Price Controls: Good Intentions, Bad Outcomes

Most lawmakers who flirt with price controls are not trying to hurt anyone. They are reacting to real pain: families squeezed by high drug costs, high interest rates, and an affordability crunch that feels personal. But economics has a tough love rule: good intentions do not guarantee good results. 

Milton Friedman warned that policies should be judged by outcomes, not motives. And Frédéric Bastiat taught the same lesson a century earlier: don’t just focus on what is “seen,” like a lower sticker price, but also what is “unseen,” like shortages, lower quality, and higher costs shifted somewhere else.

Prices are Signals, Not Villains

A price is not just a number. It is information. It tells producers what is scarce and worth making more of, and it tells consumers what is costly and should be used carefully. When the government caps a price below the market level, it does not erase scarcity. It hides it.

That is why basic economics keeps producing the same result: legally binding price ceilings create shortages. If you force sellers to charge less than their cost or risk, fewer sellers will sell. Some stop entirely. Others cut quality. Some find loopholes. Consumers end up paying in different ways: waiting, rationing, reduced options, or hidden fees.

This is the Bastiat point in plain English: the “seen” benefit is the lower posted price. The “unseen” cost is everything that quietly gets worse because the incentive to supply has been damaged.

Drug “Most Favored Nation” Pricing is a Price Control

Consider the “most favored nation” drug pricing pushed by President Trump. The pitch is simple: tie what is paid in the United States to the lowest prices paid in other countries. That may sound like an issue of “fairness” or bargaining power, but economically, it is a cap imposed through government payment rules. It imports foreign price control systems and then tries to force that result here.

The predictable “unseen” effects emerge: reduced supply at the controlled price, tighter access, and weaker incentives to invest in the next generation of treatments. Healthcare already suffers from distorted incentives, heavy third-party payment, and limited competition. A new price ceiling does not fix those root problems. It adds another layer of central planning.

Credit Card Interest Rate Caps are a Mistake

Now, take proposals to cap credit card interest rates at 10%. This is often framed as consumer protection. But an interest rate is also a price: the price of credit without collateral. The rate reflects risk, expected losses, operating costs, and the cost of funds.

If the government sets a cap below what risk requires, lenders cannot wish risk away. They adjust by doing what the math demands: tightening approvals, cutting credit limits, reducing rewards, adding fees, or exiting higher-risk customers altogether. The “seen” effect is a lower rate for some borrowers who still qualify. The “unseen” effect is less access for borrowers on the margin, often the people most in need of flexible credit.

Bill language by U.S. Senator Bernie Sanders makes clear it is a hard cap with penalties and enforcement mechanisms. It is not a nudge. It is a legal ceiling.

Why Price Controls Fail

Price controls are popular because they appear to be action. They can even create a short-term illusion of relief. But the underlying forces do not disappear. When you suppress one price, pressure builds elsewhere.

Think of it like squeezing a balloon: you can flatten one spot, but the air moves. In markets, that “air” is cost, risk, scarcity, and human behavior. You cannot legislate them away.

A Better Approach

If the goal is affordability, the free-market path is boring but effective:

• Increase competition and entry to give consumers real options.
• Remove barriers that restrict supply or protect incumbents.
• Improve transparency that helps shoppers compare and switch.
• Reduce policies that separate consumers from prices and choices.

That is how you get sustainable price declines without shortages: more supply, more innovation, more competition.

Price controls are tempting precisely because they are simple. But economics is clear: the simple fix often backfires. The compassionate thing is not to pass policies that feel good, but to pass policies that work.