Price controls, the bad, the ugly and worse

Free market competition has a history of creating jobs, creating new products, new opportunities and wealth. Government control of the market fails.

Thomas Sowell points out in Basic Economics IIRC, that you can’t compare the official government prices in places where the government controls prices. Instead you have to look at the blackmarket price for goods. Since the blackmarket is almost always a free market, it is much more likely to be properly indicating the correct signals.

A signal is how much a person is willing to pay for a good or service.

If somebody is staying in the same job, even though they aren’t “getting paid enough”, then the company is being signaled that they price they are paying for labor is correct. If they can’t hold personal and/or they can’t hire new personal then they are being signaled that they are not paying enough. Paying enough includes all the extras a job includes.

Maryland has a fairly high income tax. The income tax is both a state income tax, a county income tax and a city income tax. Originally there was no limit on what the county and city tax rate could be. The different counties had different rates. People made decisions on where they lived based on those rates.

In order to “help” the people from being ripped off by the county and city taxes legislation was introduced that set the maximum rate that could be charged. With fanfare it passed.

Within a very few years every county and city had exactly the same tax rate. That maximum allowed by law.

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During hurricane Sandy large parts of NYC and the surrounding areas were hit. Access into and out of the area became very difficult. As this happened gas stations started to raise the prices on gas.

As the prices went up, the screams of “Price Gouging” started to happen. People were obviously making more money if they were selling gas for a buck more than what it cost before Sandy hit. There were huge lines for gas at the stations that still held gas.

A thriving business opened up for young people, mostly men. They would stand in line with a 5 gal can. They would fill it at the pump, then walk towards the end of the line offering their five gallons for a few dollars more than what they paid for it. People bought that “over priced” gas in the 5 gallon can.

They bought it because the extra cost was worth it to them. It could be that they were just tired of being in line. It could be that they had a fear of the station being out of gas by the time they got there.

In the same way people buy up generators when there is a storm coming in. Then when the storm hits they sell those generators at a profit. The people scream “price gouging!” because they didn’t buy a generator when they were available.

In the case of hurricane Sandy, the government stepped in and set a maximum price per gallon of gas.

And suddenly there was no more gasoline. In an attempt to help people afford gas the government managed to cut off the gas supply to everybody. There were reasons the prices of gas was going up. Some of it was that those stations with gas were having it shipped in from locations much further away than they use to. This raised their costs. They were paying the drivers for extra for the risks they were taking.

The people that were willing to pay that extra amount were signaling that the price was acceptable.

As soon as gas started to flow again the people were no longer willing to pay the increased prices. They found places selling for less. Often the station that had been closed since shortly after the storm because they had no fuel to sell.

Price control for labor also increases the costs of everything and it reduces the ability for employers to compete. Regardless of what some union shill is saying about “The Fight for $15!” he is actually ensuring that more people have the real minimum wage, $0. If a high school student with no employment history and no real skills is to be hired at $15/hour they MUST return at least their costs in value to the employer. With no history and no skills that’s harder to do.

If the employer could offer less then they would be able to afford a lower skilled employee.

The complaint is that nobody can live on minimum wage. This might be true. On the other hand, if you are still making minimum wage after six months you might not be providing value to your employer OR you might need to find a different job. Only this time you will be applying with a job history and hopefully some skills.

The progressives want price controls on so many things. They sell it as “for the people.” They like rent control, fuel price limits, food price limits, drug price limits, labor price limits, airline price limits. All things that are easy to sell to the person being told “You’ll have more in your wallet at the end of the week.”

The problem is that it always fails.

The airline industry use to have heavy price controls. When Jimmy Carter signed the Airline Deregulation Act in 1978 the left was very unhappy. “The price of air travel is going to go through the roof! Nobody but the rich will ever be able to afford to travel by plane again!”

They were wrong. As they always are. Within a few years competition between airlines kicked in. New discount airlines came into existence. In a just a couple of years people were being offered $99 flights between almost any two airport. Much less than before deregulation.

For years now the left has been screaming about lack of healthcare in these United States. They intentionally conflated “healthcare” with “health insurance”, or the ability to pay. They talked about how so many other first world countries offered cradle to grave “healthcare”.

This healthcare was paid for by a third party, the government. The government took that money from the people. The people did not have to pay at point of service. They paid with every paycheck instead.

Many of these countries with socialized medicine paid almost nothing for their medications. Medications were priced by the government.

These governments weren’t paying the full costs of those drugs. American’s were and are. Most of the advances in pharmaceuticals comes from US companies investing in research and development of new drugs. Americans pay for the cost.

To put this in perspective, the median cost to bring a new drug to market is $985 Million with an mean cost of $1.3 Billion.

All of that cost has to be recovered. Consider just one drug “Lexapro” which is an antidepressant. The cost for 30 pills is around $105 or around $3.50 per dose. Assuming that the development cost median margin was 13.8% * that means that drug company makes around $0.48 per dose.

The recovery of that $985 Million investment is 2,039,337,474 doses or 5,587,225 patent years. That is a lot of patent years on a new drug.

Today there are around 26 Million people taking Lexapro so it would take about 3 months to make back that investment. If that was the only place those profits were going for.

Now I’m not a finance sort of person. My goal is to point out that developing new drugs is expensive and time consuming. For every drug that makes it to market there are many that don’t.

So why all this yapping about price controls and drug development costs? The Democrats have introduced the “Inflation Reduction Act of 2022”

Prescription drug price reforms. Allows Medicare to negotiate the price of certain prescription drugs; limits Medicare and commercial price growth of certain drugs to inflation; repeals the implementation of a “rebate rule” scheduled to increase drug-related Medicare outlays beginning in 2027; redesigns Medicare Part D benefit formula and caps out-of-pocket costs for beneficiaries.
— Inflation Reduction Act: Preliminary Estimates of Budgetary and Macroeconomic Effects

In other words, price control on medications.

The New York Post put it best Inflation Reduction Act? Drug-price controls make Dems’ bill the Lifespan Reduction Act. When prices are controlled, shortages happen. When prices are controlled, research and development suffer. When prices are controlled, medication choices become limited.

There is nothing in this act that is good for us or good for the country.
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