Thursday, September 14, 2017

A Lesson That Needs to Be Hammered Home: The More Government Gets Involved in a Sector the Higher Prices Climb

Here is a chart from the 2013 Martin Feldstein Lecture delivered by former Treasury Secretary Larry Summers. It shows the relative change in prices in various sectors between 1982 and 2012.

It is simply stunning. In the sectors where government is highly involved, prices in 2012 were a huge multiple of 1982 prices, such as college tuition and medical care. On the other hand, where there is little government involvement prices fell remarkably, such as for toys and televisions.

As Summers notes, according to the consumer price index the relative price of a TV and a day in a hospital has changed by a factor of 100 since the 1980s.

This should come as no surprise. In the free market, competition pushes prices lower. Where governments get involved and are willing to pick up the check, crony vulture opportunists circle around government power centers, not to cut prices, but to increase them and gain crony profits. It is no longer about competition but schmoozing the power center operators.


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