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Ceiling the Deal: Why Price Interventions Fail

Price ceilings, though well intentioned, have disastrous effects on the economy.

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By Jadon Buzzard | United States

If you’re anything like me, you’ve often yearned for cheaper products. They’re all so expensive—groceries, gas, college, etc. Wouldn’t it be nice if you could purchase anything you desire at your preferred price? Well, you’re in luck, because all you need to make things cheaper is government intervention in the market!

Introducing the price ceiling. It’s practically magical! The days of working hard, saving money, and making efficient economic decisions are long gone. Just ask our beneficent bureaucracy to force more production for less money.

We all know that the government is great at fixing problems, especially economic inefficiencies. What’s more inefficient than allowing producers to set their own prices? If we let that happen, no one would have anything! Those capitalist pigs would ask for outrageously large sums of money, practically robbing all of the poor and lower-class individuals just looking for a bite to eat. We need the government here, don’t we?

Of course not. Obviously.

Calling for a price ceiling is akin to using a wrench to delete a computer virus—it doesn’t work. Why not? A simple understanding of microeconomics shows how government interventions are counter-intuitive. Long story short, by setting a price ceiling, the government prohibits certain trades in the market from happening while at the same time discouraging producers from making high-quality products.

A classic example of this is rent control. Rent control is a type of binding price ceiling that forces landlords to lease their apartments for less than the market equilibrium price. What does that mean? Well, consumers in the market are willing and able to buy a certain numbers of apartments at certain prices. Likewise, landlords are willing and able provide a certain number of apartments at certain prices.

Now, the place those prices meet is called the equilibrium price: the price at which the market functions most efficiently. This price allows the maximum number of trades to occur, whereas any other price would result in less trade because certain consumers would be forced out of the market. Because it allows the most trades to occur, the equilibrium prices creates the most wealth for the economy as a whole and motivates the landlords to maintain the quality of the apartments that they provide. Quality is prioritized because producers prefer to keep as many consumers in the market as possible.

Rent control forces landlords to rent their apartments out below the equilibrium price. Since producers are willing and able to produce more products at higher prices, they produce less at lower prices. Thus, the immediate effect of a rent control policy is a reduction in the number housing options available, because landlords will reduce the number of apartments they provide. Landlords may sell these unused apartments to other companies or even demolish old buildings, as they cannot afford the upkeep.

But wait, you ask, the apartments that still exist on the market will be cheaper, right? Won’t those poor single-parent families be able to afford housing now? Not exactly.

Let’s examine the incentives behind leasing an apartment. What do landlords look for in terms of who they will lease their apartment to? Since landlords provide upkeep for services, they will prefer people who are quieter and won’t be likely to get into trouble. They wouldn’t want the appliances to constantly break and require fixing. Landlords also prefer to increase the value of their apartments, so they want respectable, well-off individuals to reside in the housing they provide.

Guess who those criteria exclude? The single mother with four children who really needs a place to live. Sure, landlords may offer living space for less. But the people who get those apartments will more than likely be richer, middle-class individuals looking to save a few thousand bucks. The unfortunate individuals that are intended to get better, cheaper housing through rent control are unable to do so.

There is a moral aspect to this as well. Is it good for the government to force companies to do certain things with their products? Do the products belong to the producers or to the government? If you accept the idea that property rights exist, then you ought to conclude that price ceilings, by violating a producer’s natural right to his product, are immoral. I can’t morally force a landowner to sell his product to me at a certain price; likewise, when the government does so, it is wrong.

Ultimately, price controls don’t have their desired effects. Calls for increased intervention on the market will always lead to undesirable outcomes due to the fact that the government cannot predict what is best for the market. This hearkens back to the importance of a basic understanding of economics. Armed with the tools of observation and critical thinking, liberty-minded individuals have a powerful weapon at their disposal, with which they can use against the massive government bureaucracy that has been growing and festering for more than a century. Nothing can replace rational economic thinking, and its proper utilization can bring America back to the liberty-loving roots it once enjoyed.

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  1. Jadon Buzzard April 4, 2018 at 7:42 pm

    Appeal to the masses. It’s one of the reasons a properly-educated public is essential for a “free state” (or as near as we can get to it, due to the impossibility).

    Reply

  2. Matthew Barnes April 4, 2018 at 12:33 pm

    And yet the fools in office badger the tenants to vote for controls. And when there’s more tenants than landlords / homeowners, guess what happens.

    Ever look at Frisco lately?

    Reply

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