Presidential candidate Kamala Harris’s recent endorsement of price controls caught my attention. So, I decided to look into the matter more closely. What I found was disturbing and in my view, terrible economic policy.
Wage and price fixing is harmful at any time and under any conditions. Period. Moreover, it is a giant step toward a dictated, regimented, and authori-tarian economy, hence the term “control.”
Price fixing and wage fixing do harm even if there is no inflation. In a free economy prices are constantly changing—that is normal and natural. They are changing to reflect changes in supply and demand, in costs, and in a hundred other conditions that influence costs.
Some prices will necessarily go up while others will go down. If an attempt is made to freeze these prices and wages and costs exactly where they are, it immediately disturbs the relationship of prices and comparative profit margins, the two variables which decide what things will be made and what quantities they will be made in.
It upends the process by which the market decides how thousands of different commodities and services are to be made in the proportions in which people want them. Supply and demand.
But, if we are in a period of inflation—as many economists seem to think we are—price fixing does even more damage and is not a cure for inflation. The cause of inflation is an increase in the supply of easy money and credit. This is always brought on, directly or indirectly, by governmental policy—especially by governmental deficits which lead to an increase in the supply of money and credit.
There are some who believe as if it would be possible to have universal price fixing. How wonderful that would be! The federal government would fix every wage, every price, every cost. In truth, nobody knows how many separate prices and separate wages there are, there are good reasons for thinking there cannot be fewer than many millions.
Think about trying to “fix” or “set” millions of prices: what you are trying to fix is something in the order of many trillions of cross-relationships of prices. This is something that no government is capable of determining or enforce. Unless, of course, they impose rationing and allocation of individual goods in order to keep prices where they were if they kept increasing the money supply, which they always do. And, once you hold prices down by edict—or force—well, guess what? You have to keep holding them down in order to pretend you are doing some good.
What does, in fact, hold down prices? Competition. And, it’s competition we should continue to depend on. Competition exists in the U.S for a large part of the commodities and services that we use daily—for now.
Price and wage fixing is always harmful. There is no right, proper or, dare I say, moral way of doing it. You can’t do something wrong in a right way. It’s not possible to define a fair price or a fair profit or a fair wage apart from the market and apart from the state of supply and demand. It was wrong when Republican president, Richard Nixon, imposed it in the early 70s and it’s still wrong today.
Instead of talking about “fair” wages, prices and profits, the conversation should be about functional wages, prices, profits. Prices give the necessary signals to production. Prices direct production into the goods that are most wanted socially in order to provide a balance among the thousands of different commodities and services in the proportions that the consumers want them.
Price fixing destroys those signals on which this evolving and constantly-changing balance depends.
I can’t resist a few observations by some well-known business gurus.
Dave Ramsey, personal finance legend and host of “The Ramsey Show” said this about price controls: “It’s been tried; it does not work. What works is to flood the market with supply: Lots of oil means lower oil prices. Lots of labor means lower labor prices. Lots of whatever means lower prices—it’s a simple supply-and-demand curve. When you insert government and try to artificially cramp it down, it simply does not work because you can only hold that hose for so long until the pressure builds up and then it blows on you.”
Meanwhile, “Mr. Wonderful” himself, Kevin O’Leary, ‘Shark Tank’ investor, said this: “Price fixing, we tried that in the ’70s—that’s beyond crazy. Can you imagine an America where there’s a ministry of pricing for groceries that tells a farmer what an apple can be sold for and what you can buy it for? I mean, that is a horror film on Netflix no one’s even written the script for. That’s not America.”
They’re right. And yet, it’s being entertained seriously these days as an economic option. Incredible.
In closing, we have received calls about the events the Mississippi Business Journal is known for and are being asked if we’ll continue these events. The answer is yes. However, we plan to spend the remainder of 2024 growing this publication, especially in regard to true statewide business content. In 2025, we will bring back the MBJ’s main events. We’ll keep you posted.
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