Do Price Controls Work?
Economists, with notable exceptions, can be relied on to testify that price controls “don’t work,” and in the sense that economists have in mind—actually reducing inflation, not simply suppressing its manifestations—their conclusion is correct. From a political perspective, however, this claim misses the point. Price controls do work—to gain short-run political support for the politicians who impose them. The public seems never to learn that it is being sold a faulty political product. As Stein remarked, even after all of the economic disruptions, artificial scarcities, and inequities of Nixon’s price-control program, which finally ended on April 30, 1974, “the experience did not leave the country with a strong commitment to the free market, monetarist way of restraining inflation. The attraction of the direct approach remained.” Only four years later, the Carter administration yielded to political temptation and imposed another incomes policy, albeit a half-hearted one entirely relian