With high grocery, household and energy prices, everyone has felt the pinch of inflation. The cost of rent, automobiles, travel, concerts and clothing have surged. To stifle some of this price swelling, the Biden administration has released executive orders and initiatives calling for more competition or price reductions on everyday goods or services. Even policymakers have proposed implementing price controls.
Prices are a pillar of a functioning economy, sending signals daily throughout the market informing businesses and consumers what to make, how much to produce, and how much to purchase. In a coordinated effort of basic supply and demand, the market self-regulates, producing and selling the right amount of goods and services.
Businesses did not randomly decide in 2021 to squeeze their customers; they are not to blame. As the economy began to recover from a global pandemic, demand for many products soared and supply could not keep up, with no help from supply-chain issues, overspending and excessive money printing. These factors propelled us to the highest levels of inflation since 1982.
No amount of price-control legislation will fix rising costs. Ironically, such price-regulating measures do more harm than good, especially among the poorest populations. All this seems lost on some elected officials.
A year ago, the House passed the Fuel Price Gouging Prevention Act, which would have allowed the Federal Trade Commission to place price ceilings on retail gasoline. Those old enough to remember the long lines and gas rationing of the 1970s understand that implementing such restrictions will create massive shortages. In those days, all petroleum products in the United States had price controls that forced the hand of oil companies to sell their products to unrestricted foreign markets. Between heightened demand induced by artificially low prices at home and OPEC’s oil embargo abroad, gasoline was in short supply. Rationing ensued.
Our leaders may want to explore other avenues to lower the price at the pump, such as opening pipelines, streamlining the permitting process and lifting drilling bans.
Rent control has gained traction among some lawmakers even though it has been tried and failed. With some initial low costs, in the long run, rent control decreases affordability, fuels gentrification and creates negative side effects for surrounding neighborhoods. Investments in potential rental properties drop due to low profitability, and rental units deteriorate for the lack of money to reinvest in upgrades and upkeep. Once again, shortages occur, and quality declines.
The Consumer Financial Protection Bureau recently proposed slashing credit card late fees to $8 or less. Groups opposing this rule argue such drastic cuts would raise costs for those who pay on time, shrink the availability of credit for all consumers, and put numerous regional banks and credit unions in peril by taking away a significant part of their revenue streams.
Most recently, the administration declared war on “junk fees,” various add-ons to a host of products and services, including events, hotels, airline tickets, automobiles, and broadband internet. The White House insists these fees are confusing and make comparison shopping difficult. In reality, eliminating the fees will only cause companies to raise prices and force customers to pay for portions they don’t want, need, or even use.
If, for example, airline tickets were bundled, then everyone would pay for a seat assignment, checked bags and extra legroom rather than giving the customer the option to choose and pay for the services he wants. The additional costs to disclose all pricing information would also be passed on to the consumer. Such regulations would mute critical price signals that inform businesses where to allocate resources. The result: overall product quality decline.
And now the administration wants to compensate passengers for flight delays. Who will pay for this? The consumer will, with increased ticket prices.
These calls for price controls are amusing when one considers the considerable taxes attached to countless products and services, such as wireless phone bills and car purchases, not to mention the vast hidden taxes of regulations. Confusing and excessive don’t begin to describe their burdens.
Price controls don’t work and end up being counterproductive. Their side effects of shortages, declines in product quality and increased costs harm all involved. The best thing our elected officials can do is pull back regulation and red tape to foster innovation and competition. Let the market set prices and supply and demand run its course.