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A Dangerous Game: Government Pricing and Its Real-World Effects

The views expressed are those of the author and do not necessarily reflect the views of ASPA as an organization. 

By William Clements
January 29, 2019

The definition of dangerous is as follows: being able or likely to cause damage and injury. The term game in this work will take the following definition: a complete episode or period of play, ending in a definite result. The last definition needed is that of pricing, which means the amount required as payment for something sold. This piece will be far from comprehensive but should give public administrators an alternative view of government’s  involvement in pricing.

The great economist Dr. Thomas Sowell said it best: “It takes considerable knowledge to realize your own ignorance.” The before-mentioned quote should be exponentiated given far-reaching policy implications. These implications will impact vast amounts of citizens who have entrusted us with effective and honest governing. Now, more than ever, we need an honest examination of how effective the government has been regarding setting prices. Government’s involvement in creating price ceilings and price floors will be examined in this short work.

Lately, there have been rising calls for the government to ensure affordable housing, livable wages and access to top-of-the-line health care for all. How will the government accomplish such tasks and who will be involved in supervising the transitions necessary to make these goals become reality? Let us begin with the affordable housing issue. An article in the New York Post discussed the aim of newly elected politicians in New York. Their aim was to provide more tenant protections, such as rent control, to low-income people in low-income neighborhoods. This article addressed the housing issue in three Brooklyn neighborhoods: Williamsburg, Greenpoint and Bushwick. However it did not mention the danger involved in policies such as rent control.

While these “good” intentions are admirable, the markets are not as forgiving. One real-world impact is that banks may not be willing to give loans for repairing and improving units in rent-controlled places. A 2018 research paper from the National Bureau of Economic Research called attention to a major downside of rent control. It is probable that the individuals rent control is designed to help are only made more vulnerable by such policies. In 1994, for example, San Francisco implemented rent controls and the landlords in this area simply converted their apartment complexes into owner-occupied apartments and condos. The landlords did this to protect themselves from lawsuits and other financial penalties—essentially hurting the low-income people by pricing them out of their homes through crowding out effect. The policy was designed to help these individuals, yet resulted in displacing them.  

The conversion of minimum wage into a livable wage has garnered much attention from various groups throughout the country. According to a recent New York Times article, a newly implemented law in New York required employers who employ more than 10 people to pay a mandatory $15 an hour. Three days later, an editor of the New York Times challenged this wage in hopes of it rising to $33. In this case, the government has created a price floor which, like any other governmental mandate, is more likely to have a negative impact on those the law is designed to protect. For example, in the United States, if you have 50 or more full-time equivalent (FTE) employees, the ACA requires that you offer affordable coverage to at least 95 percent of your full-time employees, which are defined as those who work at least 30 hours a week. So, in order to view the full extent of employer costs, we must add the financial obligations required to afford health care for the employees and the increase from $11 to $15. This policy will impact the youth who would have benefited from working part-time and entrepreneurs who have just opened a business and find themselves financially strained due to the price floor set on wages.

Few things have divided our constituencies like the topic of health care. Once again, we are faced with a very unpopular but necessary issue to explore. We have heard numerous attempts to configure the prices of health care. In order to honestly set prices, we must first be able to identify the cost. Many may inquire, “But how do you quantify the cost of art, education, or music?” The answer is simple. The cost is the amount of time and scarce resources that went into the production. To put it simply, it is the years of training for the doctors, the years of training for medications to be created, and the intangible assets needed to perform the job properly. When setting price floors for health care, we are surely pulling on the lid to Pandora’s Box. 

Author: Mr. William Clements is a Professor of Criminal Justice and Psychology at higher education institutions. He possesses a Bachelor of Science Degree in Justice Studies, a Master of Science Degree in Forensic Psychology, and he is currently an A.B.D. in Public Policy and Administration and has submitted his full dissertation for approval. He has served in the field of public service for a total of 11 plus years and is a well-read enthusiast for topics of economics, politics, and most of all, public policy. Email: [email protected]

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