Ryan Bourne recently edited a book that examines different types of price controls and considers the recent growing hostility to allowing markets to set prices more broadly. This is Bourne, who appears on pages 88-89 of “Price War.”
[N]o Planners can leverage the knowledge they need to effectively allocate goods and services to their most valuable uses. . . Unlike central planners, market economies have access to this knowledge through price mechanisms. . . . “Prices are signals wrapped in incentives,” said George Mason University economist Alex Tabarrok.
This post by Matt Yglesias caught my eye.
In a previous post, I argued that the difference between left-wing liberals and right-wing liberals is that the latter better understand the benefits of the price system. Left-liberals (called progressives in America) tend to overestimate the extent to which government planners can improve market outcomes. This is because economics is full of cognitive illusions, and things are often not what they seem. I’m surprised at how often I even encounter people on the right who are outraged by market outcomes such as price gouging and insurance companies cutting coverage (because regulators can’t profit from it).
I am often scolded by home insurance companies, so I can certainly empathize with this. However, I always keep in the back of my mind that the root cause of my anger is that California’s regulations do not allow “capitalism between consenting adults.” I would like to purchase small home insurance, but my insurance agent told me that due to regulations, they cannot provide such insurance. You are not allowed to insure your home at 50% of its fair market value, but you are allowed to have no insurance at all. It’s very strange.
Expect to see a lot of articles in the coming weeks about how Los Angeles landlords are “price gouging” because of the recent fires. If you want to learn about the effects of government price controls, I recommend reading Price Wars.
