This is a surprisingly fair summary of the pro-price control position. nytimes.com/2022/01/13/bus… 
The problem with a lot of the recent debate around
price controls" (in reality a bag of different policies) is not that people are wrong to say that directly limiting price increases carries risks and costs. It's the implicit claim that the alternative is reliable and cost-free.
price controls" (in reality a bag of different policies) is not that people are wrong to say that directly limiting price increases carries risks and costs. It's the implicit claim that the alternative is reliable and cost-free.
A lot of people have this sort of magical idea of how monetary policy operates, where there's a direct link from the policy interest rate (or from M, whatever that is) to the inflation rate, with nothing mediating it.
In reality - and it's funny that I'm the one who has to say this - prices are set in markets, by profit-seeking private businesses weighting costs against demand for their product. The only way the Fed can influence inflation is by changing market behavior.
The textbook story is that higher interest rates discourage investment. Less investment means less employment, raising the unemployment rate and reducing workers wage demands. Lower wages then get passed on to lower prices.
It's not enough to say that price controls could lead to longer delivery times or non-price rationing. To have an actual argument, you have to show that those costs are greater than the additional unemployment and lower investment that would result from higher interest rates.
And then at some point it will occur to us that, after all, isn't the interest rate itself a price? In which case, the debate isn't price controls, yes or no, but merely about exactly which prices to control.
• • •
Missing some Tweet in this thread? You can try to
force a refresh
