Civitas Review

Inflated Demand + Restricted Supply = Higher Prices

By | Posted in Budget & Taxes |

In response to this editorial in the News & Observer, I sent the following letter:

Louisa Warren notes the “astronomically high” cost of child care in North Carolina, but is noticeably uncurious as to why said costs might be so high. (Vital Aid to N.C. Jobseekers, June 3, 2010)

North Carolina currently pours close to $1 billion (state and federal dollars combined) into artificially inflating demand for child care services. Included in that total is more than $400 million in child care subsidies along with hundreds of millions spent on Smart Start, Head Start and More at Four – programs that pack child care facilities with thousands of more children whose parents aren’t paying the bills. 

Also unmentioned is how the state artificially limits the supply of child care facilities through licensing procedures, mandated staff-to-child ratios and mountains of regulatory red tape serving as barriers to entry. 

Simple supply and demand tells us that when demand is artificially inflated while supply is limited, the end result is an inflated price. Somehow this most basic of economic lessons is lost on Ms. Warren. 

Anyone serious about increasing access to affordable child care should actually understand what makes child care so expensive in the first place.

One Comment on this post

  • Francis says:
    Jun 10 at 13:54

    Of course if what you want is to get even more taxpayers dollars the first step is to ignore economic realities – but you already knew that Brian

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