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Price controls

Quote 606

The very politicians who portray themselves as friends of poor when they distribute food subsidies to them, are the very same politicians who vote to keep food prices high by mandating floor prices for food, the same politicians who impose labour market entry restrictions through licensing and price unskilled workers out of the market through minimum wage laws offer income payments to those they forced out of employment through their policies.

What are price controls?


Price controls are governmental restrictions on the prices that can be charged for goods and services in a market.

Wider definition

  • Are taxes a form of minimum pricing.

Price Floors

Price floors must be set above the current and expected market price, if they are not, they become redundant.
Table xxx

Minimum price by country

Price floors reduce consumption.

The government in the U.K understands that:
Minimum alcohol prices will reduce the alcohol consumed.
But does not seem to  want to understand:
Minimum wages will reduce the amount of workers employed.

Someone who is pro minimum alcohol prices and pro jobs, to be consistent, must be against minimum wages as the same logic applies to both policies. Government doesn't seem to get this so what's really going on?

Price Ceilings

Quote 938

Price caps are one of those things that sound fine in theory but are disastrous in practice. Prices are signals which tell about supply and demand, like the markings on a thermometer tell about temperature. And just as you can't control temperature by bunging up a thermometer, you can't control supply or demand by fixing prices. When the price rises for scarce goods, it tells people to consume less and maybe switch to alternatives. It tells others to produce more of them because there are profits to be made. The combination of less consumption and greater production acts to redress the scarcity. But it only works if prices can send their signals. If they are fixed by law to shield poorer people from their effects, there is no disincentive to consume, nor any reason to switch to alternatives. Nor is there any incentive for producers to bring more of the goods to market.

   --  Masden Pirie

Here's what happens when currency controls have been put in place.

However, there is indeed widespread support for this idea that government should set the price of labour. This shows a basic failure to grasp basic reasoning (the real foundation of economics is logical reasoning – not “studies” whether pro or anti minimum wage edict) – the idea that one can raise wages by passing an edict, is as insane the idea that one can reduce the price of bread by passing an edict. Sadly statists (kings as well as mobs) have believed this for thousands of years.

Problem with interventions

Interventions typically have unintended consequences . Controlling by law the price of milk may be intended to keep the milk prices low, but the result is to create shortages of milk. Usually because no one can make money by selling at the fixed price. This makes milk harder to find, causes long lines, fosters black markets and corruption, and makes the full cost consumers bear higher (price + waiting in line + bribes). Then the state steps in again to ration the scarce goods “fairly”, and passes new laws to stop black market dealing in them. We see this happen for bread, fuel, and rented accommodation. Ultimately, the outcome is clear: if you fix the price, you only succeed in choking off the supply and making the shortage even worse. This leads to more calls for intervention and the cycle begins.

A system of interventionism, which can be changed by bureaucrats or politicians at their fancy , and in which "no man who knows what the law is today, can guess what it will be tomorrow," is decidedly not a system of regulation.

Economic Rent

This is defined as returns in excess of normal competitive levels; (see monopolies)
The famous example is of football players earning huge amounts for playing football, when someone only not quite as good earns 10's of millions less.
Some people see economic rent as excess profits and should be remedied. The opposite of economic rent are people on the minimum wage, who get no economic rent. (See minimum wage).


Subpages (1): Minimum Wage