In today’s Wall Street Journal are two excellent letters-to-the-editor on the folly of price controls. Each is written by a treasured friend of mine. (Note that the author of the second letter is not the David Henderson who blogs at EconLog.) I share these letters here.
Jason Zweig gives price controls too much credence when he writes that “they have often been surprisingly effective as temporary measures in urgent crises” (“Back in Business: Fighting Inflation the WWII Way,” Exchange, June 4). Price controls generally are designed to conform monetary prices today with those that prevailed in the past; because that is how inflation is measured, they can be “effective” in that narrow sense.
But price controls substitute actual privation, and waiting in queues, for high monetary prices. They induce corruption, as buyers and sellers negotiate with bureaucrats rather than each other. As time goes by, they increasingly misdirect resources and encourage wasteful evasive measures. If there are historical examples of successful price controls, it is only because the price data supply an incomplete record of all that transpired.
Brian F. Mannix
In the 1950s, my parents’ inventory of dishes contained a large, garish serving plate. Not realizing an economic lesson was to come, this lad asked why we had such an atrocious platter. A brief explanation followed. While World War II price controls were still in place, my parents needed a refrigerator. With much searching, they finally found one for sale, and the law-abiding seller asked the price mandated by the state. The offer was contingent, however, on the additional purchase of a large, expensive, non-price-controlled platter.
DBx: This truth cannot be too often repeated: There is never any good reason for government to control, with mandated ceilings or floors, the money prices or wages that arise when people make exchanges in markets. Never.
Economists whose cleverness swamps their judgment sometimes construct theoretical models in which god-like politicians can impose wage floors or price ceilings in a manner that improves overall economic efficiency and consumer welfare. Indeed, any half-competent undergraduate majoring in economics should be able to churn out such silliness. Even I – no singular talent as an economic theorist – could do so as a matter of routine by the time I turned 20. But as the letters above by Brian and Dave show, the margins of adjustment in reality are so numerous – and the self-interest-serving motives of sellers and buyers so unrelenting – that any such model peddled as a demonstration of the potential real-world benefits of wage or price controls is nonsense, and should always be greeted as such.