The Cost of Price Controls

by Russ Roberts on October 15, 2004

in Prices

Letting prices rise makes sure that the people who value something the most are the ones that get it. It’s not a perfect solution but it has much to recommend it. When something is scarce, we want people who don’t want it badly to step aside for those who do. High prices get people to step aside. Holding prices down forces us into other ways of rationing with other costs.

The current shortage of vaccines puts all of this on display. President Bush and health officials are lecturing people to step aside unless you really need the vaccine:

“Shame on the people who are price gouging,” said Julie Gerberding, director of the Centers for Disease Control and Prevention. “There’s no room for this kind of behavior in an environment where we need to pull together as a country to protect our vulnerable populations.”

But lectures like these, asking us to pull together or do the right thing, work best in small close communities or families. In a large nation, high prices do the lecturing more effectively. It’s not perfect. Some poor people will also get discouraged from buying and we might want public or voluntary measures to help them out. But when we hold prices down artificially or by social pressure or by threat of government prosecution for price gouging, there are costs born today and tomorrow. By not allowing people to profit from setting some supply aside for a crisis, we discourage people from taking such risks in the future.

Now comes news that a woman has died from waiting in line for a flu vaccine. (Hat-tip to the Drudge Report for the link). Lines are an inevitable result of using first-come first-served methods instead of prices:

LAFAYETTE, Calif. (AP) — A 79-year-old woman who stood in line more than five hours for a flu shot collapsed and died after striking her head.

Marie Franklin and her husband, Robert, had been standing with hundreds of other seniors outside a Safeway supermarket on Wednesday when she became pale and weak. She collapsed as she walked toward shade.

Franklin, an award-winning local artist, died from those injuries Thursday. The Contra Costa County coroner’s office ruled the death an accident.

“We see it as a fluke accident and choose not to blame anyone,” said the Franklins’ daughter, Ginni Poulos of Portland, Ore., who flew to her parents’ home in the San Francisco Bay area city of Orinda. “We do think it could have been better organized. People wouldn’t have had to wait so long if they had more workers or created a better system.”

That better system would have been one where prices were higher and lines disappeared. The current shortage is a result of the vaccine manufacturing business becoming less profitable. Every time we hold prices down, we make such shortages more likely in the future.

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Anonymous October 28, 2009 at 2:06 am

Anytime the government tells you to do anything Von Mises would ask, “Hmm what is their motivation?”

Buy a house, here we’ll pay you to do it…
Buy a car…we’ll pay you to do it…
Here’s check go spend it…
Take shot…it’s free

Now is great time to revisit “Economics in One Lesson”

Read it, read it again and then pay it forward.

Nice post Russ

p.s. Bring Prof Munger back to Econtalk more often!!!

Hmmmmm

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