Don’t fall for false promises of price control – Orange County Registry

With some pundits advocating price control to combat inflation, it suddenly feels like the 1970s again. This kind of overbearing intervention has never worked in markets, something President Richard Nixon discovered in 1973 when he lifted wage and price controls he had implemented two years ago. previous year.

However, for those unwilling to learn from history, such controls will always seem reasonable. They say that inflation leads to higher prices, so price fixing is a supposedly easy solution.

But treating inflation in this way is more like masking a symptom than curing a disease. It is not possible to control inflation by fixing a price than your body weight can be controlled by programming your bathroom scale to not display pounds above some maximum.

And just as hiding your weight won’t improve your diet, misinformation conveyed by price controls will worsen the economy. Most of the time, prices aren’t just set by an all-powerful seller; They are a measure of what consumers and sellers agree a product is worth. They tell entrepreneurs and businesses how to shift resources from activities that consumers want less of to activities that consumers value more.

But again, some are not aware of this fact. For example, political scientist Todd Tucker, recently wrote in the Washington Post that “there are common reasons not to want pure markets to exist, because the products needed can be overpriced. for poor and middle-class consumers”. To ensure that the wealthy don’t raise prices for essentials, now is the time to start implementing more democratic control over prices, he concludes.

Wrong. Unusually high prices mean there isn’t enough to go around and cap its price but ensure stock shortages. Units are quickly acquired, allocated due to corruption or random chance, or moved to more lucrative underground markets. Over time, fewer goods are produced because none of these methods inspire legitimate manufacturers to invest in them. Among the many negative consequences of deprivation is disproportionate harm to the poor.

This isn’t just armchair theory. The economic literature is full of examples showing how the attempt to cool down inflation with price controls caused economic disaster. From the ancient Roman Republic to present-day Venezuela, it has produced the same disastrous results.

And, as others are now advising, only limiting the prices of goods and services sold by businesses that are considered monopolies? Again, what sounds simple can’t really be done without harmful consequences for the average person.