The House of Representatives just passed resolution condemning the “horror of socialism” by a margin of 285 to 98. All votes were denied by Democrats, indicating that a majority of members on the left side of the aisle do not recognize the overwhelming failures of socialism. So, despite the House’s clear rejection of socialism, central government planning remains a growing threat to our future prosperity.
These threats include grandiose plans to nationalize our health care system to piecemeal policies that impose arbitrary price controls on key parts of the economy. Whether it’s health care or finance, price controls inevitably raise costs, reduce innovation, and hurt the very people the policies are supposed to help.
Take health care for example. The purpose of the Affordable Care Act (ACA) was to lower the cost of health insurance and improve access to quality health care. But because of the ACA’s excessive government mandates, patients now face rising costs, shrinking provider networks, fewer options, and a growing gap between what politicians promised and what families receive.
Health care is not the only place where government price controls hurt those the policies were intended to help. After the financial crisis of 2007-09, the “Durbin Amendment” to the Dodd-Frank Act limited interchange fees on debit card transactions. Like all price caps, the purpose of this amendment was clear: lower “slippage fees” so that consumers can take advantage of the lower prices. Reality told a different story.
In response to the law, banks eliminated free accounts, raised minimum balance requirements and added new service charges to consumers to make up for the lost revenue. Confirming what consumers already knew, a Government Accountability Office (GAO) 2022 Report found that 65 percent of interest-free checking accounts would have remained free if the Durbin Amendment had never been implemented.
These negative consequences should have served as a cautionary tale. However, Senator Durbin, in partnership in 2023 with Senator Roger Marshall (R-KS), attempted to dilate the price control policies in the credit card system. critics of policy warned that, as with debit cards, the proposal would have major negative consequences. These include undermining fraud prevention, eroding data security, and reducing the availability of popular credit card rewards programs. Fortunately, the bill did not pass.
However, bad public policy ideas tend to persist. Today, Senator Josh Hawley (R-MO) joined the effort. In a rare alliance with Sen. Bernie Sanders (I-VT), he introduced a bill to cap credit card interest rates to 10%. As with other price control systems, this bill will ultimately inflict net harm on the very people its proponents claim they want to help.
Credit card interest rates reflect the risks a lender must bear when lending money to a borrower. Forcing lenders to offer credit at 10% interest doesn’t magically change these risks. The bill simply forces lenders to ignore them. Bad outcomes occur when government policies force businesses to ignore risk.
Illinois already caps the annual interest rate on personal loans at 36%, and the results are alarming. Because of this cap, Credit availability in Illinois has declinedand many borrowers are forced into even more costly alternatives. A cap at 10% would be much more severe and put millions of working class Americans at risk of losing access to credit. In other words, like all price caps, the policy will ultimately hurt the people the bill ostensibly protects.
Government price controls—whether in health care, banking, or credit markets—impose large economic costs that politicians then use to justify even greater government intervention in the market. Ultimately, while politicians congratulate themselves for helping “working families,” consumers pay higher costs while facing growing shortages.
Consumers and patients don’t need more price controls or trillion dollar bailouts for failed policies. They need more competition, transparency and personal choices. Obamacare is collapsing because it imposed additional uneconomic mandates on the health care system. The Durbin Amendment failed because it dictated prices instead of letting consumers decide. The Hawley-Sanders credit card cap will collapse under the weight of the same financial fallacy.
If lawmakers want to help families, they should give up the illusion that a few hundred lawmakers in Washington can set the right prices for a $30 trillion economy. Accepting this illusion is the well-traveled path that inevitably leads to socialism. And as the recent vote in the US House of Representatives shows, our congressional leaders know the “horror” that lies at the end of that road.
