Rationing by price--Why Hugo is a failure
With all the advances in sophisticated analysis by professional economists, very little of even the basic principles of economics has gotten down to the average citizen and voter.He points out that rent controls lead to fewer housing units being built and less available housing at any price. It happened in New York and San Francisco, meanwhile Houston with few restrictions and no rent controls has the most affordable housing of any large city in the world and it is much nicer than what is available in rent control cities. Hugo Chavez is seeing the consequences of his price controls on food resulting in shortages and black markets already. Jimmy Carter and Richard Nixon gave us gas lines with their limits on the price of gas. Letting the market set the price is the most effective means of rationing ever developed.
Many, if not most, of the economic policies advocated by politicians today would never pass muster if the average voter understood as much economics as an economist like Alfred Marshall did 100 years ago or David Ricardo 200 years ago.
Nothing is more basic in economics than prices -- and yet the role of prices is repeatedly ignored or even misrepresented by politicians and the media.
What do prices do? Prices impose the most effective kind of rationing -- self-rationing. Why is rationing necessary? Because what everybody wants always adds up to more than there is.
It doesn't matter whether you are talking about a capitalist economy, a socialist economy, a feudal economy or whatever. Resources are limited but desires are not. That is the basic and defining problem of economics.
Prices force you to limit your claims on what other people have produced to the value of what you have produced for other people. Prices force you to limit how much of product A you buy because you need to keep some money to buy product B.
While prices convey these limitations, they do not cause them. No economy -- capitalist, socialist, feudal or whatever -- can keep consuming more than it produces. Producing more of A means using up resources needed to produce B. Simple and obvious as all this may seem, politicians blithely ignore it when they promise to make the prices of housing or health care or other things "reasonable" or "affordable."
Nothing is easier for any government than to impose price controls. Governments have been doing that for thousands of years. What governments cannot control are the underlying realities expressed through prices.
What does the history of thousands of years of price controls tell us? The first thing undermined or destroyed is self-rationing. When you pay the full price of going to a doctor, you go there when you have a broken leg but not when you have the sniffles or a minor skin rash. When the government makes health care "affordable," you go there for sniffles and a minor skin rash.
The underlying reality has not changed, however....