Back to the Future: Progressives Imagine the Good Old Days of Price Controls

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Elizabeth Warren is leading the way. She recently introduced a bill that outlaws «price gouging,» which in her definition involves a seller increasing prices for reasons that Warren would consider to be unjustified. While at least Warren is not calling for criminal penalties, she would empower the Federal Trade Commission to investigate such price gouging and to levy fines of either $25,000 or 5 percent of revenues, whichever is higher. That there is no way, economically speaking, to coherently define something like price gouging is no deterrence to Warren, who for many years has tried to move to the left of Bernie Sanders on nearly all issues.

But Warren is not the only progressive to call for price controls. Harold Meyerson, the socialist who also is an editor for the American Prospect, is demanding price controls, declaring that levying them will help keep Democrats in power.

Contrary to what economic orthodoxy would have us believe, such controls have been markedly successful at various times in our nation’s history. According to Hugh Rockoff, a professor of economic history at Rutgers, price and wage controls brought the yearly rate of inflation down from 32.4 percent to 7.1 percent during World War I, and from 11.9 percent to 1.6 percent during World War II. Selective controls on key commodities might not only provide the only way to achieve some fast relief, but also demonstrate, in tandem with legislation to cut the price of prescription drugs and the cost of child care, that the Democrats can actually and effectively legislate and implement policies in the public good. One is not sure how sound economic theory such as the laws of demand, supply, marginal utility, and diminishing marginal returns really are nothing more than social constructs that easily are undone by «facts,» but one has to remember that socialists have their own rewritten history.

Furthermore, like most progressives , Meyerson assumes that the only things that will change under a price control regime are the prices themselves, with no accompanying shortages and other dislocations. Not surprisingly, Meyerson turns to the experiences of the USA during two world wars as the example of success. While he does not define what «success» meant in those situations, he implies that price controls kept the official rate of inflation lower than it would have been without the controls. Yet that tells us absolutely nothing, for he fails to mention the shortages, official rationing of goods, and the general economic misery that Americans faced during those conflicts, when the economy, geared to total war, vacuumed up vast numbers of resources, leaving Americans on the home front to scramble for the leftovers and, with much difficulty, scratch out a living.

Economist Robert Higgs, who is well aware both of economic facts and theories, laid out a much different scene in his authoritative 1992 paper in the Journal of Economic History. « Economy in the 1940s,» Higgs looks well beyond the official numbers that Meyerson gives to see how Americans really lived under price controls. Even if the price index corrections considered above are sufficient, which is doubtful, one must recognize that consumers had to contend with other extraordinary welfare-diminishing changes during the war.

He adds

The ratio of civilian employment to population increased from 47.6 percent in 1940 to 57.9 percent in 1944, as many teenagers left school, women left their homes, and older people left retirement to work. The rate of disabling injuries per hour worked in manufacturing rose by more than 30 percent between 1940 and its wartime peak in 1943. It is difficult to understand how working harder, longer, more inconveniently and dangerously in return for a diminished flow of consumer goods comports with the description that «economically speaking, Americans had never had it so good». Likewise, Meyerson does not remind his readers of the energy price control regime of the 1970s, which led to huge fuel shortages, long lines at the gasoline pumps, and huge disruptions in production.

Then, like now, the progressives that supported price controls blamed «corporate greed» and «big oil» for the problems, not wanting to admit that price and allocation controls created the havoc that seemed to disappear once the government lifted controls in 1981. Progressives might control the media and the government, but they cannot control reality. Contra Meyerson, facts and economic theory have a long history of fitting one another.

Read original article. Source: WILLIAM L. ANDERSON | MISES.ORG

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