We’ve all heard, I hope, of the economic law of supply and demand. This law speaks of a relationship between the supply and the demand of resources, but this relationship can be misleading. There is a third and silent factor in this equation: “price”. Imagine, if you will, a see-saw. On one side is demand and the other is supply. Price is the center on which these two find balance… or at least should!
Consider mansions. It’s safe to say that we all want to live in a fine mansion, except that very few of us can afford to. The “demand” for mansions, therefore, is relatively low, because of price. But it’s obviously not fair that some people get to live in mansions while others don’t. Enter compassionate politician. As one such politician put it, “[mansion owners] have won life’s lottery”, and we know that’s not fair!
So the well-intentioned politician enacts price controls so that everyone can afford a mansion. Nice guy, he.
But then, without any changes in the supply of mansions, demand skyrockets. And guess what else. What was once an adequate supply of mansions is now a limited supply; a shortage in fact. Since all can now afford mansions, they are now “demanding” mansions. To further aggravate the situation, the supply begins to decline because there is no longer any incentive to build mansions because there’s no profit to be made.
Since bad law begets bad law, “No problem”says the compassionate politician. So a new law is legislated to deal with the mansion crisis. A lottery is instituted to determine who gets to live in the limited supply of remaining mansions. Now, everyone is equal because no one is living in a mansion because of “life’s” so called lottery, but rather, because of a government lottery. There, problem solved. Feel better now?