Price Controls Lead to Shortages

Price controls are a mechanism that the state often employes to prevent market forces from setting prices on goods or services. Generally the state fixes prices below market value in order to incentivize the use of a good or resources. One of the recent alarms that has been raise as of late it a purported shortage of helium. The problem has become notable enough that some individuals are demanding a ban on helium-filled balloons:

Dr Peter Wothers, a fellow of the Royal Society of Chemistry and a University of Cambridge chemist, will use this year’s Royal Institution Christmas Lectures to argue that there will be “serious problems” in 30 to 50 years’ time if the lighter-than-air gas continues to be wasted in party balloons.

Helium is a non-renewable gas that is used to cool magnets in MRI scanners in hospitals. It is also mixed with oxygen to make breathing easier for ill patients and can help save new-born babies’ lives.

However, there is currently a global shortage of the gas, which cannot be synthesized. The gas has to be extracted from beneath the earth’s crust and 75 per cent of the world’s helium comes from the US.

If helium is in short supply then the price should be going up. As we know the more scarce a good becomes, with all other things remaining equal, the higher the price will go. So why hasn’t the price gone up? Because the United States government, the worlds largest supplier of helium, fixes the price:

The federal government, which sets helium prices, announced in April that helium prices would spike from $75.75 per thousand cubic feet (Mcf) in FY 2012 to $84 per Mcf in FY 2013. (Last year, prices rose only 75 cents.) This price spike, along with uncertain federal policy (and a peculiar industry setup to begin with), is threatening to create a shortage. Here’s what’s going on.

There is no need to ban helium-filled balloons in order to conserve the gas, simply remove the state’s meddling in helium prices. If helium is in short supply and in demand the price will increase and therefore the gas will be conserved. Let’s say the cost of a helium-filled balloon goes up to $10.00, would more or fewer people buy them? Fewer. Now let’s say the cost goes up to $50.00 per balloon, what will happen? Fewer helium-filled balloons will be purchased. People wanting to buy floating balloons will look for alternatives to helium which will free up the supply for other uses.

Conservation is a side effect of market prices, which is why I always roll my eyes when a so-called environmentalists demands the state enact prohibitions against the use of scarce resources.

One thought on “Price Controls Lead to Shortages”

  1. Fewer people would use helium if it became more expensive AND it would become profitable to find other sources of helium – eventually perhaps even from SPACE!

Comments are closed.