Hacker News Reader

Comment by baggy_trough | Hacker News Reader

Price controls result in supply shortages.

California electeds don't believe in market economics. So we get rent control, insurance control, utility control (amusingly in the higher-than-market price direction), etc.

California elected officials didn't give us rent control. California direct democracy got us Proposition 13, Proposition 218, and most municipal rent control statutes.

Every state regulates insurance and almost all of them regulate utilities. Regulating those industries is necessary.

Regulating some behaviors is important, but price controls break markets by disconnecting supply and demand.

Regulated insurance and utilities are not allowed to charge whatever they want. This has been the case for decades. We have decades of evidence that this part of regulation is not in and of itself bad.

I think you're deliberately avoiding what I am saying, which is "price controls" and pretending that I am saying "regulation". Those are completely different concepts.

The article itself is showing exactly what happens when you have price controls - supply dries up and the market falls apart.

I think you are deliberately missing the point. Part of the regulation of insurance companies and utilities is price controls. We have decades of experience with these price controls not causing a problem. The act of having a price control does not cause supply to dry up and the market to fall apart as you say. Of course a poorly implemented price control can cause that. Price controls in and of themselves do not cause supply problems.

You have an incorrect understanding of price controls.

We have decades of experience of insurance companies and utilities not being able to charge whatever they want without causing shortages. Now, in California there is an example where this price limitation is causing some companies to pull out of the market. Price controls can be used without causing a shortage and they can be used in a such a way to cause a shortage. Price controls in and of themselves do not cause anything. It’s how they are implemented that matters.

The consensus of economists is that you are wrong.

What economist is willing to say that there is a shortage of electricity where electric companies are regulated in the U.S. because there is a cap on how much they can charge? In almost every state there is not a shortage of companies willing to provide car or home insurance even though they are not allowed to charge whatever they want. Which economist is going to say that in those states the price control on insurance companies is causing a shortage?

Regulation could be good or bad depending on how it is crafted. That doesn't change the economic fact that price controls cause supply shortages.

There have been price controls on insurance and utilities for decades. There are decades of experience where it hasn’t caused a shortage.

How bad the shortages are would depend on how draconian the controls were relative to the market price. What we can observe today in California is that the price controls are causing a shortage.

So price controls, as in the concept, does not cause shortages. Bad implemented price controls contribute to shortages. It’s not the fact that there are price controls that are cussing the shortage it’s the implementation of them in the present case.

That is not correct. A price control that sets the price to the market price will do nothing. If it sets it beneath the market price, a supply shortage will result.

Then we agree that price controls can be implemented that don’t cause shortages.

A price control that sets a price where a sufficient number of people are willing to perform a service or make a good do not cause shortages. Such a control in such a circumstance prevents companies from having too much pricing power over essential services. Thus they do accomplish something in such a case.

If I set the maximum wage to one million dollars an hour, it would in some sense be a price control, but it would have no effect. I agree that ineffective price controls that are set above the market price do not cause shortages. Price controls that have an effect, which are those beneath the market price, cause shortages.

Electricity is an essential good in the present era. There is generally no competition on the provider. As such the the energy company has a large amount of pricing power. Price controls, when done properly in such a situation, give the energy company enough profit to make it a worthwhile endeavor to be a provider for enough people whilst also preventing what is popularly referred to as price gouging.

Price controls can be a good thing and when done properly allow for providers to make a sufficient amount of profit to be worthwhile for enough people whilst preventing gouging.

Preventing "gouging" is the effect of capping the amount the of profit. Regulating the price that utility companies can charge has not resulted in shortages. For the most part, regulating how much insurance companies can charge has not resulted in shortages. Price controls, in and of themself do not cause shortages.

This is not due to price controls. California does not have much price controls on insurance, and I doubt there are any on commercial apartment buildings. This is climate change.

> In July 2023, State Farm applied for an average 38.7% rate hike with the California Department of Insurance for commercial apartments, according to public filings. But the department ruled the hike was not supported by data, and instead approved a 23% hike at the beginning of March.

If you have to apply for a price hike, and it can be modified or refused, that's a form of price controls. And climate change isn't causing PG&E to be worthless idiots; they've always been that. The change is in the climate of the courts; they're now being held responsible.

Reading the article is a superpower.

Article is blocked for me.

https://archive.ph/fmGjC

Was there a more than 23% increase in risk due to climate change happening in a single year? 23% is an insane amount for insurance to grow on an annual basis!

Inflation was 10% that year. Maybe it was even more in construction / repair costs. Then add incorrect modeling of wildfire risks on top of that.

In state insurers are also responsible for bailing out the fair plan, which means they're effectively responsible for policies they didn't write unless they leave the state entirely.

You're wrong. California does have price controls on insurance.

Why your simple statement taught in microeconomics 101 is downvoted is beyond me. California government refused insurance prices that made business possible, so the businesses decide to not sell rather than lose money.

Reply on news.ycombinator.com