Ryan Bourne recently published a book that examines different types of price controls, and more broadly looks at the recent increase in hostility to allowing markets to set prices. Here is Bourne from pages 88-89 The war on prices:
[N]o The planner can leverage the knowledge needed to effectively allocate goods and services to the most valued applications. . . Unlike a central planner, a market economy can exploit this knowledge through its price mechanism. . . . As George Mason University economist Alex Tabarrok puts it, “Prices are a signal wrapped in an incentive.”
This Matt Yglesias reports I noticed:
In previous posts I have argued that the difference between left and right liberals is that the latter have a better understanding of the virtues of the price system. Left-wing liberals (called progressives in America) tend to overestimate the extent to which government planners can improve market outcomes. This is because the economy is full of cognitive illusions; things are often not what they seem. It amazes me how often I even encounter right-wingers who are outraged by market outcomes such as price gouging or insurance companies cutting coverage (because regulators won’t allow them to make a profit).
I often get angry with my home insurance, so I can certainly sympathize. But in the back of my mind, I always remain aware that the root cause of my anger is California regulators’ refusal to allow “capitalism between consenting adults.” I would like to get a smaller home insurance policy, but my insurance agent tells me that regulations prevent these types of policies from being offered. You are not allowed to insure your house at 50% of the market value, but you are not allowed to take out any insurance at all. Very strange.
In the coming weeks, we can expect to see many articles about how LA landlords are “driving up prices” as a result of the recent fire. I encourage people to read The war on prices if they want to know more about the consequences of government price controls.