Government Intervention and High Prices

December 7, 2009 | by | Topic: The Path to FreedomPrint Print

What kind of prices do you prefer to pay when you go shopping—high or low? Unless you’re trying to show off for someone by spending a bundle, I’d bet that you prefer low prices. I’ve never met anybody who decided not to buy something because he wished the price were higher. Indeed, common sense leads to the inescapable conclusion that economic standards of living are higher when people can afford to buy more things than when they can afford to buy fewer.

Why am I stating such an obvious truism? Because, strange as it seems, our friendly federal government has a bad habit of adopting policies that raise prices. We have heard for decades, ad nauseam, that politicians compassionately care about the poor and want to help “the people” prosper. Their deeds, however, do not match their rhetoric. Repeatedly, American politicians have subverted the healthy functioning of free markets, whose competitive pressures and ever-improving productivity exert downward pressure on prices.

This tendency has a lengthy history. When the first federal regulatory agency, the Interstate Commerce Commission, was created in the 1880s, it regulated prices. That meant it blocked railroad companies from lowering fees to customers, resulting in higher transportation costs and higher retail prices for consumer products.

My Econ-101 students are amazed when they read about government-mandated price floors, subsidies, guaranteed purchases, etc., that raise the price of foods. They shake their heads in disbelief when they learn about government’s myriad tariffs and quotas that abrogate Americans’ right to buy needed goods from the lowest-cost providers, and force them to pay higher prices, resulting in them being able to afford fewer things. They are amazed to discover that the actual history of early antitrust cases (as detailed in Dominick Armentano’s “Antitrust and Monopoly”) shows that Standard Oil and other large corporations prosecuted under antitrust laws were neither monopolies nor guilty of the monopolistic abuse of gouging consumers with high prices, but, in fact, were the very companies that were charging consumers the lowest prices. In effect, then, antitrust laws punished the companies that were most beneficial for American consumers. They are frustrated that as oil prices soar, government imposes greater restrictions on the development of domestic petroleum resources.

At the same time that President Franklin Roosevelt had the Justice Department target private firms for alleged anticompetitive practices during the Great Depression, his own economic strategy was to organize businesses into government-managed cartels, which plotted to raise prices. FDR’s bizarre and ugly practice of ordering farmers to plow under thousands of acres of cotton, kill millions of piglets, and pour out massive quantities of milk made food more expensive at a time of severe poverty and hunger in America.

This is all very relevant today, because Barack Obama is using FDR as his role model. What is Obama’s attempted solution for the housing crisis? It is to do whatever he can to stop prices from falling—as if higher prices for the more expensive consumer good in America is vital to prosperity. Yes, those of us in my generation who mistakenly viewed our house as a savings account may reap the capital gain we had anticipated, but if we would let the market settle at lower prices for houses, that would be one of the rare times that we would be doing something economically beneficial for today’s younger Americans.

The perverse political preference for high prices is also manifested in Obama’s major legislative initiatives, healthcare insurance reform, and energy policy. The healthcare proposals are full of taxes, fines, and talk of higher premiums for many. Meanwhile, the Obama administration’s stated goal for energy is to tax fossil fuels through a cap-and-trade scheme—a policy that surely would jack up the price of energy.

Making energy more expensive for Americans in the depths of a severe economic contraction may suit radical environmentalists such as Paul Ehrlich, who once opined that “Giving society cheap … energy … would be the equivalent of giving an idiot child a machine gun.” However, for the average American, rising energy costs will translate into higher prices for running one’s car and heating one’s home, and powering one’s factory, and that will make most of us (especially the Americans with the lowest incomes and those who lose their jobs to countries with lower energy costs) feel poorer.

I know that President Obama believes that people like me are out of step with the times. Maybe wanting low prices for Americans is quaint and old-fashioned, but I still think low prices are better for Americans than high prices. What do you think?

Mark W. Hendrickson

Mark W. Hendrickson

Dr. Mark W. Hendrickson is an adjunct faculty member, economist, and fellow for economic and social policy with The Center for Vision & Values at Grove City College.

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