We need to only look at the actions of Richard Nixon, who often put himself forward as being pro-business and pro-capital. In 1971, he put on very strict wage and price controls. But wage and price controls didn’t begin and they certainly won’t end with Nixon. The idea that government should control its subjects is part of the national DNA. As the Baby Bush put it in 2008, “sometimes you have to abandon free-market principles to save the free-market system.” His statement reminds me of the famous quote from the Vietnam era: “We had to destroy the village in order to save it.”
The government’s share of the economy is much larger now than it was in Nixon’s day. And the people in government are much more left-wing than they were during the Nixon regime 50 years ago. If the Democrats are reelected in November—which I expect, despite Trump’s current lead—you can expect them to further centralize power towards Washington.
Government, as an institution, is congenitally incapable of learning anything. The first example of wage and price controls was under the emperor Diocletian in late Third Century Rome, when he attempted to regulate the price of every good and service, from the largest to the smallest. It turned the Empire into a veritable police state.
I expect the US government to again use price controls in an attempt to disguise the effects of its accelerating debasement of the currency. Trillions of dollars of new debt are being monetized by the Fed every year; the result will be escalating prices. It’s perverse because, in a free market economy, prices would be dropping every year with the growth of capital and improvements in technology.
In any event, as things start falling apart and the standard of living starts dropping, people will cry out for government to “do something.” And it will. They think the government is a cornucopia when it’s actually a predator. War, a unique specialty of government, will be another major impetus for imposing wage and price controls.
We had wage and price controls during World War I and very serious wage and price controls during World War II. They were selectively reimposed for the Korean conflict and, of course, when Nixon was in office during the Vietnam War. With World War III brewing, wage and price controls will definitely be part of the agenda.
As governments found during the days of Diocletian, you can’t control absolutely everything—even when the economy is simple and primitive. But it’s impossible with millions of inputs and billions of transactions daily. Entirely apart from being both destructive and immoral.
Input costs inevitably rise, and retail prices have to reflect that. It becomes physically impossible to produce the goods when costs exceed the sales price. Producers fail if they try to both produce and obey the laws. You arrive at a situation where you can legally have all of “product X” that you want at Y price—except that none exists. During the Nixon controls, we had critical shortages of gasoline because the Arabs raised the price of their oil—due to a depreciating dollar—but US refiners couldn’t raise the price of gasoline.
The average guy won’t blame the government for shortages and a drop in his standard of living. If he’s paying more for beef, he’s going to blame the butcher. If he’s paying more for gasoline, he’s going to blame Exxon. He’s not going to blame the actual source of the problem, the government, because it isn’t selling products and claims they’re fighting inflation by penalizing the evil and greedy producers.
One of the additional dangers of wage and price controls is that more than ever, people will hate the producers who sell them goods. They will go to the government, asking for price controls, which they think is a solution. The result will be black markets, where producers avoid price controls by selling things illegally under the counter for economic prices.
I hasten to say there’s nothing wrong with black markets. Black markets are actually free markets. Black markets are both good and necessary to avoid the negative effects of government intervention. The result will be more discord and social unrest as people blame each other for higher prices, with some ratting out others to the authorities
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