Imprimis
"Of course, if we are in a period of inflation, price fixing does immensely more harm. It is never a cure for inflation. Rather it is an attempt to direct the blame away from government. What causes inflation is an increase in the supply of money and credit. This is often brought on, directly or indirectly, by government policies—especially when the Federal Reserve decides to print new money to fuel government deficits."
"Editor’s Note: The first issue of Imprimis, published in May 1972, featured an article titled “The Dangers of Price Controls” by Henry Hazlitt. The Federal Reserve back then was printing large amounts of money to fund massive government spending on Great Society programs launched during the presidency of Lyndon Johnson. As a result of printing so much money, the U.S. economy was suffering from rapid inflation. To address inflation, Federal Reserve Chair Arthur Burns and the Nixon administration dreamed up wage and price controls.
"Today we face a similar situation. The Federal Reserve has been printing a lot of money to fund the huge expansion in the size and scope of government that took place during and after the Covid pandemic. In response to the resulting inflation and the political unrest that comes with it, Vice President Harris and others are promising to outlaw “price gouging”—in other words, to impose price controls—which will eventually lead to wage controls as well, since production and prices involve both in an intimate way.
"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 Wesbury that bring Hazlitt’s classic piece into today’s world.
"The first thing to be said about price and wage fixing is that it is harmful at any time and under any conditions. It is a giant step toward a dictated, regimented, and authoritarian economy. It makes impossible arrangements that both sides are willing to agree to. It sets aside contracts that have already been made in good faith. If an employer wishes to give a man a raise in pay, and the man deserves it, he is nonetheless forbidden to do it under the new regulations. This is a grave abridgment of individual liberty.
"Price and wage fixing does harm even if there is no inflation. In a free economy prices are constantly changing. They are changing to reflect changes in supply and demand, in costs, and in a hundred other conditions. Some prices are going up, other prices are going down. If an effort is made to freeze prices and wages exactly where they are, it immediately disturbs the relationship of prices and comparative profit margins, which decides what things will be made and what quantities they will be made in. It upsets the process by which the free market decides how thousands of different commodities and services are to be made in the proportions in which people want them.
"Of course, if we are in a period of inflation, price fixing does immensely more harm. It is never a cure for inflation. Rather it is an attempt to direct the blame away from government. What causes inflation is an increase in the supply of money and credit. This is often brought on, directly or indirectly, by government policies—especially when the Federal Reserve decides to print new money to fuel government deficits.
"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. The massive spending bills that accomplished this were cynically called the “CARES Act” and, comically, the “Inflation Reduction Act.” Even in the past two years, with the pandemic over and the unemployment rate down near four percent, the government—in adopting what may be the most irresponsible budgets in U.S. history—has been running deficits as high as $2 trillion.
"These deficits have mostly been financed by the Fed’s creation of new money. At the end of 2019, demand bank deposits and currency in the hands of the public totaled $15.3 trillion. Today that figure is $21.1 trillion. That is an increase of 38 percent, most of which occurred in 2020–2021. This is the major cause of the worst U.S. inflation in over 40 years, with consumer prices up 22 percent." . . .
