Beware of Price Controls
Brown and 231 other House members recently voted to cap the cost of insulin at $35 a month. No one should have to choose between the rent and groceries, either, nor should they choose between their other medications and their utility bills. Nor should they have to choose between putting gas in their cars and paying for their Netflix subscription. Why should anyone have to make budgetary choices?
If capping insulin costs at 35 bucks a month — and why not lower? — is the right course, then “we” can just decide through the legislative process the right price for everything from frozen vegetables to all-wheel-drive SUVs. These proposals ignore the importance of price signals, which allocate items based on people’s willingness to pay for them. We can allocate goods and services by price — or by rationing. Pick your preference.
With gas prices hitting painful levels, some policy makers are once again calling for government-imposed caps on gasoline. “When the federal government restricted gasoline price increases in the 1970s, long lines formed at gas stations and only those motorists who waited long hours in line received the scarce gasoline,” according to the libertarian Cato Institute. We’re reliving Jimmy Carter-era inflation, but must we also relive Nixon-era price controls?
Advocates for such controls like to start with relatively small intrusions that rarely garner much attention. For instance, a bipartisan group of U.S. senators is pushing to expand the 2010 Durbin amendment, which capped the interchange fees for retail transactions that use debit cards. With soaring retail costs, Durbin is spearheading an effort to expand those caps to credit cards.
Credit-card companies currently are mulling a fee hike, so Durbin complains that this is “the last thing American families deserve right now” as they face inflation. As the Wall Street Journal noted, these fees aren’t paid directly by consumers but by retailers, who are — big surprise here — lobbying the government to provide them with more favorable terms.
“The cost to merchants of taking payment on debit cards declined by more than $7 billion annually as a result of the Durbin Amendment to the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010, while the effective cost to issuers of providing debit card services to consumers increased by a corresponding amount,” according to the University of Chicago Law School.
“We find that consumers lost more on the bank side than they gained on the merchant side. Our estimate is that, based on the expectations of investors, the present discounted value of the losses for consumers as a result of the implementation of the Durbin Amendment is between $22 and $25 billion,” the researchers added. As always, price controls simply distort the marketplace and create a bevy of unintended consequences.
Expanding the Durbin Amendment flies below the radar, but its advocates’ rationales should be disputed given how similar they are to other government interventions. They claim that, for instance, the credit-card companies are monopolies because of their market power. But, as a coalition of technology groups argued in a letter to Congress, “there are currently many options for retailers to choose for the routing of debit-card payments.”
My goal here isn’t to go deeply into the weeds about credit-card transaction fees, but to remind us of what happens when the public becomes accustomed to having bureaucrats and politicians meddle in private business decisions to “protect” consumers against big market players. As I’ve reported for The American Spectator, lawmakers in Arizona are trying to change the contract terms between app stores and their customers — based on similar concerns.
We expect this from Democrats, whose philosophy revolves around expanding government control of the economy. But when Republicans, such as Florida Gov. Ron DeSantis, vow to sic the state on Twitter’s board of directors because he doesn’t like how they’ve rebuffed Elon Musk’s purchase attempt, then what’s the principled opposition to, say, renewed calls for any other government meddling including price controls? And they are coming.
This is from Andy Kessler in the Wall Street Journal:
It feels as if price controls are coming. Don’t trust my Spidey senses? Joe Biden’s own words from March 16: “Oil and gas companies shouldn’t pad their profits at the expense of hardworking Americans.” And in last month’s State of the Union address he said, “As Wall Street firms take over more nursing homes, quality in those homes has gone down and costs have gone up. That ends on my watch.”
Republicans need to stand up to these dangerous ideas now — and before we’re waiting in gas lines or traveling to Tijuana to buy insulin.