This recent, excellent post by Bob Murphy on the inevitable shortages caused by government-imposed price ceilings prompts me to ask the following series of questions (all aimed chiefly at my fellow economists): What would the bulk of economists predict to be the result(s) of each of the following government actions?
1. an effective price ceiling on retail gasoline?
2. an effective price ceiling on residential rental units?
3. an effective price ceiling on condoms?
4. an effective price floor on cable-television subscriptions?
5. an effective price floor on hamburgers at fast-food restaurants?
6. an effective price floor on low-skilled labor?
I strongly suspect that a large majority of economists would predict shortages for numbers 1 through 3 (and, in addition, some other consequences – such as queueing or falling product quality). I strongly suspect also that a large majority of economists would predict, for numbers 4 and 5, surpluses – at least of the amounts that producers would be willing to sell at those ‘floored’ prices if they believed that consumers would buy those high quantities. These economists would likely also agree that the actual amounts of cable-tv subscriptions sold, as well as hamburgers at fast-food restaurants sold – that is, the quantities of these items that actually find their way into the homes and bellies of consumers – would be less than the amounts that would find their way into homes and bellies if the government did not interfere with the market’s pricing process.
But I’m less confident today about what most economists would say about number 6.
It is, though, a deep mystery. There’s nothing at all about the service identified in number 6 (save for the fact that it often serves as a convenient political mascot) to distinguish it in any economically essential way from the five other goods or services identified above. I, for one, will never understand the readiness that so many economists today seem to have to regard low-skilled labor as being uniquely exempt from the economic reality and laws that are recognized to apply nearly everywhere else.
Economists have no trouble understanding that an effective price floor of, say, $5 on hamburgers that would otherwise sell for $3.50 will cause hamburger buyers to buy fewer hamburgers – to substitute at the margin away from buying hamburgers to buying the likes of chicken sandwiches and pizza. And these same economists would almost surely snicker a “Get real!” in response to some earnest young social engineer who, convinced that hamburgers are underpriced, insists that hamburger buyers have enough monopsony power in the hamburger market to justify the price floor – a price floor that the earnest young social engineer, his or her brain filled with mastery of textbook possibilities, predicts will cause the quantity of hamburgers sold to increase in response to the wisely and apolitically imposed price floor.
Chicken farmers and pizzeria owners, of course, would enthusiastically encourage the rest of us – including the government – to heed the deep wisdom of the earnest young social engineer. For the greater good, of course.