Inflation today, while easing, remains ubiquitous and presents a rare point of agreement throughout the country. What to do about it, however, is a divisive topic, and this past week, we were treated to one of the worst proposals in economic discourse -- price controls to curtail inflation.
Throughout documented history, pharaohs, kings, dictators, and presidents have implemented mandatory price controls, which have universally failed. Remember the old definition of insanity, whereby the results of a repeated action are expected to differ? Economically, there are no exceptions, despite claims that results will be “different this time.” Actions have consequences. Repeated actions have repetitive consequences. Lather, rinse, repeat.
Free market principles seem always to prevail. If there were only one economic principle everyone on Earth should understand, it is the simple concept of Supply and Demand. John Locke wrote of Supply and Demand in 1691, but Adam Smith is better known for the discussion in his masterpiece, Wealth of Nations, in 1776. Interesting timing, to say the least, coinciding with the American Revolution that would soon display the power of free market economics.
I can’t remember when I first read Smith’s powerful treatise, in which he introduced what he called the “Invisible Hand” that guided the world's economies. That guiding hand is now known as the Law of Supply and Demand, and woe be to those who attempt to override its power. Yet our fearless leaders and wannabes occasionally feel compelled to try.
The 2024 version of (economic) insanity is on display in recent calls for “anti-inflationary” price controls. While the rate of inflation is waning, it leaves an overpriced country in its wake. Price Controls, which possibly will morph into Wage and Price Controls, present an even more comprehensive dumb idea.
Fortunately for all Americans, voters of a certain age have experienced the abject failure of Wage and Price Controls. President Richard Nixon attempted to “fix” inflation in 1971 with a 90-day freeze on all wages and prices. During those 90 days, we should have experienced zero inflation, right? Not so much. Instead, employers added non-taxable fringe benefits galore to retain and hire employees, while satisfying the unworkable price stability laws. Health Care and other items rose in price as demand soared.
The laws of economics are irrefutable. Results do not vary through repetition of experimentation. Rather, outcomes are predictable, and price controls present no exception. Inflation is the result of too much money being introduced into the economy by deficit spending. When will we ever learn?
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