Tuesday, March 17, 2009

Government Failure: The Return of the Price Control Zombies, Part MMMDXXXIX

Here's another proof that political irrationality and economic illiteracy have become fashionable once again. For the billionth time in human history, brainless price control zombie freaks rise from their graves and walk the earth, as this Fox News article reports:

State officials across the country are proposing price controls to help fix the economy, riling economists who warn they can harm the economy and even destroy cities. ...

The New York Legislature and the San Francisco City Council are considering expanding rent controls. Some politicians in Vermont are trying to limit the price of milk. And in Alaska, a bill to cap oil prices is pending in the state legislature.

Proponents say the government has an obligation to provide relief for consumers during these trying economic times. But many economists say controlling prices and rents has failed in the past, and it often has bad consequences.

"Economists widely agree that price controls often lead to shortages. There are many examples throughout history, and we have seen more recent demonstrations of this principle of economics in Venezuela and Zimbabwe," said Dr. N. Gregory Mankiw, a Harvard University economics professor and former chairman of the Council of Economic Advisers under President George W. Bush.

Dr. Edward Glaeser, a Harvard economics professor who researches the effects of rent control, said price controls have "a whole litany of problems that make them among the most foolish forms of economic populism known to man." ...

"You had gas lines in the '70s.... The tougher thing is to think of cases where there was not a shortage due to price controls," said George Mason University economics professor Dr. Tyler Cowen, author of "Discover Your Inner Economist." ...

"In many cases rent control appears to be the most efficient technique presently known to destroy a city -- except for bombing," said Swedish economist Assar Lindbeck, a former socialist who has been researching rent control since the 1960s.

In this article about hyperinflation in Brazil, my coauthor and I explain, among other things, how price controls during the eighties and nineties threw the country's economy into disarray. It's ironic that, almost twenty years after that, we're willing to repeat these foolhardy policies here in the US!

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