I am against price controls because:

• they involve force (in the form of threats to seize property for non-compliance) and I am against force.
• they don’t work.

What makes you think they don’t work?

All sorts of examples:

• Fare control leading to overcrowding on the railways
• Rent control leading to a shortage of rented accommodation (warning: short)
• Control of bread prices leading to lower quality.  I particularly liked this quote:
  

  “As a native “Parisien” (born in the the 14th arrondissement), and a bit of bread connaisseur, there was a time when I had to go out of my way to get good bread. You see, there used to be price controls on bread, and so, the incentive of making a really good baguette was pretty low, since you could not charge more for it. Many bakers would just make “industrial” baguette (too soft and tasteless) and only a few would put real effort into it.”
  

Why don’t price controls work?

It’s all to do with supply and demand.  When prices are low no one wants to supply but everyone wants to buy.  When prices are high exactly the opposite is true.  Somewhere in the middle supply and demand are equal.  That is the “natural” price [Economists probably have a formal term for this, it’s just that I don’t know what it is].  When the government moves the “natural” price (usually downwards) by means of price control, for example, it moves the situation to one where demand outstrips supply.  Thus you get queues, or (in the case of trains) overcrowding, or, if the supplier can’t restrict the number of customers, a lower quality product.

Permalink • Economics • Last Updated: 24 September 2006

1. Here’s another example: cheap parking leading to more jams.

   Posted by Patrick Crozier on  5 April 2007
   
   

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