Regulation

Politicians Are Addicted to Price Controls

Instead of repealing tariffs that are raising aluminum prices, politicians are instead trying to lower aluminum prices by legislative fiat.

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Despite overwhelming historical evidence demonstrating the folly of government-imposed price controls, modern politicians just can't seem to quit inflicting them on us. One obvious example involves health care, where price controls on prescription medications always seem to be just around the corner and are now being considered in the rush to eliminate surprise medical bills. Fewer people know about similar efforts regarding the aluminum market, where some politicians are contemplating price controls to compensate victims of the trade war.

Back in March 2018, President Donald Trump announced that he would impose a 10 percent tariff on all imported aluminum (unless an exemption was later granted by the Department of Commerce).

Tariffs have increased the price of aluminum at great expense to metal consumers, and their complaints haven't fallen on deaf ears. Unfortunately, well-meaning politicians have chosen the wrong path. Instead of fighting the president and demanding an end to the tariffs, they have devised a scheme meant to control the price of aluminum.

The Aluminum Pricing Examination Act targets firms that report on domestic aluminum market transactions. The firms in question merely provide information that benefits both buyers and sellers. But politicians are threatening to bring these firms' functions under control of the Commodity Futures Trading Commission to satisfy aluminum users who are unhappy with the current trajectory of prices.

It's understandable that beer brewers and others demanding intervention from elected officials aren't pleased with rising aluminum prices. But prices reflect underlying market realities that can't be changed simply by bringing political pressure to bear on those who monitor and report on them. It may come as a surprise to politicians, but removing your fire alarms won't prevent fires.

This is a common political mistake, as price controls have existed for nearly as long as governments. The Code of Hammurabi, for instance, included a list of mandated prices for many types of labor and services circa 1754 B.C. Other historical examples can be found in ancient Egypt, Greece, and China, each providing ample evidence for the folly of government restrictions on price movements.

But for those elected officials not up on their ancient economic history, there's no shortage of modern cases from which to learn.

President Richard Nixon thought he could fight inflation with a 90-day freeze on wages and prices, promising "action that will break the vicious circle of spiraling prices and costs." After the freeze, increases would need the approval of either a "Pay Board" or "Price Commission." Today, this sounds crazy, but Nixon wasn't on an island. Markets rallied following his announcement, and the press ate it up.

The result was absolutely disastrous. Inflation—which, at just over 4 percent annually in 1971, wasn't unreasonably high—shot up into the double digits by the time the controls were lifted.

Nixon's controls on gasoline persisted through the Carter administration. Domestic exploration and production declined sharply, leading to an influx of foreign oil and long lines at the pumps that many still remember. When President Ronald Reagan finally ended the controls as one of his very first official acts as president, the gas lines immediately ended and gas prices soon plummeted.
Some price controls are ongoing. Rent control has devastated housing markets, particularly in New York and California, by distorting supply and demand. A few lucky individuals make out well, but studies consistently show that almost everyone else—especially would-be renters—will suffer because there's less incentive to build new housing.

Why do price controls always produce the same result? It's not complicated, really. Prices give us incentives to produce and consume goods in economically sustainable ways. They convey information.

High prices, for example, signal where more of a particular good is needed. We see this most clearly following natural disasters or other unexpected shocks, which is why anti-price-gouging regulations are counterproductive.

Providing false signals through mandates for artificially low or high prices results in poor market performance. As Nobel Prize-winning economist Milton Friedman best explained, "Economists may not know much. But we know one thing very well: how to produce surpluses and shortages. Do you want a surplus? Have the government legislate a minimum price that is above the price that would otherwise prevail … Do you want a shortage? Have the government legislate a maximum price that is below the price that would otherwise prevail."

If he's right that economists don't know much, then politicians must know even less.

NEXT: Impeaching Slow, not Fast

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  1. Politicians are addicted to Power aka Control.
    Politicians at every level attempt to shape the world into what they think it should be and generally fail spectacularly.

  2. I like that analogy to disabling fire alarms to prevent fires. I’ve always likened it to twisting a thermostat needle as if that alone raised the temperature.

    “So let it be written, so let it be done” has been the statist mantra since forever.

  3. Milton Friedman also said you can have either a welfare state or open borders, but not both, but Reason seems to think you can…though not this author.

    But the reality is that every country on the planet has price controls on drugs, which means the US simply pays more for them by far, essentially subsidizing drug companies.

    A free market in drugs would be nice, but unless you get rid of the FDA, reform the patent system, and let anyone buy anything over the counter, you’re not going to have a free market in drugs.

    1. A real, third party drug certification system.. something akin to the Underwriter’s Laboratories.. would be a major upgrade. But it will never happen.

      We currently have a standard of “safe and effective”, and that’s all we get. So when the new acid blocker comes out (just as the old one is becoming available in generic), they claim it is new and better. But there is no testing done on that. No third party does comparisons between various decongestants.

      A proper certification body would run the trials themselves (for a fee) and let everyone know how they stack up.

      Because of the way drug testing is done, medicine is still only partially science based. Much of day-to-day practice is run on “in my experience” and “there are reports that this off label use…” – because there is no data available on many of these topics.

      1. Another option (non-libertarian though it may be), is permitting drugs approved by any other modern country’s regulatory body.

        1. It’s hardly non-libertarian, it’s just less libertarian than other options. I’d approve of it as a step in the right direction.

      2. Then there is the deplorable practice of removing an effective drug from the market completely because it needs to be “re certified” according to the [captive by the Drug Manufacturers] “regulatory” body, the FDA.
        Two years later, and untold suffering by those who need this medication in the meantime, the same drug with one minor ingredient changed by a few percent appears on the market under a new name and at Five Times the price of the old medication.

    2. One thing you have left out is to allow the free movement of Prescription Drugs across state and International Borders.
      People with access to either Canada or Mexico are already bootlegging medicines for their own and family members needs. Simple changes in regulations already being proposed would make this accessible to everyone.

  4. Politicians do not want to do something, actually doing something carries the chance of it not working as you hope.

    Politicians prefer to be able to SAY that they did something.

    1. Or, even better….. they like to be able to say that there is something really important that they need to do, something that “the other side” is trying to stop. That’s the gift that keeps on giving.

  5. Aluminum prices are too high for one simple reason: Too many people are using aluminum! We need to take the aluminum AWAY from the people!

    And I know EXACTLY who we can call upon, to take the aluminum AWAY from us! They are called the Aluminum-Eatee!

    1. Common sense aluminum controls would solve this…

      1. Ban reusable aluminum straws.

  6. You mentioned healthcare price controls. Here in Florida we have incessant advertisements from a group pretending to be representing doctor-patient relationships. They say that “surprise medical bills” are terrible and the fault of insurance companies. They want to ensure that patients are never hit with surprise medical bills, so they are pushing for some sort of regulation that changes the way billing disputes are arbitrated.

    It is obviously a very complex issue, and the way it is presented in the advertisements makes me suspicious… no, strike that… makes me fairly certain that whatever they are proposing is probably fairly close to the exact opposite of what they are trying to sell it as.

    So if you are looking for a story idea… that’s a good one to dig in to. I’m sure there are a lot of competing industry interests pushing for advantages using the government.

    1. “Azar announced the policy in an appearance Wednesday morning with Florida Gov. Ron DeSantis, a Trump ally, who has sought federal approval to allow the state to import Canadian drugs for the state Medicaid program.”

      From WaPost Article, yesterday – Trump administration unveils plan to allow states to buy cheaper drugs from Canada

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