Earlier this month, a lobbying group called the Center for Responsible Lending (CRL) released a survey they said showed that most Americans support capping interest rates on short-term loans. Data collection and analysis isn’t exactly this activist group’s forte, so it’s not surprising that when CCF took a similar poll we found that CRL’s conclusions didn’t make a whole lot of sense.
Our survey found that public support for price limits on cell phones and cars was the same as that for short-term loans. However, that doesn’t mean that mandating artificially low prices is a good idea: Price caps inevitably lead to product shortages, fewer options for consumers, and risk-taking consumers turning to the black market or being forced into more expensive and less desirable alternatives.
Last week we surveyed 1,001 adults 18 years of age and older about proposed price caps on everyday goods like cell phones, automobiles, and interest rates on short-term loans. We found equal levels of public support for price limits on all of the above, with 57% of Americans supporting Congressional action to cap the cost of cell phones and other similar devices, 56% supporting capping interest on short-term loans at 36 percent APR, and 55% supporting a limit on the price of automobiles.
A whopping 39% of people support limiting the price of a cup of coffee and want to cap the cost of a new television!
Unfortunately, what this means is that Americans still lack a basic understanding of the dangers of artificial price capping. It also demonstrates that surveying people with limited knowledge of economics’ opinion should not dictate the financial regulations developed by lawmakers.
Furthermore, the question in CRL’s initial survey was designed to lead respondents to answer in a specific way. For example, one question began by telling participants how “some people say that we should crack down on high-cost lending practices in order to restore the health of our nation’s economy.” Well-designed surveys don’t “push” respondents in one direction, as that negates the results’ validity. Wording a survey question that way violates the key principles of a good poll according to the National Council on Public Polling.
So no big surprise here: People support proposals that seem to help them be able to buy stuff for less. But that’s not how price caps actually work.
The unintended consequences of arbitrary price caps include shortages, lower quality goods, and increased instances of people risking their livelihoods to sell desirable items illegally. As we’re telling the media today:
The American public wants Congress to cap the price of anything that would make things cheaper for them which makes their opinion on legislative price caps about as relevant as their opinion on who should win the lottery. Research from the Federal Reserve Bank of New York shows that capping short-term loans results in borrowers having more credit problems not less, more bounced checks, and more bankruptcies. When it comes to deciding whether it makes sense to cap short-term loans, it makes much more sense to listen to the experts than the same public who also want caps on a cup of coffee.