Liberal Economics 101. Disregard History
The Nigh Seen Creeder has news for you Democrats who are proposing price controls. He points to this Thomas Sowell article that references a lesson from Venezuela. But you don’t have to look at Venezuela to see that price controls are stupid, just rewind back to the presidency of Republican liberal Richard Nixon.
Over time I have come to understand the modern liberal mindset in regards to economics. Basically you just demagogue the classes, and propose populist ideas that have been proven to not work in the past. It kind of requires an indifference to history. For example, in spite of historical evidence from Kennedy to Reagan to Bush, liberals still say that tax cuts do not stimulate growth. They propose all types of government programs and tax hikes, in an effort to make us more like Western Europe, without any regard for how much of a failure those economies currently are. It is baffling, but it wins elections, which is all they really seem to care about.
UPDATE: Nathan McIntyre tells us about another Democrat proposal that requires one to totally disregard history.
Glen, you’ve been tagged …by me!
Thanks SB. Now I’m going to have to go to the store to find a book.
Now I’m going to have to go to the store to find a book.
I reckon for Glen, going to the library has too much taint of socialism…
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Library. What is that?
Price controls have worked in the US very well for some products at some times and you’ve probably benefitted from these controls without complaining about the low cost. Price controls were widely used in the colonial period on essential items such as bread; that’s what kept your ancestors from starving to death. Early republic legislatures followed suit, controlling the prices of goods at market, housing, and transportation — those who actually study history (rather than the fairytale versions of “the world before big gubbermint”) have been surprised at the ways in which price supports, price controls, and tarriffs have been used pretty consistently in the last three centuries as ways to shape the landscape of production, consumption and trade. They’ve been used in small localities (in the form of “fair price” rules at 19th century markets, for example), they’ve been used in big cities (rent controls in early 19th c urban areas), and they’ve been used at the federal level (things like regulation of railroad carrying rates, which kept prices on grain and meat stable throughout the late 19th century). The era of mass deregulation was considered such a disaster that the when the FTC was formed in 1914, it was widely celebrated as a victory for both producers and consumers. (Go read the papers. It really was.)
Price controls have been frequently used throughout American history as both temporary expedients (in times of economic downturn or war, when gouging was leading to social instability) and as long-term strategy for shaping growth in certain sectors or achieving foreign policy aims. For example, the price of sugar historically has been held to artificially low levels — this is a holdover from our colonial past. Americans have never, not since the 1680s, paid a free market/free labor price for sugar. How’s that for some history? We currently have policies in place that have hiked the price of cane sugar (something that we grow little of in the US) relative to the price of corn-based sweeteners to stimulate American agribusiness. (Thanks Chuck Grassley!) That’s one reason why Pepsi is cheap and organic foo-foo drinks are not. Ta Da. A price control that benefits the average American consumer and benefits US agribusiness. How much more pro-corporate and pro-growth could you get?
Likewise, the price of coffee and tea were held artificially low in the 18th century by the British as a way to stimulate their colonial holdings in East Asia, a practice we largely followed since the Monroe Administration made Latin America our diplomatic backyard until well in the 20th century. Coffee and sugar prices were held low during the Cold War to stimulate US consumption of Brazilian and Central American goods, which in turn helped prop up the anti-communist regimes that favored the expansion of American investment in Latin America.
Gasoline is a prime example where American consumers of a product have benefitted from a century of international price manipulation. Tell me how well you like an unregulated market in gasoline this summer when gas goes up to $4 a gallon.
If one takes the broad internationalist view, you can definitely make the argument that price controls are destructive. They almost never benefit the small producer and nearly always benefit the major conglomerate that sells the product and makes up on volume what they can not make up on per-unit price. On the other hand, you cannot claim that they are “historically” unsuccessful, as both American businesses and American consumers have benefitted from keeping the international playing field unlevel. Price manipulations are part of the way that Americans have done business and foreign policy for three hundred years and that’s not going to go away. I submit that a more productive conversation might be “how do we want to shape our trade policies and what effects do we want them to have?”
Bridgett, most of what you talked about there were corporate subsidies, farm subsidies and tariffs, which are also bad.
If we ceased to subsidize big oil, do you not think that there would be such a decrease in demand that eventually the price would settle down also? Come on now. Do you really think that government interference in markets has been historically successful. Tariffs? You got lots of facts there friend, but you need to analyze those facts.
Do you really think that government interference in markets has been historically successful.
Sometimes yes, sometimes no. It depends on the situation.
As a side note, it might help if you were to link to an actual Democratic proposal that calls for price controls, because I don’t see any such thing in your links. That might prevent people from accusing you of attacking a straw man.
Heh! Tgirsh the link was to Nigh Seen Creeder. Ask him. But if there are no proposal to affect the prices of healthcare, gasoline, etc by Democrats, then I commend them for being such good capitalists.
the link was to Nigh Seen Creeder. Ask him.
You linked to him, approvingly. Are you telling me you did so without knowing what, specifically, he was talking about?
But if there are no proposal to affect the prices of healthcare, gasoline, etc by Democrats, then I commend them for being such good capitalists.
As has been previously pointed out, Democrats and Republicans alike have been engaging in policies to keep gas prices artificially low for at least thirty years, and probably a lot longer than that.
As for the health care argument, if capitalism says that health care ought to be a privilege of wealth, then count me out on that aspect of capitalism. Anyway, to my knowledge, the Democratic proposals on health care don’t involve price controls, they involve subsidies, which you astutely pointed out just a few comments ago are not the same thing as price controls.
Finally, I agree that price controls should be removed from things like Medicare. As the law currently exists, there are corporate protectionism clauses that prohibit the government from negotiating for lower prices on the health care services it pays for, basically allowing health care providers to charge them (and by “them,” I mean “us,” the taxpayers) exorbitant rates.
Are these things “bad” simply because you don’t like them or are they “bad” in their results? Which, among the multiple thousands of results that occur, are “bad”? “Bad” for whom? “Bad” how? “Bad” by what measures? “Bad” when and for how long? “Bad” in the short run or “bad” in the long term?
“Bad,” you see, is not a unit of analysis for economists or historians. “All controls automatically bad” is more an article of faith than a description of reality and it’s impolite (and mostly counterproductive) to attack someone’s religion.
And incidentally, subsidies function in the market as a form of price control by insulating producers them from the real costs associated with producing goods and by guaranteeing profits independent of the amount charged. That tends to depress price, as producers can risk underselling competitors and still count on profits.
You haven’t noted that price controls have the tendency to promote greater efficiencies in production, as businesses seek to increase their profit margins on the production side. Is that “bad” too?
Bridgett, subsidizing something that isn’t profitable does not make sense. To those of us who believe in the power of the free market, if something isn’t profitable, it shouldn’t be done. It is not good for government to pick and choose who it is going to “help out” based on whatever companies spend the most time and money lobbying (example corn farmers, agri-corps). A product should only bring what the public is willing to pay for it. If it costs me $100 per unit to produce widgets and the government subsidizes my business, how likely am I to figure out a more efficient way to do it.
I spoke about big oil in a different comment. Imagine how fuel efficient our vehicles would be if our government didn’t artificially affect the price at the pump. People complain about the free market not working. The fact is it isn’t ever tried.
Anything that qualifies as modern liberal economics is only good in the short term. It was John Maynard Keynes that said “in the long run we’re all dead”. These policies are all about the short term with no regard for the long term. Also they are specific and discriminatory.
These types of populist ideas are always popular with the public too, by the way. Take Nixon’s wage and price controls. It sold well. But it was still bad economic policy and had horrible results. It created shortages and led to more inflation. The government should just never meddle with the market. There are always unintended consequences.
You guys always try to apply everything situationally. I completely disagree with that approach. I believe in following principles.
There is no economic principle that works the same transhistorically. Your original beef was that “we” (I am a piss-poor poster child for progressive economic thought) don’t think historically. Now, apparently, the problem is that we’re too historically minded and do things differently at different times when different strategies are warranted.