Create a Black Market the Easy Way!

Richard Epstein, “A History of Public Utility Regulation in the Supreme Court”

@nzlabour’s cunning plan to reduce power prices

The dead will be many from @SenSanders @AOC’s virtue signalling on drug price controls (effects of 22% manufacturing price cut)

From https://www.ncbi.nlm.nih.gov/pmc/articles/PMC3804349/

Price Floors: The Minimum Wage

How will @nzlabour @NZGreens ration their 100,000 affordable homes?

The Labour Party (and Greens) both plan to build 100,000 affordable homes and sell them within a specific price range. In Auckland, where houses cost in excess of $800,000 on average, they hope to enter the market at the $550,000 point with still quite reasonable housing.

What I ask you is how will Labour and the Greens make sure the affordable houses both are proposing are not snapped up by well-to-do buyers rather than families currently locked out of the market? What will the rationing mechanism be?

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Source: KiwiBuild – New Zealand Labour Party.

How will Labour  and the Greens ration these desirable houses given that they are priced well below the competition? If two buyers both offer $550,000 for the house, which bid will be accepted?

If the next best available house in Auckland is worth more than that because it is not sold by the proposed Housing Affordability Authority, the first bid for these houses will be $550,000 which is the maximum the government under a Labour Party is willing to accept? What happens then? 

It is basic economics that if you price at less than the market clearing rate which in Auckland is somewhere near $800,000, people will queue to buy what you have unless you raise the price. The exercise of building 100,000 affordable houses makes no sense unless the purpose is to undercut what the market currently supplies.

As the houses are to be sold by a government agency, there can be no black market nor dilution of quality to even up supply with demand. How will a deadlock in price bids be resolved if the maximum bid for an affordable house starts at $550,000?

Labour acknowledges the possibility of flipping by restricting resale for 5 years. But what stops investors just waiting 5 years as there is any significant price gap between these affordable houses and the private market alternatives.

What stops more affluent buyers living in these houses because they so much cheaper than the competing options in Auckland? If you miss out in bidding on one affordable home, do you go back to the end of the queue for the next that is built or get some priority?

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Why Do Governments Enact Price Controls?

Percentage of fixed and floating mortgages in New Zealand

I did not know so many people were on a fixed rate mortgage.  Labour is risking its economic credibility on regulating the rates for a minority of mortgages.

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Source: S8 Banks: Mortgage lending ($m) – Reserve Bank of New Zealand.

Capped mortgages cannot be linked to the current official cash rate of the Reserve Bank of New Zealand because they are based on expected future interest rates over an up to 5 year span, not current interest rates.

An important motivation for going onto a floating rate is you can repay faster. Fixed rate mortgages have penalties for early repayment.

Source: Price Controls: Price Floors and Ceilings, Illustrated.

In consequence, price controls linking floating rate mortgages to the official cash rate of the Reserve Bank would benefit better off mortgagees expecting to repay quickly. A typical policy of the modern Labour Party.

@BernieSanders @HillaryClinton drug price controls will shorten lives

Drug Price Controls End Up Costing Patients Their Lives

Our research shows that when prices fall, innovation falls even more. Patients would see their lives cut short by delayed or absent drugs.

Source: Drug Price Controls End Up Costing Patients Their Health – NYTimes.com

…cutting prices by 40 to 50 percent in the United States will lead to between 30 and 60 percent fewer R and D projects being undertaken in the early stage of developing a new drug. Relatively modest price changes, such as 5 or 10 percent, are estimated to have relatively little impact on the incentives for product development – perhaps a negative 5 percent.

Source: The Effect of Price Controls on Pharmaceutical Research

Source: U.S. Pharmaceutical Policy In A Global Marketplace

Frank Knight on the expressive politics of price controls

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The fire of truth: price controls

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