Tag: price inflation

Ceiling the Deal: Why Price Interventions Fail

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.

Featured Image Source

Advertisements

Everybody Loses: The Effect of the $15 Minimum Wage

By Ricardo Tremblay | CANADA

On January 1st, 2018, the minimum wage in the province of Ontario, Canada, increased from $11.60 CAD to $14.00. On January 1st, 2019, the minimum wage will be further increased to $15. Out further west, the province of Alberta has also passed a law that will increase the minimum wage there to $15 in the month of October 2018.

After only a week of the change being put into effect in Ontario, prices across the whole province for various goods and services have increased significantly. This is due to the fact that businesses will not, and rightfully should not, simply let themselves lose money because they have to pay their workers 20%-30% more. The easiest and most effective way for businesses to make that money back is to increase the prices of their goods and services accordingly. In other words, the price for goods and services at many retailers goes up. This is bad for customers, as they have to pay more, and this is bad for the businesses, as they are not gaining anything out of the change themselves and have to increase their prices.

“But it benefits the poor workers!”, some may say. What these people fail to realize is that businesses have also been laying off many workers, and giving minimum wage employees shorter and less frequent shifts. These employees will end up seeing that this ‘benefit’ may end up costing them their job, or not doing much more than giving them fewer work hours. The employees aren’t exempt from the price increases either, so ironically they will end up paying more for products as well.

This creates a situation in which businesses, employees, and especially consumers end up unhappy and frustrated. Not many people, if any at all, actually end up benefiting from the minimum wage increase. In comparison, the recent tax cuts in The United States have resulted in bonuses and wage increases for employees all over the country, and this was all done without hurting consumers, and by instead helping corporations flourish.

All in all, this is just another of countless examples as to why government interference and a government-controlled economy lead only to harder times for everyone. Some Canadians may have suffered due to these changes, so¬†hopefully advocates for higher minimum wages in other provinces and nations will soon realize the effects of their desires, and instead advocate for a freer, more stable method to benefit the working class, that isn’t at the expense of everyone else.