As the Left continues to press for ever-more government control of the economy, in areas such as health care, college, prescription medicines, and even fundamental economic behavior in the private sector, it’s worth reviewing the government’s track record in controlling costs and prices via intervention.

Telephone service was, for decades, a government-protected monopoly. Service quality and prices didn’t get better until Ma Bell broke up and (some) market forces came into play.

Price controls in the 1970s led to massive gas shortages, long lines at the pumps, and odd-even rationing days.

Price controls for wheat and dairy have created massive surpluses, inducing further government interventions.

Government mandates coupled with tariffs/trade restrictions have skewed the sugar market, inducing producers to use high-fructose corn syrup instead of cane sugar in many consumer goods, and driving cane sugar goods into “premium” price ranges.

Air travel was prohibitively expensive until it got deregulated. Prices for trucking were run by cartel, stifling competition, until the Motor Carrier Act reintroduced some market forces. Ditto for rail cargo transportation.

The monopoly that is public education has produced no improvements in the past half century, even as per-student cost has tripled in adjusted dollars.

A slight opening of the door to competition in the massively regulated electricity market has reduced prices for consumers and small businesses alike.

College costs have been outgrowing inflation for decades, driven by government largess and loan guarantees. Commensurately, the lifetime net-benefit of a college education has been decreasing, to the point where, for many, it’s no longer fiscally rational to attend.

The housing bubble of a decade ago was driven by twin government interventions: The Community Reinvestment Act, which drove lenders to make loans they’d not have otherwise made, and GSE’s like Fannie Mae hoovering up all that bad debt.

Health insurance, massively regulated before ObamaCare, is so convoluted and opaque that a consumer has no hope of understanding how costs and spending are managed, let alone have any ability to shop around. Cross-subsidies, mandates, regulations, massive reporting requirements, and endless protocol updates are the essence of the system now. Premiums continue to skyrocket, deductibles continue to increase, and the promises of cheaper and better are a distant joke.

Bailouts of big companies, ostensibly meant to protect workers from layoffs, turn out to be giant wastes of money, as those companies usually do later on what they were paid not to do.

Rent regulations, meant to keep housing affordable, dissuade new housing and upgrades of existing housing. They also reduce turnover, exacerbating inefficient use of space as people stay put in apartments that they no longer need rather than move on to “market rate” housing.

And then, there’s the minimum wage. Championed by do-gooders, backed by unions and protectionists, it doesn’t work as advertised. The least-skilled get crowded out of jobs by the more-skilled, who are more apt to take a job at an above-market minimum wage than the lower market rate. Businesses are incentivized to find alternatives to human labor, because the cost of that labor is artificially increased. Capital is misallocated from productive purposes to jobs that would otherwise be done for less money, depriving the economy of productivity gains.

History teems with other examples.

Why does government fail when it tries to do good in this way?

  • Information failure: Making informed decisions requires knowing as much as possible about that being decided. In a dynamic economy, what “is” is in constant flux, and millions of individual actors in a market economy have far better and more immediate access to accurate and current information than the government does or ever can.

  • Conflicting goals: Bureaucracies inevitably evolve to protect and perpetuate themselves, and often lose sight of their assigned goals. Mission creep happens. Human nature, the driver of a free market economy, becomes an obstacle in government: Whereas self-interest in a voluntary market drives innovation and efficiency, central command requires selfless stewardship. Humans aren’t wired that way, and it’s inevitable that personal ambitions and/or subversion from within will corrupt the bureaucracy.

  • Moral Hazard: Market forces punish bad choices and discipline the irresponsible. Government intervention often focuses on mitigating bad outcomes. While some bad outcomes are the result of mere circumstance, it’s difficult-to-impossible to separate and solely address those instances. Thus, government serves to backstop risk, and in doing so encourages greater risk, because the punishment for failure is mitigated or eliminated. This harms efficiency and productivity, and misallocates resources.

  • Regulatory Capture: When a tool is available and has utility, people will try to use it in whatever way benefits them, even if that use isn’t “as intended.” If greater success by rent-seeking than by free-market-ing, you’d better believe some will try to go that route. It would take the wisdom of Solomon and the iron will of a Shaolin monk to wholly resist this. Government regulators and bureaucrats are as human as the rest of us, meaning they’re subject to the same mistakes and the same enticements as the rest of us.

  • Monopolistic Distortions: Government is slower to act than free-market players, and it’s not capable of knowing which new ideas are good and which are bad. A free market’s “creative destruction” is a relentless pressure towards greater efficiency and growth. When government is involved, however, new ideas face higher hurdles, existing implementations are protected from innovative disruptions (case in point: traditional taxis vs Uber), and inefficient monopolies and oligopolies are protected.

  • Crowding Out: When government runs a show, it’s usually the only show in town. And, when competitors try to arise, they face structural and institutionalized disadvantages. Schools are a simple and obvious example, since people who want to send their kids to a private school must still pay the taxes that fund the public school, but the effect is felt across the entire economy.

  • Resource Misallocation: Government takes money according to whatever formula it decides on, and that formula rarely has anything to do with what’s best for the economy. It then spends that money in manners driven by politics, not by efficiency and productivity. And, it takes a vig from this reallocation to pay its bureaucrats and bean-counters, who create no wealth and no productivity, thereby wasting otherwise-productive capital.

None of these factors can be undone, and none are limited to America. They are universal and span across history. They are as certain as the dawn, as sure as water is wet, and as relentless as the tide. It’s why centrally planned economic systems will always underperform compared to their free-market counterparts, and it’s why improvements in living standards will alway suffer in comparison.

And, it’s why government cannot effectively set prices, whether it be for goods, services, or labor itself. Government-set prices won’t “balance” supply and demand, they won’t clear inventory or satisfy consumer wants, they won’t improve efficiency, they won’t foster innovation.

And, no, they won’t make things cheaper. Quite the opposite. Whereas they may offer the illusion of making something available at a lower price tag, the harm caused by the distortions they induce ripples through the economy and across time. Inefficiencies grow, distortions multiply, ever-more capital gets wasted, investment decreases, and before long, the pace of improvement in living standards declines and may even reverse. Such was the fate of Venezuela, which used to be among the wealthiest nations in the world.

The siren-song of socialized medicine has never been louder, at least in my lifetime, despite all this reality. People are stubbornly clinging to a utopian promise, one refuted by all of the above and by the actual implementation of socialized medicine systems in other countries (as opposed to what progressive leaders here have proposed). If people knew what they’d have to accept, and what they’d have to give up, as part of a Europe-style system, I’d bet that the demand for it here would crater. But, it’s proven that promising the moon and stars is a winning strategy, at least as far as getting handed the reins of power goes, and it’s clear that people prefer false but rosy promises to disappointing truths.

Peter Venetoklis

About Peter Venetoklis

I am twice-retired, a former rocket engineer and a former small business owner. At the very least, it makes for interesting party conversation. I'm also a life-long libertarian, I engage in an expanse of entertainments, and I squabble for sport.

Nowadays, I spend a good bit of my time arguing politics and editing this website.


Like this post?