
Ryan Bourne recently edited a book that examines various types of price controls, and more broadly looks at the recent increase in hostility toward allowing markets to set prices. Here’s Bourne from pages 88-89 of The War on Prices:
[N]o planner can harness the knowledge necessary to effectively allocate goods and services to their highest-valued uses . . . Unlike a central planner, a market economy, through its price mechanism, can harness this knowledge . . . . As George Mason University economist Alex Tabarrok puts it, “Prices are a signal wrapped up in an incentive.”
This Matt Yglesias post caught my eye:
In previous posts, I’ve argued that the difference between left and right wing liberals is that the latter have a better understanding of the virtues of the price system. Left wing liberals (called progressives in America) tend to overestimate the extent to which government planners are able to improve on market outcomes. This is because economics is full of cognitive illusions—things are often not what they seem. I am surprised by how often I encounter even right wing people who are outraged by market outcomes such as price gouging, or insurance companies dropping coverage (because regulators won’t allow them to earn a profit.)
I often get angry with my home insurance company, so I can certainly sympathize. But in the back of my mind I always maintain awareness that the root cause of my anger is the refusal of California regulators to allow “capitalism between consenting adults”. I’d like to buy a smaller home insurance policy, but my insurance agent tells me that regulation prevents those sorts of policies from being offered. You are not allowed to insure you house at 50% of fair market value, but you are allowed to not buy any insurance at all. Very strange.
In the next few weeks, we can expect lots of articles about how landlords in LA are “price gouging”, due to the recent fire. I encourage people to read The War on Prices if they wish to learn about the consequences of government price controls.
READER COMMENTS
David S
Jan 15 2025 at 1:53pm
I’m curious to see if there will be any type of zoning/building regulation reform associated with the neighborhoods that have recently burnt to the ground. I’m hoping that there will be allowances made for more multi-family construction. Probably won’t helpful—California changes too slowly.
Kevin Corcoran
Jan 15 2025 at 3:22pm
California Governor Newsom has already getting at least one response going that is, well, a very California response. Apparently, he wants to make sure that no developers or investors come in and offer to buy up the smoldering remains of people’s houses and destroyed lots, and then themselves incur the expense of rebuilding those areas. Or more precisely, he wants to forbid such transactions from occurring if the developers offer people something like the current market value of the remains and land, rather than the full price it would have commanded on the market before it was destroyed. So we have price controls moving in a different direction now – Governor Newsom wants to ensure nobody is able decide it’s worthwhile to sell of what remains of their property for too low of a price.
Speaking for myself, were I in that situation, I can easily see myself wanting to just sell off what I had, take what I can, and try to set up somewhere new and reestablish myself. I would not feel like I was being helped by someone telling me I’m only “allowed” to do that if I charge a price higher than anyone is willing to pay. That’s wouldn’t be helping me. That would be trapping me.
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