Price controls rear their ugly heads
Inflation makes life harder for everyone. It also has a tendency to make some academics a little bit goofy.
Consider Prof. Isabella Weber’s op-ed in the Guardian where she says a fine and effective tool for combatting rising prices is…price controls.
And it’s as genuinely bad as it sounds:
Today, there is once more a choice between tolerating the ongoing explosion of profits that drives up prices or tailored controls on carefully selected prices. Price controls would buy time to deal with bottlenecks that will continue as long as the pandemic prevails. Strategic price controls could also contribute to the monetary stability needed to mobilize public investments towards economic resilience, climate change mitigation and carbon-neutrality. The cost of waiting for inflation to go away is high. Senator Manchin’s withdrawal from the Build Back Better Act demonstrates the threat of a shrinking policy space at a time when large scale government action is in order. Austerity would be even worse: it risks manufacturing stagflation.
Artificial constraints on prices lead to artificial shortages, hoarding, and distortions in other markets. What could possibly go wrong if we tried it again?
Plenty. But not to be outdone, we get this gem, titled “Who’s Afraid of Price Controls?”
To be fair, it acknowledges the shortcomings of the Guardian piece. But it plows on with suggestions for targeted price controls that just might work…presumably, in a land where governments are also deeply involved in central planning. And there are even more ideas – a bevy of unorthodox approaches that could help tame inflation for all:
One could make a strong case for more stringent controls throughout the American health-care system. And price controls are themselves just one of many unorthodox approaches to inflation management. Reducing the monopoly power of price-gouging firms, channeling credit to sectors where demand outstrips supply, forcing (or strongly encouraging) workers to save a fraction of their paychecks, and direct public investment in expanded production are others.
All of these measures have the potential for negative side effects and unintended consequences. But the same can be said of raising interest rates. If policymakers reflexively presume the wisdom of conventional tools, and dismiss the potential of unorthodox ones, we will all pay the price.
These ideas all have unintended consequences. Which require additional government fixes…which will need their own fixes down the road, etc, etc.
Price controls aren’t the road to taming inflation. They are an expressway to greater government intervention.