Supply, Demand, and Outcomes
Reihan Salam has had a number of interesting posts recently. Here, he discusses Kevin Carey’s analysis of how subsidies to college education ultimately benefit not the consumers but the suppliers.
Suppose that you want people to have more high-quality education and health care. You regulate the supply to ensure quality, and you subsidize demand to ensure that people can buy it. What happens?
If you make the supply inelastic and you increase demand, then the quantity stays the same and the price goes up. When this predictable result occurs, the politicians then complain about greed or some other flaw in the market.