One of the more foolish ideas in an era that is full of them is that price controls will somehow help “cure” inflation. In fact, what they do is create or increase shortages. To put it very simply, introducing price controls discourages producers from producing and retailers from selling, and is an invitation to black marketeers to set up shop.
That they appear, one way or another, to be creeping onto the policy agenda is firstly an admission on the part of policy-makers that they have lost confidence in their ability to deal with inflation and secondly a revelation (not that one is needed) that they are looking for someone to blame. In many cases, of course, price controls come with the argument or implication that someone is making an “unfair” profit.
Over at the Wall Street Journal, Andy Kessler sounds the alarm:
It feels as if price controls are coming. Don’t trust my Spidey senses? Joe Biden’s own words from March 16: “Oil and gas companies shouldn’t pad their profits at the expense of hardworking Americans.”
And this is the same president who is, he claims, encouraging U.S. oil and gas companies to ramp up production. They may not be that willing to do so at a time when they are coming under political attack, especially if that attack is supplemented by increased taxes. Increase their taxes and there will be less cash to invest in future production and, as the post-tax return falls, even less incentive to do so.
As Kessler notes, it’s not only oil companies that are in the sights of the Left, but for Biden to say what he is saying at the current moment seems . . . unwise.
And, of course, the president is not alone.
Kessler names some familiar suspects:
Sen. Elizabeth Warren, a leader among our economic illiterate, noted in February that high prices are caused in part by “giant corporations who say, ‘Wow, a lot of talk about high prices and inflation. This is a chance to get in there and not only pass along costs, but to inflate prices beyond that and just engage in a little straightforward price gouging.’ ” She has co-sponsored, along with other economically challenged lawmakers such as Sen. Bernie Sanders and Rep. Ro Khanna, a bill “to impose a windfall profits excise tax on crude oil.” In case that doesn’t pass, Mr. Sanders last week introduced the brusquely named Ending Corporate Greed Act with a 95% windfall-profits tax on “pandemic profiteers.”
Windfall taxes are not, technically, the same as price controls, but they will, as Kessler notes, have the same effects.
Kessler:
Prices set by producers are signals, and consumers whisper feedback billions of times a day by buying or not buying products. Mess with prices and the economy has no guide. The Soviets instituted price controls on everything from subsidized “red bread” to meat, often resulting in empty shelves. President Franklin D. Roosevelt’s National Recovery Agency fixed prices, prolonging the Depression, all in the name of “fair competition.” Watch for the resurrection of that phrase to rationalize price controls.
In 1971 President Richard Nixon announced, “I am today ordering a freeze on all prices and wages throughout the United States.” We got new government entities: a Pay Board and a Price Commission. Americans paid for this mistake for another decade. Farmers drowned chickens rather than send them to market. Store shelves emptied. Price controls contributed to long lines at gasoline stations in 1973 during the Arab oil embargo. It’s pretty simple: When you freeze prices too low, producers stop producing.
Price controls don’t work. Never have, never will . . .
There, I’m not so sure. They don’t deliver the results their promoters have promised, but they may “work” in the sense that they help get some politicians reelected, and they will “work” as a way of funneling power to those who decide what is the “right” price.
That, of course, will be cold comfort to consumers faced with empty shelves and long lines at the gas pump.