Price Controls Still Won’t Work Against Inflation

(p. A19) Asked about his plan for a dangerous opponent, boxer Mike Tyson once said: “Everybody has a plan until they get punched in the mouth.” President Biden has proposed various plans to deal with inflation.

Prices rise when goods become scarce or the money supply expands rapidly. Pandemic-induced holdups in the supply chain have caused scarcity; . . .

. . .

On the money-supply front, the Fed is making noises about backing off on aggressive expansion. But a CNBC report estimated that more than $5 trillion in cash is sitting in corporate coffers and bank accounts. Middle-class savers who have been holding cash will see its value eaten away—effectively a tax on the middle class, which progressives promised not to levy. Some of the rich will put their cash in real estate, heightening shortages of housing.

Whatever you think of Congress’s bipartisan infrastructure initiative, its timing is unfortunate. It will be sharply expansionary on the fiscal front, with new demands on labor markets straining to find workers. All that cash from Fed monetary expansion is out there ready to be spent. Mr. Biden’s Build Back Better plan would make these problems worse by injecting trillions into the economy.

Things aren’t yet so bad that a plan can’t make them worse. In a recent paper for the Law and Economics Center at George Mason University, I evaluated one policy for managing prices—a top-down approach directed from Washington. I found that such plans are thwarted by information problems (officials don’t know enough to direct resources or decide prices) and incentive problems (the power to decide which prices will be allowed to increase, and which will be held down, will be corrupted by politics).

For the full commentary, see:

Michael C. Munger. “A Biden Plan For Prices? No Thanks.” The Wall Street Journal (Wednesday, Dec 15, 2021): A19.

(Note: ellipsis added.)

(Note: the online version of the commentary has the date December 14, 2021, and has the same title as the print version.)

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