Jewish World Review Nov. 17, 2005 / 15 Mar-Cheshvan,
Ignoring economics, Part III
I first became aware of the law of gravity as a small child when I
pedalled by tricycle off the porch and crashed into the yard. Gravity was of
course operating all along, whether I was aware of it or not.
Economics is a lot like that. Many people who are completely unaware of
economics sometimes discover it the same way I discovered gravity, through
some personal or national crash.
Liberals especially tend to think up all sorts of good things we
want a "living wage," "affordable housing," "universal health care," and
an ever-expanding wish-list of things that everyone should receive as
"rights" with little or no awareness of the economic repercussions of
turning that wish list into laws.
In many cases, items on their wish list have already been turned into
laws in other countries and in other periods of history, but there is
remarkably little curiosity as to what the actual consequences were in those
countries and times.
People who want the government to control the prices of pharmaceutical
drugs seldom, if ever, raise the question of what actually happens in places
and times when government has controlled the prices of pharmaceutical drugs.
Canada and other countries do it. What consequences have there been?
One major consequence is that Canada and other countries do not create
nearly as many of the new life-saving pharmaceutical drugs as the United
States does. These other countries live off the results the medicines
produced by the enormously costly research that "obscene" pharmaceutical
profits finance in America.
Those who want us to imitate those countries do not confront the
inescapable fact that we cannot all live off somebody else in this or
other things. Somebody has to pay the costs.
We can of course kill the goose that lays the golden egg and
discover the consequences the hard way, as I discovered the law of gravity
by pedaling off the porch. People needlessly suffering from diseases that
new medications could have cured or prevented will pay the highest cost of
Prices are perhaps the most misunderstood thing in economics. Whenever
prices are "too high" whether these are prices of medicines or of
gasoline or all sorts of other things many people think the answer is for
the government to force those prices down.
It so happens there is a history of price controls and their
consequences in countries around the world, going back literally thousands
of years. But most people who advocate price controls are as unaware of, and
uninterested in, that history as I was in the law of gravity.
Prices are not just arbitrary numbers plucked out of the air or numbers
dependent on whether sellers are "greedy" or not. In the competition of the
marketplace, prices are signals that convey underlying realities about
relative scarcities and relative costs of production.
Those underlying realities are not changed in the slightest by price
controls. You might as well try to deal with someone's fever by putting the
thermometer in cold water to lower the reading.
Municipal transit used to be privately owned in many cities, until
local politicians' control of fares kept those fares too low to buy and
maintain buses and trolleys, and replace them as they wore out. The costs of
doing these things were not reduced in the slightest by refusing to let the
fares cover those costs.
All that happened was that municipal transit services deteriorated and
taxpayers ended up paying through the nose as city governments took over
from transit companies that they had driven out of business and
government usually did a worse job.
Something similar has happened in rental housing markets, where rent
control laws have kept the rents too low to build and maintain rental
housing. Whether in Europe or America, rent-controlled housing is almost
invariably older housing and more deteriorated housing.
Costs don't go away because you refuse to pay them, any more than
gravity goes away if you refuse to acknowledge it. You usually pay more in
different ways, through taxes as well as prices, and by deterioration in
quality when political processes replace economic process.
But the lure of the free lunch goes on.
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© 2005, Creators Syndicate