended retail prices but their are limitations to how these can be enforced.
depending on how it is set - most manufacturers set a recommended price, rather than contractually obligate the retailer to sell at a particular price. It's an attempt at price-fixing (without it being price-fixing), but other manufacturers of the same goods could choose to lower their price for competition. It's not the same as price-control.
There is always a sense in which price controls work. It's just never the actual publicly ostensible sense.
Prices are too high! -consumers
Ok, we'll set a price ceiling -government
Yayayayay! -consumers
Hey wait a minute! Supply has vanished! -consumers
<crickets> -government> Price controls have never worked, and never will work, because they cannot work.
You after this comment:
> There is always a sense in which price controls work.
That's all I was trying to get at. We agree they work. If you know what effects they're going to have, and they match your intentions, then they work. If you know the general populace will have a shortage of N95 masks but hospital workers will be getting every mask produced in the country at a reasonable price, then it works. If your state has a cold snap and your citizens don't see $100k bills for a few hours of power (even though many folks will experience blackouts), then it works.
FWIW black and white statements like "price controls never work" ring of a certain "rah-rah unfettered capitalism is always the answer" mentality that lacks nuance. Just because you've taken some macroeconomic classes doesn't mean that how things work is all that simple.
> stated purpose is generally to reduce prices seen by consumers, or to subsidize producers of some particular good/service
I thought I gave examples that fell outside of this?
* Wartime/Emergency: stated purpose is to shift supply toward military/medical uses. Shortages and black markets are acceptable negative side effects.
* Energy: protect citizens from gouging in time of crisis. Lack of price controls did not prevent blackouts to Texans in the US last year. It did cause many folks to be saddled with insane bills.
You can also implement rationing to further mitigate imbalances. So price may be low, but you can only buy 1 per day, or something like that.
Generally it goes the other way around. First government imposes price controls, which cause scarcity. Then they impose rationing.
> Lack of price controls did not prevent blackouts to Texans in the US last year. It did cause many folks to be saddled with insane bills.
Price controls are not the only way you get to end up with limited supply, that's true, and that situation was temporary, also true, and there was no rationing (some areas did not lose power because they were "privileged") while all others did lose power. The people who were "saddled with insane bills" were those who had a specialty spot-price utility.
> Wartime/Emergency: stated purpose is to shift supply toward military/medical uses. Shortages and black markets are acceptable negative side effects.
I acknowledge the wartime thing, but that is quite exceptional. We've had lots of price controls during peace time here and all over the world, and they have never worked for their ostensible reasons. When was the last time we had wartime price controls in the U.S.? Not since WWII.
So if price controls + rationing were implemented at the same time, you think it could work to avoid scarcity? If not then why even bring up the order in which things are implemented?
When you say "price controls don't work" you lack imagination for the space of possible policy problems and solutions. Sometimes price controls will be a useful part of a policy solution and likely more often than some randos on the internet can think of off the top of their heads. In general I would not bet on the idea that "mechanism X is shit because it's not the free market." Our societies have implemented many engineered economic mechanisms, some of which are easy scapegoats because they fail, but many of which are overlooked because they work quietly in the background.
You're conflating two distinct sets of people:
- Most consumers pay a fixed price for electricity set by their utility. Many of these people experience blackouts when there was insufficient supply at that price.
- Some consumers opted into paying a variable price for electricity. As supply decreased, the price they paid massively increased. But in exchange for the high bills, these customers did not experience blackouts, or at least experienced them later than others.
Some in the second group, in retrospect, would have preferred the blackout to the increased price, or perhaps didn't understand the implications of their decision when they originally signed up for a variable and uncapped price. But overall, this situation perfectly illustrates the tradeoffs of controlled vs. uncontrolled prices in the face of supply shortage.
> But in exchange for the high bills, these customers did not experience blackouts, or at least experienced them later than others.
Yeah, so regardless of timing or how much blackout they experienced relative to everyone else, they did experience blackouts. And still paid a lot of money too. Lack of price controls didn't help them in the short term, and in the long term hurt them a lot.
free market doesn't guarantee anything. You're assuming that the free market without price control is supposed to guarantee the access to electricity, even at exorbitant prices.
Those who paid a high bill who did eventually got cut off - they got a bad deal because they weren't savy enough to do risk management, and didn't have enough information on such rare events.
The Texas blackout had a supply ceiling, but no price ceiling (and low elasticity in choice from the consumers, because people didn't want to freeze). It's a far cry from a free market during that week.