Controvercy Of Government Price
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Controversy of Government
Price Control
Michael Traino
Economics
The thought of gas prices rising to four dollars per gallon by summer 2008 seems to intimidate a lot of people in the Baltimore-Washington metropolitan area. A lot of people are wondering how they are going to afford the rise in gas prices with no increase in salary. This issue brings out a controversial battle that people have been debating for a long time. The question that is being asked is “should government step in and put an end to corporate freedom and implement price control? While the idea of government controlled pricing tends to be attractive and relieving for some consumers it has potential to hinder others. Furthermore, it’s important to examine this argument even more in depth and look at how it will positively and negatively impacts the economy and business as a whole. The question that is up for debate is will this controversial idea really benefit the economy.
Many individuals when considering price control would feel that it is a very helpful idea especially those that have more of a financial struggle. The United States government has implemented price controls during various situations in the past to help its citizens sustain their living conditions. Some examples of this were during World War I and II to help with gas prices, bread, and living expenses to protect the lower class (Rockoff). Another method of price controlling the United States government has implemented is prohibition against usury, which is simply preventing companies from charging people high interest loans in times of desperation. This was another limitation that the government put on business to try and help citizens and the economy (Rockoff).
It has been suggested that price controls can have a psychological benefit for people as well. Price controls can be used as a “quick fix” for the prevention of inflation. This method can be used to ease the minds of citizens during a time that inflation might be a threat. This usually occurs during war time and helps to comfort individual’s fears and anxiety (Rockoff).
Lastly, price controls can be seen as a way to prevent big business from taking over and controlling people with its goods which are necessary for survival. Especially in this circumstance people may feel that it is the government’s responsibility to protect its citizens and prevent businesses from going overboard. For example, if Microsoft wanted to raise prices even more it could be extremely detrimental to lower class citizens who are barely getting by as it is.
It was stated that price controls are best for brief periods of time during emergencies (Rockoff). During a period where inflation is possible it was thought that price controls may help to prevent it from occurring. Ultimately, helping to maintain the economy and saving the lower class. These previous rationalizations are explanations for why price controls might occur, and how it is beneficial for an economy and its citizens.
The other side to price controlling portrays a more negative position and proposes that it is detrimental to society and its citizens. There are multiple reasons why people oppose the government from price controlling form how it affects consumers to how it affects businesses and products. It is important that government does not get involved in price controlling and lets businesses do the work due to possible worse outcomes. Quate Milton Friedman stated “Economists may not know much, but they do know how to produce a surplus or shortage” (Rockoff). Based on previous experience price controls have been known to cause shortages of goods. For instance, when the government sets price caps for specific goods such as gas, or bread they are more affordable and demand begins to outweigh supply and this causes shortages. This allows consumers to purchase goods at lower prices causing shortages which will ultimately lead to individuals going without (Rockoff).
Consequently, black markets begin to arise as a result of the shortages, which is another negative aspect of price controlling. For example, if an individual gets tires on sale he/she might buy more than necessary because of the cheap price. When the tires run out individuals begin to sell the tires on the black market for more than the price before the price cap. This in turn defeats the purpose of the price control initiative and prevents consumers who really need the items from getting them (Rockoff).
The next unsupportive argument against price controlling is that it leads to the deterioration of quality in goods. The way this works is that businesses do not receive the compensation that they want so they cut corners on production to cut costs. Therefore, by creating cheaper lower quality items they can increase profit to avoid the price control. For example, During World War II landlords reduced their maintenance for rent controlled apartments. The idea was that when a price cap was placed on the rent, then the landlord may discontinue or reduce maintenance amenities that were provided in order to make up the difference in money resulting in lower quality services (Rockoff).
Furthermore, when government implements price control on products consumers no longer decided