The March of the Price Fixers

Joel Fox
Editor and Co-Publisher of Fox and Hounds Daily

California is an expensive place to live so many activists inside and outside government want the government to do something about it. Enter the price fixers.

The newest price control effort is on health care in California but that occurs at the same time of an on-going attempt to establish rules for broader rent control.

The problem is that history shows price controls rarely work.

Price controls in the health care area would be overseen by a commission that would set rates based on what government pays for health care services under Medicare, according to the proposed legislation (AB 3087) introduced yesterday by Assemblyman Ash Kalra. Rent control advocates are backing a proposed initiative that would upend a 25-year-old state law and allow local communities to establish price controls on rental units.

Few would argue that soaring costs in both health care and rents are difficult to manage for many state residents. But are price controls the answer? While some economists applaud such methods, a majority do not. They argue that price controls often complicate or fail their stated goal. The chief criticism offered against price controls is that they keep prices artificially low and soon supply does not keep up with demand leading to shortages in price-controlled services or items.

Indeed, the initial reaction from the medical community to the proposed commission is that price controls on health care costs will result in government sanctioned rationing of health care and a shortage of physicians for many would choose not to practice in the state. Already one driver in the cost of health care is the lack of medical providers. Price controls would only accelerate this effect.

Opponents’ response to the rent control effort is similar. Rent control would limit the incentives to build new housing units.

Price control efforts go back centuries. From the Roman Emperor Diocletian thru the French Revolution to President Richard Nixon’s wage and price controls, forms of setting maximum prices have been tried unsuccessfully. Price controls more effectively have been used for short periods, such as during wartime. However, the planners behind price controls on California health care and rents have a much longer horizon in mind for their plans.

As Stanford economist Milton Friedman said of price and wage controls, “It is a device that governments have repeatedly resorted to try to cover up the effects of their own policies.”

Lessons have not been learned. Instead of policy changes, California is looking at controls to deal with excessive costs.

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