On the 2020 campaign trail, Joe Biden declared, “ Milton Friedman isn’t running the show anymore.” Wrong! In March 2020 the money supply was $16 trillion, it’s now $21.8 trillion. Lo and behold, inflation is running at 7.9%, supply chains are tight, and many store shelves are empty. Friedman’s adage “Inflation is always and everywhere a monetary phenomenon” has stood the test of time.
But what scares me most is the likely policy responses by the Biden administration that would pour salt into this self-inflicted wound. It feels as if price controls are coming. Don’t trust my Spidey senses? Joe Biden’s own words from March 16: “Oil and gas companies shouldn’t pad their profits at the expense of hardworking Americans.” And in last month’s State of the Union address he said, “As Wall Street firms take over more nursing homes, quality in those homes has gone down and costs have gone up. That ends on my watch.”
And the worst offense: “Cut the cost of prescription drugs. We pay more for the same drug produced by the same company in America than any other country in the world. . . . let’s let Medicare negotiate the price of prescription drugs. They already set the price for VA drugs.” That sounds good on the surface, but don’t fall for it. As Tomas Philipson noted on these pages, companies would “face a tax as high as 95% on sales if they don’t concede to the government price.” These aren’t negotiations. They are price controls.
Prices set by producers are signals, and consumers whisper feedback billions of times a day by buying or not buying products. Mess with prices and the economy has no guide. The Soviets instituted price controls on everything from subsidized “red bread” to meat, often resulting in empty shelves. President Franklin D. Roosevelt’s National Recovery Agency fixed prices, prolonging the Depression, all in the name of “fair competition.” Watch for the resurrection of that phrase to rationalize price controls.
In 1971 President Richard Nixon announced, “I am today ordering a freeze on all prices and wages throughout the United States.” We got new government entities: a Pay Board and a Price Commission. Americans paid for this mistake for another decade. Farmers drowned chickens rather than send them to market. Store shelves emptied. Price controls contributed to long lines at gasoline stations in 1973 during the Arab oil embargo. It’s pretty simple: When you freeze prices too low, producers stop producing.
Price controls don’t work. Never have, never will.
