Economists’ views on price control: The good news and the bad

The Chicago Booth’s “Initiative on Global Markets” (IGM) occasionally responds to well-known economists at well-known schools on various public policy issues.

On June 7, IGM reacted to the price increase. It asked 2 questions. I will discuss the first and the answer to the first.

Question A: It would be good for the US economy to make it illegal for companies with a revenue of over $ 1 billion to offer products or services for sale at “unreasonably high prices” during an exceptional market shock.

What will my A and A-students answer at the end of the course while the content is fresh? I think they would say “no” or “hell, no”.

The options offered were “strongly agree” (hell, yes), “agree” (yes), “uncertain”, “disagree” (no), “strongly disagree (hell, no),” no opinion “or” no “. Answer. “

Good news first.

44% of respondents agree and 21% strongly disagree. No one strongly agreed and only 5% agreed.

Wait; There is more good news. Weighed by the confidence of each respondent, the results are more one-sided. Only 3% agree, 52% disagree, and 32% strongly agree.

Now the bad news is dominated by slightly better news from Eric Muskin and Astan Gulsabi.

Respondents were also allowed to state their reasons. What would be a good reason? How about it: Price control causes deficits and it is only when there is a “remarkable market push” that it is more important to avoid price control. Think about controlling the price of ice on plywood during a power blackout or during a hurricane.

Many of them did not pay attention to the cause. It’s understandable. These people are busy and they may well realize that the reasons I think are obvious are actually obvious.

Eric Muskin of Harvard put it well:

In times of scarcity, higher prices may stimulate supply growth.

Actually, it was quantity delivered (think of a movement along a supply curve), but again, I’m sure he was in a hurry.

Aston Gulsaby of the University of Chicago has a good answer that expresses his frustration with the question raised:

How do we get this back again?

This is consistent with his previous comments on a similar question.

Stanford’s Caroline Hawksby starts strong but then ends with an amazing discount:

Price rebalances the market by creating a supply and demand response. Without short-term events like hurricanes, price pressures are reversible.

No! Is a hurricane No. An exception. Hurricane time supply and demand response are even more important. If the hurricane is in Florida, it is best to have trucks lined up to send plywood to Georgia and South Carolina at higher prices. And it is better to ask the owner of a rich palace if he can do with plywood to fill his picture windows but without plywood to fix his tool shade. If he omits the latter, it releases the plywood for the guy with the double-wide trailer.

Some economists have reacted like lawyers instead of economists. Harvard’s Oliver Hart, for example, writes:

The terms “unconsciously exorbitant price” and “extraordinary market push” are not well defined and therefore would be a nightmare to apply.

All true, but even if applied No. A nightmare, will cause a deficit.

Similarly, Stanford’s Ken Jude responded:

What is the definition of “insensitive”? Laws must be clearer and more precise than vague phrases that express moral feelings.

Good point, but what if the laws are completely clear: for example, you can’t raise prices by more than 50% of their average price in the previous 3 months? Why be happy with such a law?

UC Berkeley’s Carl Shapiro writes:

The first step is to define a “unnecessarily high price”. Once this is done, economists can evaluate the implications of this bill.

Sure. But why would his assessment depend on the definition? Deficits will occur if price control is made mandatory.

So good for them for their short answers but not so good in many explanations.

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