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Hawaii’s Price Caps

A bad idea rises from the dead

Price caps on gasoline? No, this isn’t Sweden or China. It’s Hawaii, where island fever has apparently taken control of the state’s lawmakers, who’ve lost the capacity to distinguish between intelligent and dumb economic concepts.



The good news is that the price caps won’t take effect until 2004. The lag, presumably, will allow rationality to return. Till then, the state’s headed down a path that’s been proven economically disastrous throughout history. Remember that magnum opus of economics success known as the Soviet Union?



It’s especially frustrating to hear of Hawaii’s price caps since it seemed that mainstream economic thinking had long ago consigned command-and-control concepts to the grave. Reportedly, the last bout of price caps in the United States came more than 20 years ago. But it seems the idea was only dormant, and not dead. Let’s hope the Hawaiian experiment with centralized economics dies. Otherwise, politicians around the country may be tempted to give this ill-advised idea a whirl.



Price caps, of course, are favored by pie-in-the-sky dreamers, socialists, Marxist cranks and a fair number of Democrats who think that the world’s problems can be swept away with new laws. In theory, placing a ceiling on what sellers can charge for goods and services will keep inflation, i.e., rising prices, at bay. Energy prices too high? No problem, just pass a price cap and—zap—everything’s fine.



If that worked, there’d be no end to the solutions to the world’s economic challenges. Why not cure world hunger with price caps? If someone can’t afford to buy food on his or her meager salary, lower the price. Let’s make a week’s worth of food for a family of four cost, oh, let’s say, a buck. Now wouldn’t that insure that no one goes hungry?



Back in the real world, where the forces of supply and demand have the final say on prices, imposing price caps on the marketplace only makes things worse in the long run. You don’t need a Ph.D. in economics to see the logic of this, although taking a few courses in basic economics could inject some common sense into the skulls of Hawaiian legislators.



As for price caps, it should come as no great surprise to learn that they don’t inspire suppliers to produce and sell more products. No one’s going to rush into a price-capped market, especially in a global economy. If the law says widgets must be sold at no more than 50 cents here, but you can sell them over there for 60 cents, guess where you’re going to set up a sales office? In the higher-priced market, of course, creating shortages in the price-capped market in the process. The bottom line: the price cap will, eventually, achieve the exact opposite effect by raising prices.



Ah, but failed economics and successful politics easily go hand in hand. Telling your constituents that you’re fighting the evil capitalists by enacting price caps plays well on the local TV news.



That’s too bad, since price caps take a heavy toll on society’s poorest in the long run. The rich, meanwhile, are relatively unaffected because, well, they’re rich. It’s a safe bet that pro price-cap lawmakers won’t be making speeches on that point.

--James Picerno