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Bipartisan Economic Illiteracy

Bipartisan Economic Illiteracy

Posted on April 28, 2025 by Dan Mitchell

The price system plays an essential role of making sure that entrepreneurs and business owners serve consumers.

In the jargon of economists, the price system is an efficient way of allocating scare resources.

Unfortunately, as Thomas Sowell has warned, politicians have an incentive to interfere with the price system regardless of all the experts who point out that price controls don’t work.

  • Professor Don Boudreaux explaining that price controls always fail.
  • Professor Antony Davies explaining that price controls always fail.
  • Professor Milton Friedamn explaining that price controls always fail.

I’m motivated to address this issue today because of two developments that illustrate the willful ignorance of politicians.

We’ll start with some excerpts from a report by David Chen in the New York Times about developments on the other side of the country, in the state of Washington.

Washington State lawmakers voted Sunday to limit annual residential rent increases to no more than 10 percent, positioning the state to become the third in the country to adopt statewide rent regulations. …The issue has long been a priority for Democrats… Most economists have historically been skeptical of rent control, saying it does more harm than good. …Until now, California and Oregon had been the only states to adopt statewide rent regulations, both passed in 2019. The cap is 7 percent plus the inflation rate in Oregon, and 5 percent plus inflation in California; both states set a maximum of 10 percent.

By the way, it’s not just “most economists” being hostile to rent control. The profession is virtually unanimous in its rejection of having vote-buying politicians wreck the market for rental housing.

Economists also are virtually unanimous in their rejection of protectionism, and that brings us to the second item that deals with prices.

It seems that President Trump has decided he should be like a Soviet Commissar and have the power to tell companies what they can charge.

Wow, this is Mitchell’s Law on steroids. One stupid policy (protectionism) leads to terrible results, and that creates an excuse for another stupid policy (price controls).

The moral of the story for today’s column is that I was correct in 2020 when I wrote that what matters is policy rather than partisan affiliation. Republicans are just as capable as Democrats of saddling the country with bad policy.

P.S. It’s not a big issue to most people, I realize, but it’s galling that Trump continues to assert that value-added taxes in other nations give them a trade advantage. I debunked this silly notion in my video on the VAT, and I’m guessing that this is another issue where economists are virtually unanimous. Heck, even Paul Krugman is right on this issue.

———
Image credit: photos-public-domain.com | Public Domain.


Donald Trump Government intervention price controls rent control
April 28, 2025
Dan Mitchell

Dan Mitchell

Dan Mitchell is co-founder of the Center for Freedom and Prosperity and Chairman of the Board. He is an expert in international tax competition and supply-side tax policy.

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