Inflation increases debate over price control

In one Recent surveys Of 41 economists conducted by the University of Chicago’s Booth School of Business, 61% said that price controls similar to those imposed in the 1970s would not “successfully reduce inflation.” US growth over the next 12 months”. Others said the policy could reduce inflation in the short term but would lead to shortages or other problems.

“Price controls can of course control prices – but that’s a terrible idea!” David Autor, an economist at the Massachusetts Institute of Technology, wrote in response to the survey.

Has price control worked in the past?

In August 1971, with consumer prices rising at their fastest pace since the Korean War, Nixon announced that he was imposing a 90-day freeze on most wages, prices and money. rent. After the freeze ends, companies are allowed to raise prices, but subject to limits set by a board Donald H. Rumsfeld, who later served as defense secretary to Presidents Gerald R. Ford and George W. Bush.

The initial controls look like a success. Inflation fell from a peak of more than 6% in 1970 to less than 3% in mid-1972. But almost as soon as the government began easing restrictions, prices rose again, prompting Mr. Nixon to impose put in place another freeze, followed by another round of even stricter controls. This time, the controls failed to contain inflation, in part due to the first Arab oil embargo. Price controls expired in 1974, shortly before Mr. Nixon resigned.

Not all attempts to contain prices have so conspicuously failed. During World War II, the Roosevelt administration imposed strict price controls to prevent wartime food shortages that made food and other basic supplies unaffordable. Okay. Those rules were generally seen as necessary at the time, and economists tended to view them as more favorable. In fact, there have been numerous instances of wartime price controls throughout history, often coupled with limits on wage growth and allocations.

Why do some economists want to reopen the debate?

Today, few economists defend Nixon’s price controls. But some argue that it is unfair to see their failure as the definitive rejection of all price limits. The 1970s were a time of considerable economic uncertainty, including the Arab oil embargo and the end of the gold standard – hardly the setting for a controlled experiment. And the Nixon-era price cap was broad, while modern proponents suggest a more accommodative approach.

Many progressive economists have in recent years revisited once scorned ideas like the minimum wage in response to evidence that real-world markets often don’t work the way that models do. simple economic model predicts. Some economists argue that price controls need to be similarly re-evaluated.