For those of a certain age, this is reminiscent of the 1970s, when both parties went in for wage and price controls to control inflation. They failed miserably, leading to rationing, higher prices and shortages, making the ’70s one of the worst decades in U.S. economic history.
Just what we need: Law-abiding companies — struggling with soaring labor and product costs, not to mention massive increases in theft as leftist attorneys general stop punishing crime — being scapegoated again for far-left Democrats’ repeated policy failures.
There’s one major reason for this inflationary mess: The Democrats’ utterly unnecessary $5 trillion spending binge during the COVID economic lockdown, massive supply-chain disruptions, plus the $1.2 trillion “Inflation Reduction Act.” Taken together, they injected trillions of dollars into a shrunken economy. The inevitable result: inflation, as more money chased fewer goods.
It had nothing at all to do with “corporate consolidation in the market.” It had everything to do with the Biden-Harris administration’s economic incompetence, on full display again with Harris’ plan to control grocery store prices and give first-time homebuyers up to $25,000 to buy a house and to spend $40 billion on “innovative housing construction,” whatever that is.
Problem is, grocery stores are not “price gouging.” Indeed, the average profit margin in the supermarket trade is around 1.2%, give or take a couple of points. To accuse store chains of gouging is a lie, straight up, as the chart below shows:
.Source: @JaredWalczak, at X
Price gouging? Absolutely insane.
So what happens if price controls do go into effect? Overnight, shortages will emerge, followed shortly by a black market. Stores cannot continue to sell products they lose money on. They’ll go out of business.
After price controls, inflation doesn’t go away. It gets worse, as formerly profitable enterprises go bankrupt and the supply of goods shrinks.
Less supply = higher prices.
Someone reading this somewhere is thinking, “this is just right-wing (or libertarian) propaganda. By forcing stores to charge less, inflation will go down.”
In fact, almost all economists, left and right, disagree with that.
The World Bank, in a 2020 paper argued: “Although they are sometimes used as a tool for social policy, price controls can dampen investment and growth, worsen poverty outcomes, cause countries to incur heavy fiscal burdens, and complicate the effective conduct of monetary policy.”
Meanwhile, a recent Federal Reserve Bank of St. Louis paper, “Why Price Controls Should Stay in the History Books,” summed up the U.S. experience: “(E)conomic theory and analysis of history show that broad price controls would be costly and of limited effectiveness.”
If anything, that’s an understatement.
Even the Washington Post has thoroughly (and correctly) bashed Harris’ idea: “It’s hard to exaggerate how bad this policy is. It is, in all but name, a sweeping set of government-enforced price controls across every industry, not only food. Supply and demand would no longer determine prices or profit levels. Far-off Washington bureaucrats would. The FTC would be able to tell, say, a Kroger in Ohio the acceptable price it can charge for milk.”
There are lots of other bad ideas in Kamala Harris’ plan, and we’ll deal with those later, one by one. Suffice to say, forcing price controls on private companies is the worst anti-inflationary strategy possible. The big question is, does the Democratic Party ever learn anything from its disasters?
— Written by the I&I Editorial Board