Vice President Kamala Harris recently announced a new measure, calling for price controls on critical items or solutions — sparking nationwide discussion as the summer evolves. Harris is touting the plan as a move to reduce “unreasonably high prices” in industries such as pharmaceuticals, housing, and energy; it has been met with enthusiasm by many who see it as an ambitious effort to protect consumers but concerns from some that this marks an unsafe resurgence of policies that have historically led economies into financial crisis.
A Step Back in Time?
Understandably, critics of the plan are quick to slap back and remind us about everything that has made price controls such hard work throughout history. Over the 20th century, multiple endeavors to regulate prices have resulted in side effects such as shortages and reduced quality products, making black markets prone. Economists warn that the Harris proposal could yield similar results, especially in pharmaceutical sectors, with substantial sunk costs and a need for innovation.
Few price controls have ever worked in perpetuity, said Dr. Robert Lawson, an economist at Southern Methodist University. Comments like, “They create market distortions that will end up hurting the people they are attempting to help.”
The Plan’s Details
In calling for a crackdown on what she calls the “exorbitant amounts” charged in vital sectors of the economy that most directly touch Americans’ daily lives, Harris’s plan goes after lower-hanging fruit. Should this proposal pass, prescription drugs, rent in big cities, and utilities are on the list of items that would receive price ceilings based on government control. Harris says these steps are needed to ensure Americans can cover basic needs without breaking.
During a news conference, Harris said: “Our mission is to ensure that no American has to choose between feeding their family and paying for things like medication or housing.
Economic Fallout Predicted
Yet many experts warn that implementing these price controls could be more trouble than their worth. Of course, one of the big worries is what they will do to pharmaceutical innovation. Lower margins may mean companies are less likely to invest further in research and development, which could then hamper new drug discovery.
According to a poll, Kamala Harris leads Donald Trump by 4 points in 3 crucial swing states
Finally, in the housing market, rent control laws have been demonstrated to significantly reduce the supply of rental units (as landlords may be discouraged from upkeep and renovation and can even convert their rentals into other uses).
As a housing policy analyst, I believe this is just the market’s work to reach equilibrium with supply and demand, opined Emily Thomas of California YIMBY. “Whenever the government disrupts that balance, it generally leads to shortages and lower standards of goods or services.
International Comparisons
But Harris’s plan isn’t wholly unprecedented internationally. In recent years, countries like Venezuela and Zimbabwe have introduced massive price controls that ended in large-scale economic crises. In Venezuela, price controls turned essential goods into scarce items, caused hyperinflation, and imploded the domestic economy. Similar policies in the U.S. could produce equivalent results, though less extreme observers fear.
‘As far as global examples, please take a look:’ ~ Lawson While price controls can appear reasonable, they usually do not address the root causes and often cause more problems than they fix.
The Road Ahead
It is unclear whether the proposal will advance in Congress, as much of this plan would require substantial federal dollars. During the post-COVID-19 economic recovery, government intervention in the form of price controls raised an eyebrow or two.
Supporters believe it is essential to shield customers from a progressively unrealistic economy, but opponents warn that the plan may have unintended and potentially disastrous side effects.
Conclusion
Indeed, Kamala Harris’s price control plan has reintroduced the controversy over government intervention to regulate economic life. History suggests that price controls can backfire, and though the prism through which those controls are viewed may be one where consumers only benefit, in a broader economic context, things could prove far more complex. In the following months, there will be a lot of debates and discussions while senators determine whether these opposites could balance each other out.
