Since Obama’s impending nomination of Don Berwick for the head of the Centers for Medicare & Medicaid Services has once again brought the specter of single payer healthcare to the forefront, I thought we’d visit Henry Hazlitt on the price controls that inevitably come with a government takeover of any given industry. An excerpt from Hazlitt’s Economics in One Lesson:
…now we cannot hold the price of any commodity below its market level without in time bringing about two consequences.
The first is to increase the demand for that commodity. Because the commodity is cheaper, people are both tempted to buy, and can afford to buy, more of it.
The second consequence is to reduce the supply of that commodity. Because people buy more, the accumulated supply is more quickly taken from the shelves of merchants. But in addition to this, production of that commodity is discouraged. Profit margins are reduced or wiped out. The marginal producers are driven out of business. Even the most efficient producers may be called upon to turn out their product at a loss. This happened in World War II when slaughter houses were required by the Office of Price Administration to slaughter and process meat for less than the cost to them of cattle on the hoof and the labor of slaughter and processing.
If we did nothing else, therefore, the consequence of fixing a maximum price for a particular commodity would be to bring about a shortage of that commodity. …