(p. B1) America’s recent inflation spike has prompted renewed interest in an idea that many economists and policy experts thought they had long ago left behind for good: price controls.
The federal government last imposed broad-based limits on how much private companies could charge for their goods and services in the 1970s, when President Richard M. Nixon ushered in wage and price freezes over the course of a few years. That experiment was widely regarded as a failure, and ever since, the phrase “price controls” has, at least for many people, called to mind images of product shortages and bureaucratic overreach. In recent decades, few economists have bothered to study the idea at all.
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(p. B2) Artificially holding down prices leads to shortages, inefficiencies or other unintended consequences, like an increase in black-market activity. And while some economists say price controls on specific products can make sense in specific situations — to prevent price-gouging after a natural disaster, for example — most argue that they are a poor tool for fighting inflation, which is a broad increase in prices.
In a recent survey of 41 academic economists conducted by the University of Chicago’s Booth School of Business, 61 percent said that price controls similar to those imposed in the 1970s would fail to “successfully reduce U.S. inflation over the next 12 months.” Others said the policy might bring down inflation in the short-term but would lead to shortages or other problems.
“Price controls can of course control prices — but they’re a terrible idea!” David Autor, an economist at the Massachusetts Institute of Technology, wrote in response to the survey.
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“It sounds good: Your wages are going to be higher, and your prices are going to be the same,” said Lawrence H. Summers, a Harvard University economist. “Unless there is a mechanism for producing more stuff, it’s just going to result in longer queues.”
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(Note: the online version of the story was updated Jan. 13, 2022, and has the title “Price Controls Set Off Heated Debate as History Gets a Second Look.”)