Quotation of the Day…

by Don Boudreaux on May 16, 2018

in Myths and Fallacies, Prices, Reality Is Not Optional, Seen and Unseen

… is from page 139 of the original edition of Robert Schuettinger’s 1979 book, Forty Centuries of Wage & Price Controls:

When prices are manipulated [by government diktats], however, these “signals” indicating relative scarcity cannot be detected. It becomes impossible to distinguish real signals from artificial, manipulated one. Shortages become common because firms are not induced by higher profitability to expand their supply. Black markets emerge to meet the demands of customers who would otherwise have to suffer long delays on the delivery of commodities at the controlled price. Firms that would be fully profitable under a freely-adjusting price mechanism are squeezed out of production or are not induced to enter artificially depressed prices.

DBx: Economic reality is not optional. Government-imposed price ceilings and price floors – although believed by those who view prices as arbitrary results of bargaining or of “power” relationships as merely changing the distribution of economic gain or pain – distort people’s view of economic reality. Price controls prevent people as consumers (including as employers of workers) and as producers (including as workers) from seeing economic reality as clearly as possible. Blinded by minimum-wage commands and other price controls, people act in ways that are the opposite of the ways that those who support the price controls ostensibly want people to act. Rent control, for example, prompts landlords and potential landlords to offer fewer rental units on the market. Minimum-wage commands lead employers to employ fewer low-skilled workers.

Non- (and poor) economists, seeing only that which is in front of their noses, observe the government-controlled prices and conclude that the results of these controls must be just what the government publicly proclaims it wishes these results to be. “Look! Rents are lower with rent controls! Wages are higher with minimum wages! We have helped the poor!

Those who fall for such superficial appearances, of course, do not grasp the nature of market forces and the role of prices. But the naiveté of such people runs much deeper: they are the sort of people who believe that if the messenger is forced to lie, the underlying reality changes, with the lie thereby converted into truth.  Such people, in other words, believe in miracles. They believe that state officials performing incantations can miraculously change economic reality.


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