If government sets a price ceiling on a product that is below the equilibrium of supply and demand, it will create shortages. Demand will exceed supply and people will want to buy more than suppliers want to sell. It is 100% certain. It happens every time.
If the demand is inelastic enough, a black market will appear in which product is sold at prices above the ceiling. It is 100% certain. It happens every time. Since criminal suppliers cannot use the courts to enforce contracts, they will turn to organized crime and violence as substitute enforcers.
In other words, price ceilings below equilibrium pricing result in shortages, crime and violence.
Right now generic medicines that have been produced for years are increasingly in short supply. Why? Government price ceilings on these drugs are causing manufacturers to exit the industry.
Doctors have resorted to rationing, forcing patients to either go without or use inferior substitutes. Clinical trials are being interrupted, wreaking havoc on the approval of new and more effective drugs. Shady black markets have emerged to fill the gap – a worrying trend given the importance of purity and proper handling. The whole thing has a certain third-world feel to it.
The FDA’s own drug shortage page indicates that 2010 was a record year, and 2011 is on track to be even worse. According to the Drug Shortage Research Center, the number of critical drug shortages, mostly of clinical injectables, has nearly tripled since 2006. The FDA maintains an ever growing list of drugs – including anesthetics, antibiotics, nutritional supplements, and chemotherapy agents – that have all become scarce for reasons that basically boil down to “supply does not meet demand.”
Right this minute the federal government is beginning to apply the same price controls that results in these drug shortages to all of American medicine. Once Obamacare is in full force, the drug shortages will apply to doctors, surgeons, hospital rooms, medical equipment and, of course, medicine. The pain of the shortages will result in a black market, crime and violence. Guaranteed.Share