Price controls have traditionally been a policy that economists love to use as an example of unintended consequences, but new survey data suggests voters across the political spectrum increasingly support them. We dig into why both Republicans and Democrats are warming to the idea after years of frustration with higher prices. We also walk through what economic theory and history tell us about shortages, production incentives, and the longer-run effects of price ceilings. Finally, we wrestle with a harder question for economics teachers: if students understand the model but still support the policy, what exactly should we be trying to teach?
In this episode, we talk about:
Why support for price controls now crosses party lines
How years of higher grocery, housing, and energy prices may be creating “inflation fatigue”
Why price ceilings can create shortages and change producers’ behavior over time
Why understanding the economics of price controls doesn’t necessarily mean opposing them
What economics teachers can do when students understand the model but reach a different policy conclusion
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This Week’s Drinks 🍻
Jadrian typically joins with a beer, but this time he’s gone with a Cuba Libre Zero. He’s finally taking advantage of the bar cart he was inspired to assemble by friend-of-the-show Brian O’Rourke. Matt went with a Trash Talk IPA from Yards Brewing, served in some appropriately celebratory business-school glassware.
Name That Stat 📊
In what may be a first for the show, we somehow both managed to get our stats this week! Matt shared the stat that drove our episode: the share of Republicans who now say they support government price controls. Jadrian went with a back-to-school theme and shared the percentage of college students who say they have changed their major or concentration because of job market worries.
Show Notes
Price controls are one of those topics that can feel almost automatic in an introductory economics class. Draw supply and demand, put a binding price ceiling below equilibrium, show the shortage, and move on to price floors. New polling data might make this topic a lot more interesting. A CBS News/YouGov poll found a majority support for price controls among Republicans, independents, and Democrats. That caught our attention because the partisan differences are still there, but opposition to price controls is no longer something you can neatly map onto the usual limited-government versus government-intervention divide.
So what changed? Our best guess was fatigue. Consumers have spent years watching grocery bills, housing costs, gasoline, and plenty of everyday purchases get more expensive. Even when inflation slows, that doesn’t mean the price level goes back to where it was before. We talked about the disconnect that creates when economists can say inflation has come down, but consumers continue to see their grocery bill is still much higher than it used to be. After enough years of that, “the government should do something about prices” starts sounding pretty appealing.
From there, we went back to the basic economics of a price ceiling. If the government caps a price below the market equilibrium, consumers want to buy more while producers have less incentive to supply the product. In the short run, that creates a shortage. But the longer-run response may be even more important. Farmers plant less next year. Landlords invest less in maintaining apartments. Developers decide not to build. These aren’t just predictions. The U.S. has a history of wage and price controls in the 1970s and rent control in modern days.
That brought us to the part of the conversation we found most interesting: what if people understand all of that and still support the policy? Jadrian admits to seeing this in his class. Students can predict the shortage and explain how producers will respond, but then continue to support price controls on tuition or rent. It’s possible people aren’t thinking about the market-wide outcome, or they may be thinking probabilistically about themselves: “I can’t afford it now, so if the government lowers the price, maybe I’ll be one of the people who gets it.” A shortage is a cost, but it can feel like a chance at an affordable product that otherwise seems completely out of reach.
That creates an important challenge for economics teachers. Hearing an economic argument once isn’t necessarily enough to overturn years of prior beliefs or personal experience. Maybe our goal shouldn’t simply be getting students to repeat that “price controls are bad.” The more interesting teaching opportunity is helping them recognize the tradeoffs, think about who actually gets the lower-priced good, and compare price controls with policies that attack the supply side of the problem.
We’d love to hear how you think about this one, especially if you teach economics: if students understand why a price control creates shortages but still support the policy, what should we want them to take away from the lesson? Leave a comment and keep the conversation going.
Pop Culture Corner 🍿
Jadrian’s entry comes with a Not Safe for the Classroom warning. Chris Rock has a stand-up bit that offers his own version of gun control: instead of focusing on guns, make bullets wildly expensive. If ammunition costs enough, people are going to think a lot harder about using it. It may not be the example you want to lead with in your 8 a.m. principles class, but it’s certainly a memorable way to think about how prices change behavior.
Matt brought two clips this week. The first comes from the final episode of Friends, when the group is saying goodbye to Monica and Chandler’s apartment. Chandler reflects on what a beautiful place it was and all the great memories they made there before adding the economist-friendly punchline: because of rent control, the place was a “frigging steal.”
Matt’s second pick shifts from price controls specifically to the broader affordability problem. In the opening number from his favorite movie musical, everyone is dealing with the frustrations of trying to make it in Southern California. But, hey, at least there’s another day of sun. Of course, there’s an economics angle to that sunshine: lots of people want to live in Southern California, and all that demand shows up in housing prices.
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