From Obamacare To Credit Cards Price Controls Don’t Work

The House of Representatives just passed a resolution condemning the “horrors of socialism” by a 285 to 98 margin. All the no votes were cast by Democrats indicating that a majority of the members from the left side of the aisle fail to recognize socialism’s overwhelming failures. Thus, despite the House’s clear rejection of socialism, government central planning remains a growing threat to our future prosperity.

These threats include grandiose schemes to nationalize our healthcare system to piecemeal policies that impose arbitrary price controls on key parts of the economy. Regardless of whether it’s healthcare or finance, price controls inevitably increase costs, decrease innovation, and harm the very people the policies are supposed to help.

Take healthcare as an example. The purpose of the Affordable Care Act (ACA) was to lower the cost of health insurance and improve access to quality healthcare. Yet, due to the ACA’s excessive government mandates, patients now face soaring costs, shrinking provider networks, less choice, and a growing gap between what politicians promised and what families receive.

Healthcare isn’t the only place where government price controls harm those the policies were intended to help. After the 2007-09 financial crisis, the “Durbin Amendment” to the Dodd-Frank Act capped interchange fees on debit card transactions. Like all price caps, the purpose of this amendment was straightforward: lower “swipe fees” so consumers could benefit from lower prices. Reality told a different story.

In response to the act, banks eliminated free accounts, raised minimum balance requirements, and added new service charges on consumers to offset the lost revenue. Confirming what consumers already knew, a 2022 Government Accountability Office (GAO) report found that 65 percent of noninterest checking accounts would have remained free if the Durbin amendment had never been implemented.

These adverse consequences should have served as a cautionary tale. Yet, Senator Durbin, partnering in 2023 with Sen. Roger Marshall (R-KS), tried to expand the price control policies to the credit card system. Critics of the policy warned that, just like with debit cards, the proposal would have large adverse consequences. These include undermining fraud prevention, eroding data security, and reducing the availability of the popular credit card rewards programs. Thankfully, the bill didn’t pass.

Yet bad public policy ideas tend to persist. Today, Senator Josh Hawley (R-MO) has joined the effort. In a rare alliance with Senator Bernie Sanders (I-VT), he introduced a bill to cap credit card interest rates at 10%. Just as with other price control schemes, this bill will ultimately impose net harms on the very people its proponents claim they want to help.

Credit-card interest rates reflect the risks that a lender must bear when loaning a borrower money. Forcing lenders to offer credit at a 10% interest rate does not magically change these risks. The bill simply forces lenders to ignore them. Bad outcomes ensue when government policies force business to ignore risk.

Illinois already imposes an annualized interest rate cap on personal loans at 36% and the results are troubling. Due to this cap, credit availability in Illinois has dropped, and many borrowers are forced into even costlier alternatives. A cap at 10% would be far more severe and will put millions of working-class Americans at risk to losing access to credit. In other words, like all price caps, the policy will ultimately harm the people that the bill ostensibly champions.

Government price controls — whether in healthcare, banking, or credit markets — impose large economic costs that politicians then use to justify even more government interference into the market. Ultimately, while politicians congratulate themselves for helping “working families,” consumers pay higher costs while facing growing shortages.

Consumers and patients do not need more price controls or trillion-dollar bailouts for failing policies. They need greater competition, transparency, and personal choice. Obamacare is collapsing because it imposed additional uneconomical mandates on the healthcare system. The Durbin amendment backfired because it dictates prices rather than letting consumers decide. The Hawley-Sanders credit-card cap will collapse under the weight of the same economic fallacy.

If lawmakers want to help families, they should abandon the illusion that a few hundred lawmakers in Washington can set the correct prices for a $30 trillion economy. Accepting this illusion is the well-traveled pathway that inevitably leads to socialism. And as the recent vote in the U.S. House of Representatives demonstrates, our Congressional leaders are aware of the “horrors” that lurk at the end of that road.