Price Controls: An ‘Absurdity’ for the Generations

 Here is Andrew Stuttaford at the National Review.

AS is on target.

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Here’s some advance reaction to the price-control regime that Nancy Pelosi wants to put in place to tackle price “gouging,” an act of remarkable economic destructiveness (as she probably knows), which ought, however, to play well politically (as she undoubtedly hopes). It dates from, uh, 1915 and was cited by the economist Ronald Coase in an essay first published in the 1970s. Both the decade in which Coase’s essay appeared and a reference within it to “our present troubles” give some pretty good clues as to why price controls were on Coase’s mind at that time.

In it, alongside much else, Coase turns his attention to some commentary from 1915 by Edwin Cannan of the London School of Economics:

Buyers who have to pay higher prices suddenly become either ‘the poor’ forced to reduce their consumption of necessary articles or else employers of a particularly needy and deserving class which will be thrown out of work by the rise. All the injured persons are at once represented as being iniquitously robbed by an unscrupulous gang of speculators, middlemen, bloodsucking capitalists, or rack-renting landlords against whom all the resources of the State ought to be brought forthwith. The ideal somewhat vaguely held seems to be an immediate return to the prices of a few months or a year ago.

It’s as if Cannan were given a glimpse of Elizabeth Warren’s tweets, more than a century before they were written.

Coase explains that Cannan argued against price controls “in the usual way,” but then adds that Cannan highlighted a telling paradox:

[W]hen the price of a thing goes up, [people] abuse, not the buyers nor the persons who might produce it and do not do so, but the persons who are producing and selling it, and thereby keeping down its price’.

Why? Consumers are convinced that there is something ‘not quite right’ about the prices they are being asked to pay.

[They] are perfectly convinced that the rise [in prices] with which they have to contend for the moment is unnatural, artificial, and wholly unjustifiable, being merely the wicked work of people who want to enrich themselves, and who are given the power to do so not by . . . economic conditions, but apparently by some absolutely direct and inexplicable interference of the Devil. This has been so since the dawn of history, and no doubt before, but no amount of historical retrospect seems to be of much use. The same absurdity crops up generation after generation.

As alluded to above, I am pretty sure that Warren, Pelosi, Biden, and the rest recognize such nonsense for, to use Cannan’s word, the “absurdity” it is. That they then go and exploit what is essentially a superstitious belief says a great deal about them, none of it good.

For a more up to date look at this belief (in reality, a form of conspiracism), it’s well worth reading this recent article by Catherine Rampell in the Washington Post. After running through her own view of the sources of our current inflation, Rampell turns her attention to those she dubs the “greedflationists”:

“Supply and demand” is not the greedflationists’ preferred lens on inflation. They say inflation is driven by a Manichean struggle between big corporations and their innocent victims, the customers.

Companies are somehow conspiring to boost inflation, this thinking holds, because they can use it as an “excuse” to “profiteer.” No matter that major business groups have actually been hawkish about inflation, since unpredictable price growth can make it difficult for them to plan (and increases the prospect of recession).

So what’s the supposed evidence that businesses are pro-inflation? The greedflationists — including President Biden — complain that executives are boasting on corporate earnings calls about how much money they’re making. This might sound like a smoking gun if you have never listened to an earnings call, in which executives usually boast about how great profits are or will be.

Experience of working in the private sector can come in handy sometimes.

The greedflationists argue that something fishy is afoot because companies are not merely “passing along” their higher costs; their profit margins are expanding, too. But this is exactly what you’d expect when flush customers are buying more stuff and willing to pay whatever’s necessary to get what they want. Prices and profits rise.

Experience of working in the private sector can come in handy sometimes.

Rampell goes on to argue that claims of greedflation have damaged the Democrats’ chances of reelection, by leading them to look in the wrong places for a solution to inflation. I’m unconvinced how true that is. Having poured fuel on the fire with the ARP, I’m not so convinced that a quick solution to inflation was theirs to find. I’m also not so convinced that their belief in the greedflationary narrative runs very deep. There are more cynics running their show than there are the deluded (I think). I suspect what we’re seeing is the result of a piece of cold political calculation. Those pushing the greedflationary myth have simply taken the view that its populist message will be of some help ahead of the midterms. The damage it may cause will come later. And the day after the midterms is another season.

Nevertheless, populist rhetoric generates its own momentum. It won’t be enough for the greedflationists to confine themselves to rhetoric. Before too long — and ahead of the midterms — they will have to be seen to do something. And that something could prove highly damaging, even if the damage is pushed to after November.

Rampell gives two examples:

[A] proposed tax on “windfall” oil profits, which would likely reduce oil production exactly when we want output to increase. Or a mass student debt jubilee, which could drive consumer demand even higher.

In the meantime, I’d ponder the extent to which Warren-style rhetoric is already discouraging companies from making the investments we need them to make if the supply-and-demand gap is to be filled. Best guess: It may well be, and, even if it’s not, Biden’s anti-corporate tax talk is already damping down the willingness to invest.