As it began rapidly expanding the money supply early in 2020, the Fed confidently assured the public there would be no unanticipated or serious rise in inflation. Now that their projections have failed to materialize (in fact, their forecasts were off by almost 40 percent), they assure us that this will be but a temporary spike.
But for the sake of argument, let us imagine they are wrong—something that considering their track record is not difficult to do: What then?
As policymakers continue to mine the twentieth century for mistakes to repeat—from protectionism to higher taxes, to trying to start a second Cold War technology and arms race—it seems only logical to ask how long it will be before popular discontent over the rising consumer prices generated by their mismanagement of the money supply leads them to resurrect one of the most serious and notable policy failures of the last hundred years: price controls. After all, prices are rising rapidly, right?
Meant to arrest the rise in prices brought on by the increased amount of money pursuing the same basic amount of goods—since February 2020 M2 has expanded more than 25 percent—price controls have only ever brought shortages and poverty despite their typical initial popularity.
Should inflation persist or accelerate, price controls may be presented as a temporary necessity, as in 1971 under Nixon. Far more certain, however, is that price controls, whatever their guise, will do nothing to resolve the issue underlying the inflation: the amount of goods and services being produced are being outstripped by the growth in the money supply.
Capping the amount of money a producer can charge for a product will not stimulate increased production or investment—why would it? This is why shortages inevitably follow: Who would enter into production or increase their production of a good at a time when doing so is a money-losing venture?
That being the case, price controls and the determined politicians who support them, are likely to push us even further down the road to serfdom than we already are.
As Ludwig von Mises explained in a 1958 address at the University of Buenos Aires, attempting to control the price of a good or goods will ultimately require control over the prices of the inputs that go into creating them—and then further control over the inputs that go into the inputs that go into the creation of the good, and so on.
The reason is simple: the government’s desire to see continued production of a good maintained or expanded at prices less than the cost of the inputs necessitates, by their thinking, the capping of the prices of those inputs as well.
These are frankly dangerous times, and we should be earnestly unsettled by the fawning masses at the feet of an increasingly interventionist government comfortably ensconced in power despite manifold ineptitudes on virtually all sides—including in the handling of the present crisis. Indeed, under the auspices of preserving public health, in the last year the government, at various levels, has undertaken violations of property rights previously almost unimaginable in a liberal republic whose constitution explicitly provides for their protection.
Should the Fed’s forecast prove incorrect yet again—and by a similarly enormous margin—the pressure on the Biden administration from the Left will intensify. It supported rent freezes, direct payments, massive fiscal stimulus, and an almost doubling of the federal minimum wage—what next if not price controls?
And if, in an attempt to control prices, your business or labor are “needed” to produce something you don’t want to produce at a price you won’t agree to, attempted requisitions and appropriations may be only an executive order away.