The summary is this:
Setting a Price Ceiling
Price ceilings are set usually because the product is deemed important or necessary and is becoming out of reach for the average person.
When governments dictate a product or service cannot be sold for more than X, they are setting an artificial value that likely does not line up with what the open market value would be.
Great example of this is rent controlled apartments in New York City
limiting landlords on the price they could charge tenants which started back in 1943.
As the city boomed, cost of living rose but residents who lived in a rent controlled apartment were "safe" from their rent inflating along with other goods and services in the city.
Well, this makes rent controlled apartments less profitable for the owners and also less likely to put money BACK into the property for maintenance, upkeep and improvements.
Which over time means rent controlled apartments become unevenly run-down and less safe compared to other non rent controlled options.
A decision that saves tenants some money on rent but creates a more dangerous environment.
Setting a Price Floor
The common example here is setting a minimum wage or a minimum price for labor.
On the surface, setting the minimum wage to a "livable" income level sounds great. But this too has some negative consequences.
Companies hire jobs based on two factors:
- The functional benefits that the worker will provide
- The financial impact (positive or negative) that the worker will have on their bottom line
An Engineer who creates architecture plans for a new bridge commissioned to be built for billions of dollars provides some level of financial worth.
The person sweeping the floor when it gets a little dusty has a different level of "financial" worthiness.
Both positions would be assessed on the value they provide versus the expense required to retain that work to determine if their position is worth keeping.
HOLD UP. Doesn't the person sweeping have the right to provide for their family just as much as the engineer?
Pretend you are running a for-profit company and it is your job to generate profit for yourself, your employees and your investors.
You are going to look at every expense and ask yourself, "is the value received worth the financial expense?"
If the government said, "you now have to pay EVERY employee at least $20 per hour", many sweepers would be out of a job because the benefit received by their employment would not be worth the incurred expense.
Just because a minimum wage is set, does not mean companies have to retain every employee and pay them that minimum wage.
The consequence of setting too high of a floor will equate to the loss of many jobs, decrease the median household income and lowering the quality of life for those families.
Look, it's not about someone's self worth, it is about logical outcomes.
Just because a decision seems altruistic or helpful on the surface, does not mean the outcome will be better in the long run.