Finance / Opinion / Politics

Socialist Price Controls – Do Not Work

priceSocialist Democrats have a bizarre way of thinking – most do not understand market economics, in part because they never took time, except to profit from it, and in part because they do not want to understand economics.  If they did, they would oppose price controls – and stop pushing them.

The US Congress faces a deficit of quantitative understanding – in 535 members, you get two PhDs scientists, one Ph.D. in math, 17 doctors, 11 accountants.  Overlapping that group, roughly 45 majored in economics.  Eight in ten members of Congress have zero background in business, economics, or anything quantitative.  Yet this group makes huge tax, spending, and quantitative decisions affecting us all. See, e.g., https://www.huffpost.com/entry/lawmakers-background-business-economics_n_934157.

On one hand, we are best served in Congress, as on a jury, by our peers.  We also pay for congressional staff, who often have depth – actually, almost always do – in areas members know little about.  But those consolations are hardly comforting, when you think that most have never run a business, could not explain how to

Most of those hyped about global warming could not explain how you convert Fahrenheit degrees to Celsius (take 30 off F; half that number is C), how a barometer works (mercury reservoir reacts to atmospheric pressure, pushes mercury up glass tube; high pressure clear, low pressure storm coming), how a radiometer spins (four vanes, two reflective, two white, all black one side, react to photons, reflective ones bouncing with twice momentum, creating spin), or why fewer prime numbers as values rise (more factors), or what a prime number is (not product of two smaller numbers).  Yet they will tell us the world is ending – so be ready.

Most who manage tax policy do not – likely – do their own taxes, cannot explain indifference curves (which demonstrate equal preference between two consumer goods), or price elasticity of demand (which can also change with taxes); most who sit on the transportation committee likely do not change the oil, oil filter, or air filter in their car, rotate tires or know what a rocker arm cover is.  Still, they decide whether cars with combustion engines will exist in ten years.

Perhaps the most immediate example of blind leading blind is the push for price controls on prescription drugs – which House Democrats want Joe Biden to put in his coming legislation to “Remake American Families Plan” (actually called “American Families Plan”).  On one hand, greater transparency in pricing, more quality and price competition, a wider range of alternatives, and less dependency on China – or any monopolists – would be good.  Republicans are pushing such ideas, and long have been.  Free markets tend to lower prices while rewarding innovation. 

Bad planning is putting the federal government in charge of prices, capping them low – so drug research companies, which now spend roughly 20 percent of returns hunting novel cures and treatments say, “forget it.”  They would look for economies of scale, new markets for old drugs, no innovation.   Or they would cut quality, look for margins in unregulated quarters, the way rent-controlled apartments suffer.

Price controls also cause shortages, as demand at low prices outstrips supply and production.  Nobel prize-winner Milton Friedman once noted economists are not good at much, but they can quickly create a shortage by capping prices, and a surplus by creating a price floor. 

The main point is that markets are the best regulators of supply and demand, with real consumers of prescription drugs (not ill-informed, all-knowing congressmen) sending clear, authentic, timely signals to researchers, producers, and corporate aggregators of medical talent and capital – showing what is needed, what people will pay for it, and thus what to research, produce, and what the market will bear. 

As more people need a cure, treatment, or prevention for a disease, assuming price transparency, competition, and input and supply availability, more innovation, more production, and more drugs become available – and as they do prices drop.  In reverse, the potential payback for medical innovation is rewarded – with or without tax incentives. 

Now, if you are doubting all this – imagine what would happen if your COVID vaccine had to be invented by a member of Congress, God forbid, or Congress mandated no money could be made on a vaccine or on any other drug, or that socialist medicine would save you – if you were still alive to be saved when they got around to it. 

Imagine how many other businesses, creating things you want – from food and bicycles to restaurant experiences and travel options – also depend on that vaccine, on incentives to make it – no price controls. 

In short, there is only one way to lower prices and raise quality – and it is not price controls, not mandates from an all-knowing, self-important, non-quantitative, hardly mathematical Congress. 

The way to assure a reliable, well-stocked market for quality, affordable prescription drugs is to incentivize innovation, open trade, reward skills acquired, hard work, and investment, assure transparency, ethical and legal behavior, and speed good options to market. 

The truth – that free markets generate solutions and price controls do not – is self-evident.  America is the proof.  That Democrat-socialists want to change all this, control all this, and manage your life too – is proof enough that they should go back to school, or at least stay away from what works.  Still, be on guard … price controls are the next big thing, once Democrat spending drives inflation sky high.

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JohnH
1 month ago

My opinion, the cost of healthcare & prescriptions could be decreased by looking at “Tort Reform” and limiting the huge lawsuits .

Joe
2 months ago

Stop frivolous lawsuits by unscrupulous lawyers and drug prices in the US will come down to where they are in the rest of the world!

JohnH
1 month ago
Reply to  Joe

Agree with you on this, but not much reaction by others for some reason.

Jeffrey
2 months ago

I am a prescription drug user. I used to be employed at a place where all medicine could be ordered for 90 days at a time and the costs were either less than $10 or $10, $20 or $30 for a 90 day supply. Now retired and having to hunt for the best prices and the drug companies being left alone logic is a lie. Almost every other country on earth can obtain the exact same medicine we get for far less money. You can check maybe five different pharnacies here in the US and the price on the exact same drug can differ hundreds of dollars from one to another. Don’t sit there and try to say a major scam is not going on. There needs to be some kind of control and the perfect example was the Epipen. Price went from like $60 it had been for years to like $600 until Mr. Trump made them turn it back until Joe Sliden got in office and reversed it and now it is back to costing people a fortune to not being able to afford it at all.

Dave Shreeve
2 months ago

Personally, I don’t think the Democrats are being stupid. They are being intentional!
They have every intention in the world of crashing this country, causing a civil war, and allowing their opportunistic Chinese and Russian friends to step in and take over everything as half of this country dies during the civil war.

haverwench
2 months ago

To convert Fahrenheit to Celsius, take off 32, not 30, and multiply by 5/9. The fact that, despite all your sneering about the ignorance of others, you didn’t even get this simple formula right — and didn’t bother to check your facts — should make readers wary of accepting anything you say at face value.

JohnH
2 months ago

Good points on price control. No mention of, but I think the Pharma companies pay millions for liability insurance to operate. The tort system in America needs to be overhauled to limit the class action suits. My Opinion: Polio would not have been stopped in USA in the Fifties if the same type of class action lawsuits were in place. Read history of Salk vaccine.

Nick
2 months ago

Sounds like an argument for eliminating farm subsidies!

JohnH
2 months ago
Reply to  Nick

My opinion, USA survived the great depression & WWII because of ability to grow their own food. This farm subsidies are probably still needed in rough years. Trump’s Tariff war with China has resulted in less foreign market & so Trump provided $Billion subsidies to farmers to compensate for result of trade war. Will this make our farmers more dependent on government? Time will tell & I do not hear much about the tariffs since Biden took office.

Dave Shreeve
2 months ago
Reply to  Nick

If you eliminate farm subsidies, be prepared to have to pay what it actually costs to raise the crops and produce milk and milk products. Say goodbye to $2.50 a gallon milk because the real cost is around $9.00 per gallon. Any idea how much an onion or tomato would cost? And lets not forget the cost of the wheat to make bread. Because of farm subsidies food costs are about 1/4th to 1/3rd of what they’d actually cost you at the store.

Nick
2 months ago
Reply to  Dave Shreeve

So what you’re saying is that the government should keep paying farms to keep consumer prices down.

How is this not socialist price controls?

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