23 February 2010

Price controls are tape on the dashboard

Once in a while when Tom and Ray Magliozi, hosts of Car Talk, can't figure out why a warning light is lit on a caller's dashboard they will recommend the "black tape solution" — just put a piece of tape over the light and hope the problem goes away.

That's what Obama is proposing to do with health care spending: cover up the signaling mechanism and ignore the underlying reality.  Prices are just signals of how many resources as activity consumes.  Ignoring that signal doesn't make things cheaper.  Only arrogant numbskulls like Richard Nixon and Hugo Chavez think otherwise.

(See also:  Greg Mankiw, "How Not to Stop Health Care Inflation" and Peter Suderman, "Obama, Standing Athwart Health Insurance Rate Increases, Threatens to Yell "Stop!"".)

PS Congress did a similar thing with the new rules on credit card fee structure that went into effect yesterday. Providing unsecured, revolving credit to people you don't know is a risky and expensive proposition.  Limiting the types and forms of fees that can be charged to make up for that is like squeezing one end of a balloon and expecting the whole thing to shrink.  Then the reformers have the gall to get on TV full of outrage and faux-naivete and be shocked (shocked!) that banks are thinking up different ways to recoup their money.  I'm especially upset about all this because it's resulting in a direct transfer from me to customers who are too irresponsible, stupid and/or lazy to use their cards well.

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