WILFORD: Americans Continue To Have Worryingly Bad Ideas About Price Controls

Andrew Wilford Contributor
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It’s comforting to imagine that terrible ideas, having been proven to be terrible, will waste away in the dustbin of history. Unfortunately, many Americans’ eagerness to embrace price controls as a solution to inflation proves that this is not the case. 

Inflation has cooled markedly of late, but many Americans still view it as a direct threat to their finances. Just 24 percent of Americans feel that their income is keeping up with inflation, according to a recent poll. That same poll also found that more Americans labeled inflation as the most important problem facing the country than any other issue. 

Unfortunately, taxpayers facing frustratingly persistent and serious financial problems are often susceptible to demagogic promises of a silver bullet. A favorite hollow promise among progressives and admirers of socialism is that a solution to inflation is price controls.

After all, if prices are growing too much, why not simply tell businesses to stop increasing their prices so much? Indeed, that same poll found that 66 percent of Americans are inclined to agree that price controls are a helpful way to go about addressing inflation. 

The problem is that this buys into the inflation narratives of politicians like Bernie Sanders and Elizabeth Warren, who claim that inflation happens because greedy corporations increase prices above and beyond what goods are worth. If that were truly the main reason for inflation, then price controls would be a logical tool to solve it.

That explanation for inflation fails to stand up to scrutiny, however. If inflation happened because corporations are greedy, why would there ever not be runaway inflation? Businesses exist to make money.

But as much as the “corporate greed” narrative has dominated debates about inflation, more sober analyses have found this not to be a relevant cause. While advocates of this explanation have touted high corporate profits during the pandemic as backing up their case, a study by the Federal Reserve Board found that these higher corporate profits were driven by massive government transfers to support businesses and monetary policy that kept interest rates very low.

Early on, this was an intentional policy of throwing the kitchen sink at businesses — even acknowledging that some of it would prove excessive — because the uniqueness of the crisis presented by the pandemic meant that attempting to means-test and target aid would inevitably lead to some businesses falling through the cracks. A crisis that saw the government forcing businesses to shut their doors and send their employees home was no time to penny-pinch.

But as the pandemic continued and much of the economy settled back into near-normalcy, the justification for keeping the fire hose of government aid flowing became far weaker. Nevertheless, Democrats in Congress pushed through the $3 trillion American Rescue Plan Act  and tried to do the same thing again with the $3.5 trillion Build Back Better Act.

Which brings everything back to price controls. Since “corporate greed” had nothing to do with inflation, price controls would have done what they always do: push prices below the level that makes selling a product worthwhile for businesses, resulting in shortages

A recent University of Chicago poll of economists found that just 23 percent agreed with the statement that “price controls as deployed in the 1970s could successfully reduce US inflation over the next 12 months.” Those that did respond that they agreed universally added the caveat that the consequences — namely, shortages — would be far more harmful than inflation. 

It’s unfortunate that two-thirds of Americans remain willing to get behind this widely discredited and dangerous idea. Price controls target a mere symptom of inflation — never the cause.

Andrew Wilford is the Director of the Interstate Commerce Initiative at the National Taxpayers Union Foundation, a nonprofit dedicated to tax policy research and education at all levels of government.

The views and opinions expressed in this commentary are those of the author and do not reflect the official position of the Daily Caller.