Imprimis Podcast Summary: The Dangers of Price Controls

Podcast Information

• Title: Imprimis
• Host/Author: Hillsdale College
• Episode: The Dangers of Price Controls
• Release Date: October 28, 2024

Introduction

In the October 2024 episode of Imprimis, Hillsdale College revisits a classic economic discourse titled "The Dangers of Price Controls" originally authored by Henry Hazlitt in May 1972. Edited and updated by Brian Westbury, the episode draws parallels between the economic policies of the early 1970s and contemporary governmental actions, particularly focusing on the implications of price and wage controls.

Historical Context: Price Controls in the 1970s

Lauren, a senior economics student at Hillsdale College, introduces the episode by highlighting the economic climate of the early 1970s. During Lyndon Johnson’s presidency, the Federal Reserve engaged in extensive money printing to finance the Great Society programs, leading to rampant inflation. In response, Federal Reserve Chair Arthur Burns and the Nixon administration implemented wage and price controls as a strategy to curb this inflationary pressure.

• Notable Quote:

  “Because economic truth remains the same today as it was 52 years ago, we are reprinting Henry Hazlitt's article from 1972, but with edits and updates by Brian Wesberry that bring Hazlitt's classic piece into today's world.”
  — Lauren [00:20]

Modern Parallels: Government Spending Post-COVID

Lauren draws a direct comparison between the 1970s and the present day, emphasizing that the Federal Reserve has resumed significant money printing to support expansive government initiatives launched during and after the COVID-19 pandemic. This surge in money supply has reignited inflationary concerns.

• Notable Quote:

  “Since the onset of COVID government deficits have soared to spectacular levels. Roughly $5 trillion of new debt was issued to pay people not to work and to buy vaccines, as well as to fund green New Deal policies.”
  — Lauren [00:50]

Economic Impact of Price and Wage Controls

Lauren elaborates on the inherent dangers of imposing price and wage controls, arguing that such measures are detrimental under any economic conditions. She underscores that these controls lead to a "dictated, regimented, and authoritarian economy," severely restricting individual liberties and disrupting free market dynamics.

• Key Points:

  • Price and wage fixing hampers voluntary agreements between employers and employees.
  • Free markets rely on fluctuating prices to reflect supply and demand, which price controls disrupt.
  • In times of inflation, price controls exacerbate shortages and distort production.

• Notable Quote:

  “Price and wage fixing is always harmful. It is never a cure for inflation.”
  — Lauren [02:45]

Challenges of Implementing Price Controls

The episode delves into the practical impossibilities of enforcing comprehensive price and wage controls in a modern economy. Lauren highlights the complexity involved in managing millions of price points and wage rates, making government intervention both unmanageable and prone to corruption.

• Notable Quote:

  “If you try to fix 10 million prices, what you are trying to fix is something on the order of 50 trillion cross relationships of prices. This is something that no government is capable of determining or policing.”
  — Lauren [04:10]

Historical Examples and Consequences

Reflecting on Nixon's 1971 implementation of wage and price freezes, Lauren illustrates the futility and unintended consequences of such policies. The initial 90-day freeze was extended indefinitely due to the inevitable rise in prices once controls were lifted, demonstrating the self-perpetuating nature of price controls.

• Notable Quote:

  “When the Nixon administration recognized this in 1971, it had to extend the wage and price controls in order to avoid criticism that the 90 day price control policy was pointless.”
  — Lauren [09:35]

Additionally, Lauren cites instances where wage and price controls were inconsistently applied, leading to inflation rates that contradicted the supposed caps, thereby undermining trust in governmental policies.

• Notable Quote:

  “American Motors and General Motors were granted 2.5% price increases, but Ford was granted a 2.9% increase and Chrysler a 4.5% increase. It is impossible to construe that as fair.”
  — Lauren [11:00]

Productivity, Wages, and Capital Investment

The discussion transitions to the relationship between productivity and wages. Lauren argues that in a free market, wages rise in tandem with productivity increases, which are driven by capital investments rather than mere labor enhancements. Price controls disrupt this balance by stifling profits necessary for further investment.

• Notable Quote:

  “If labor gets the whole gain from every increase in productivity and nothing is left for capital, then investment will stop and productivity increases will stop.”
  — Lauren [13:10]

Solutions to Inflation: Free Market over Controls

Contrary to advocating for price and wage controls, Lauren posits that the true solution to inflation lies in restricting the money supply. By preventing excessive money creation, inflationary pressures can be mitigated without resorting to harmful market interventions.

• Notable Quote:

  “What the government ought to be doing to counter inflation and get prices low is to free and encourage the producers, not put them in a straight jacket by fixing prices.”
  — Lauren [13:55]

Moral and Ethical Considerations

Lauren touches upon the ethical dimensions of price controls, emphasizing the erosion of individual liberty and the moral dilemmas posed by enforced economic regulations. She references Earl D. Rhode's assertion from the 1970s about the role of citizens in reporting violations, highlighting the societal strain such policies can inflict.

• Notable Quote:

  “We leave the moral judgment of that to each of you.”
  — Lauren [14:20]

Conclusion

In wrapping up the episode, Lauren reiterates the fundamental economic truths that price and wage controls are inherently flawed and ineffective in addressing inflation. Instead, she advocates for policies that promote free market mechanisms and responsible monetary practices to sustain economic stability and individual freedoms.

• Final Quote:

  “Price fixing destroys the signals on which this ever-changing balance depends. It always does harm, and it is never a cure for inflation.”
  — Lauren [14:00]

Additional Content

The episode briefly transitions to promote an exclusive interview on the Larry Arn Show featuring Michael Ward discussing C.S. Lewis's perspectives. However, this segment is unrelated to the main topic of price controls and is thus excluded from the summary.

Key Takeaways:

• Price and wage controls are historically ineffective and lead to economic distortions.
• Such controls undermine individual liberties and the natural functioning of free markets.
• The real solution to inflation lies in controlling the money supply, not in regulating prices.
• Efforts to implement comprehensive price controls are impractical and susceptible to corruption.

For more insightful analyses and discussions on economic policies and their implications, subscribe to Imprimis by Hillsdale College.