Here’s a letter to a long-time Café patron:
Mr. C__:
Thanks for your e-mail in response to my criticisms of Zephyr Teachout’s defense of price controls.
You ask “if economists have a good answer to her pointing out price controls keep billionaires from outbidding poor people for critical supplies.”
Good question. I have two responses.
First, billionaires and other rich and powerful people have social, business, and political connections that poor people don’t. Rich and powerful people can use these connections – along with other non-price means of payment (“Say, wouldn’t you enjoy watching the big game from my private box at the stadium?”) – to outbid poor people for goods and services that are in short supply. And because price ceilings reduce available supplies of goods and services, the controls only worsen poor people’s chances of acquiring urgently needed goods and services.
Second, the relevant competition for goods and services isn’t between billionaires and poor people. Because most Americans are middle-class, this competition overwhelmingly is between people of largely similar economic characteristics. Higher prices in the wake of natural disasters don’t so much, as Teachout says, allow a billionaire to keep his AC running by bidding away from “a working-class cancer patient” the last generator in stock. Instead, these higher prices dissuade the Joneses from buying the now-higher-priced generator to use as a back-up, thus increasing the chances that their neighbors, the Smiths, can get a generator in the first place. And again, only by allowing generators to fetch unusually high prices will a larger quantity of generators be shipped into areas devastated by natural disasters.
Sincerely,
Donald J. Boudreaux
Professor of Economics
and
Martha and Nelson Getchell Chair for the Study of Free Market Capitalism at the Mercatus Center
George Mason University
Fairfax, VA 22030
