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Price Controls Are the Worst Possible Solution to Inflation

A recent survey found that nearly 9 out 10 Americans worry about inflation. Their concern is justified. When inflation exceeds wage growth, money becomes less valuable. There are many opinions on how to deal with inflation. It reached its highest point since 1982, in November. However, some ideas are not worth the effort.

Published in The Guardian on Wednesday, economics professor Isabella Weber made the case that World War II–style price controls are “a powerful weapon to fight inflation.” Weber is an economist at University of Massachusetts Amherst. It houses one of few Marxist-oriented economics departments in America.

Weber claims that President Harry Truman removed wartime price control restrictions after World War II was over. This led to “inflation” and a boom-bust period. Economists advised Weber to keep some price limits. They argued that as long as supply and demand were not being met, prices should be controlled for essential goods. Weber concluded that the U.S. should continue to impose price control policies to ensure supply meets demand, even if the pandemic causes supply chain problems and inflation continues to rise.

This ignores the fact that there are actual Effects The price control system during World War II. Office of Price Administration (the agency that sets prices) was ill-prepared for the rapid changes in demand and supply. The Office of Price Administration tried to establish a single price for food, but failed to consider the many dietary preferences and religions that exist in different regions. In order to supply the market demand, black markets appeared.

Price controls can cause surpluses and shortages, regardless of the inflation effects. If the price of a good or service is too high, no one can afford it. This creates a surplus. People are encouraged to hoard and overbuy when the price is too high. Examples of price controls are not limited to Venezuela or other far-flung countries. In the U.S. all prices control lead to high health care costs, and scarcity in rental properties.

Weber has been criticised by some figures from the political right for her defense of a top down pricing mandate. But her position is so meritless that it was also critiqued by some on the political left, including Nobel Prize–winning economist Paul Krugman (yes, that Paul Krugman). A Twitter threadsince deletedKrugman calledWeber called Weber’s argument “truly silly.”

Former BloombergNoah Smith, finance professor and columnist wrote about the topic on Saturday. Smith argued that price control would not be the right response to inflation. Smith claims that price controls are only appropriate when prices rise due to widespread monopolies and not because of current spending or supply chain problems. Smith also mentions a 1974 study that showed price controls had been effective in fighting inflation in 1971. However, when they were removed in 1974 there was a surge in “catch up” inflation.

Inflation rates have risen due to the massive COVID-19 expenditure bills. I hope the worst effects of inflation will fade once the supply chain is stable and the manufacturers can keep up with the demand. However, artificial price caps would only make the situation worse.