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More on the Dangers of Price Controls

Here’s a letter to National Review’s The Corner:


Andrew Stuttaford nicely reviews many of the reasons why the imposition of price controls would be “an act of remarkable economic destructiveness” (“Price Controls: An ‘Absurdity’ for the Generations,” May 14). There’s an additional reason worth noting; it’s one famously explained nearly 80 years ago by F.A. Hayek.

Market prices transmit information that’s indispensable if consumers and producers are to act in ways that are consistent with the realities of underlying market conditions. When, for example, the price of gasoline rises relative to those of other goods – when prices at the pump rise relative to the prices of goods from lubricants to lipstick, and from naphtha to nylon – producers are notified that more profits are to be earned by producing more gasoline, while consumers are notified that gasoline is now less abundant than it was earlier and, therefore, they should reduce their consumption of it.

Government-imposed price controls block the flow of this information – information that is always indispensable, but the need for which is especially acute when humanity is beset with calamities such as war, natural disasters, and pandemic-inspired lockdowns. As Mercatus Center Senior Fellow Rosolino Candela says,

Inhibiting the ability for consumers to communicate their demand to sellers through price controls is analogous to cutting a telephone cord in the middle of an emergency phone call.

Nancy Pelosi, Elizabeth Warren, and all others who now clamor for price controls clamor, in effect, to suppress the information necessary for the global economy to relieve today’s intense consumer distress.

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