Price controls: A decades-old medicine for inflation?
Inflation is setting the economy on fire, and strategic price controls could be the best way to save it, said Isabella Weber in The Guardian. Today’s economists are generally divided into two camps on inflation. One side is “Team Transitory,” which argues that inflation will “soon go away.” Another side is “Team Stagflation,” urging fiscal restraint and a more hawkish Federal Reserve to cool the economy. But there is a third option, in addition to just waiting or relying on the Fed, to control inflation: The government can cap the prices on critical goods until supply can meet demand. “The best analogy for today’s inflation is the aftermath of World War II,” when production bottlenecks restricted supplies just as consumers were ready to spend their pent-up savings. But there was also a crucial check on inflation: strict price controls instituted by the Office of Price Administration to allow for output to grow. We need a similarly drastic intervention to “buy time to deal with bottlenecks that will continue as long as the pandemic prevails.”
The current burst of inflation is not driven solely by a supply crunch, said Meg Jacobs in The New York Times. Two-thirds of publicly traded companies reported “substantially larger profit margins” in 2021 compared with 2019. The solution here is not just one of formal price controls, but using the president’s “bully pulpit to make clear to Americans that corporations are padding their profits while working families are struggling through the pandemic.” That’s what Harry Truman did in 1946. Truman, as well as Lyndon Johnson, John F. Kennedy, and Richard Nixon all saw that Americans rely on the president to keep corporations— and inflation—in check. It’s time for the current president to follow their example and use every tool available to stop corporate profiteering.
Supporters of price controls love to point to the World War II–era Office of Price Administration, said Joe Lancaster in Reason. In reality, that agency’s “one-size-fits-all plan on pricing food” was a disaster, sending many families scouring for sustenance on the black market. Rent-control measures today haven’t alleviated the housing crunch as much as deterred investment in new development. And after price controls implemented in 1971 ended in 1974, the end result was “a burst of ‘catch-up’ inflation.” Price controls would “land yet another fatal blow to small businesses” already facing tightening margins and higher labor costs, said Allison Schrager in City Journal. Until just about a week ago, “nearly all economists agreed that price controls don’t work and rank among the greatest policy failures of the 20th century.” We’re facing the kind of inflation challenge we haven’t seen in a long time, tempting policymakers to sift through old solutions—and repeat past mistakes.