The Importance of Economics in Making Consumers Better Off
When it comes to improving the well-being of consumers, economics provides us with proven strategies that focus on promoting competition and increasing supplies. During his time as president, Trump implemented some of these strategies. However, Vice President Harris did not show any inclination towards adopting similar approaches. In fact, many of the policies proposed by both Trump and Harris could potentially have adverse effects on consumers.
One common misconception is the belief that price controls can drive down consumer costs. In reality, price controls often lead to higher costs for consumers. By artificially setting prices below the market equilibrium, price controls create shortages, forcing consumers to spend valuable time waiting in line to purchase scarce goods. For example, during the oil and gasoline price controls in 1979, the government maintained the price of gasoline at 80 cents per gallon. Energy economists predicted that removing these controls would result in a price of around $1.00 per gallon. However, when factoring in the time cost incurred by consumers waiting in line, the actual cost of gasoline was estimated to be around $1.20 per gallon – 20 cents higher than the free market price.
“The good news is that economics gives us some tried and true ways of making consumers better off. They mainly have to do with allowing competition and allowing increased supplies. Trump did some of that while president. Harris as vice president showed no signs of moves in that direction. Yet many of the policies that both propose would do the opposite.”
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“One method that appears to drive down consumer costs but actually raises them is price controls. When the government keeps the price below what the free market price would be, it creates a shortage. That causes people to waste valuable time in line trying to get the goods that are in short supply. When the price controls on oil and gasoline in 1979 kept the price of gasoline at 80 cents a gallon, energy economists at the newly created Department of Energy estimated that ending the controls would cause the price to be about $1.00 per gallon. At the time, I estimated, using the average worker’s wage and the average time spent in line, that the time cost of getting gasoline was about 40 cents a gallon. The real cost to consumers, therefore, was about $1.20 per gallon, which was 20 cents above the free market price.”
The above quotes are from David R. Henderson’s article “How to Lower Costs for Consumers” published on Defining Ideas on October 4, 2024. For more insights, you can read the full article.
