The Perniciousness of Price Controls

(Don Boudreaux)

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Here’s a letter to the Wall Street Journal:

Editor:

Andy Kessler rightly warns of the destructiveness of price controls (“Here Come the Price Controls,” April 4). And he’s correct that support for such controls expressed by likes of Pres. Biden and Sens. Bernie Sanders and Elizabeth Warren reflects these politicians’ economic ignorance. But perhaps this support for price controls reflects also many politicians’ innate instinct for seizing all opportunities to expand their power.

The late, great UCLA economist Armen Alchian, writing in 1976 about the inflation and price controls that were then prevalent, described a troubling dynamic:

[D]irect attacks on the symptoms known to flow from inflation are politically convenient. As inflation occurs, politicians and the public blame businessmen and producers for raising prices and mulcting the public…. They provoke shortages; there obviously must be government action to set matters aright. The markets have failed; the economic system has failed.

The so-called shortage of gasoline and energy in the United States was precisely and only such a political attack. It could not have been brought about more cleverly and deceitfully even if the politically ambitious had explicitly written the script. Inflate the money stock; when prices rise, impose price controls to correct the situation. These controls lead to shortages which “require” government intervention to assure appropriate use of the limited supply and to allocate it and even to control and nationalize the production of energy. The powers of political authorities are increased; the open society is suppressed.*

Sincerely,
Donald J. Boudreaux
Professor of Economics
and
Martha and Nelson Getchell Chair for the Study of Free Market Capitalism at the Mercatus Center
George Mason University
Fairfax, VA 22030

* Armen A. Alchian, “Problems of Rising Prices” (1976), reprinted in Vol. 1 (Choice and Cost Under Uncertainty) of The Collected Works of Armen A. Alchian (Indianapolis: Liberty Fund, 2006), pages 253-273; the above quotation appears on page 268.