Monday, March 16, 2009

Bad economy, bad ideas

In bad economic times, there is apparently no shortage of bad ideas. State and local governments from coast to coast are considering various price controls to help "alleviate the tough economic conditions"

This includes ideas like expanding rent control, capping the price of oil and even milk.

At first glance, this might seem like a good idea. After all, times are tough. What is wrong with the government making sure that the prices stay affordable?

The problem is prices vary based on supply and demand. And when the government forcibly sets the price to be lower than what the market would set it, it cannot magically increase the supply as well. This will ensure that those scarce resources are only available for the early birds. Also, whenever possible, such resources will be hoarded because the lucky buyers sense that they are getting something for much below its actual worth.

So, the poor still suffer from not being able to access and buy what they want - even if they are willing to pay it, because an artificial shortage has been created.

That is not the end of it - hoarding often leads to black markets and the associated inevitable crime.

This is just basic economics. But, no matter how obvious, bad ideas keep propping up, especially during bad economic times.

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