Spike in Inflation Reignites Debate on Value Controls

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In a recent University of Chicago Booth School of Business survey of 41 academic economists, 61 percent said price controls similar to those introduced in the 1970s “are not successful in reducing US inflation over the next 12 months ” would. Others said the policy could bring inflation down in the short term but create 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.

In August 1971, when consumer prices were rising at their fastest rate since the Korean War, Mr. Nixon announced that he would freeze most wages, prices and rents for 90 days. After the freeze ended, companies were allowed to raise prices, but subject to limits set by a council led by Donald H. Rumsfeld, who later served as Secretary of Defense for Presidents Gerald R. Ford and George W. Bush.

The controls initially looked like a success. Inflation fell from a peak of more than 6 percent in 1970 to below 3 percent in mid-1972. But almost as soon as the government began easing restrictions, prices shot up again, prompting Mr. Nixon to issue another to impose a price freeze. followed by another round of even tighter controls. This time controls failed to tame inflation, partly because of the first Arab oil embargo. Price controls expired in 1974, just before Mr. Nixon left office.

Not all attempts to contain prices have been such clear failures. During World War II, the Roosevelt administration imposed strict price controls to prevent food and other basic necessities from becoming unaffordable due to wartime shortages. These rules were generally considered necessary at the time, and economists tended to take a rather positive view of them. Indeed, there have been many instances of wartime price controls throughout history, often coupled with rationing and wage growth restraints.

Few economists today defend Nixon’s price controls. However, some argue that it is unfair to view their failure as a definitive refutation of all price caps. The 1970s was a time of significant economic turmoil, including the Arab oil embargo and the end of the gold standard – hardly the setting for a controlled experiment. And Nixon-era price caps were broad, while modern advocates propose a tailored approach.

Many progressive economists have in recent years reconsidered once despised ideas like the minimum wage in response to evidence suggesting that real markets often do not behave as simple economic models would predict. Price controls, some economists argue, require a similar reappraisal.