The actual case for wage/price controls
I am opposed to the imposition of wage/price controls. As we saw in the early 1970s, they are a terrible idea. Nonetheless, there is an argument for wage/price controls. But it’s not the argument that most of its supporters or opponents might assume.
Wage/price controls cannot stop inflation, which is caused by monetary policy. What wage/price controls might be able to do is prevent high unemployment. The real purpose of wage/price controls is to boost employment, not to reduce inflation.
Suppose you believe (as I do) that nominal wages are sticky in the short run. In that case, a monetary policy that sharply and unexpectedly reduces inflation may lead to a temporary period of high unemployment, until wages adjust to the lower level of nominal spending. In that policy environment, controls on wages might, and I emphasize might, be able to prevent the tight money policy from causing high unemployment.
Notice that I mentioned wage controls, not price controls. The dirty little secret of wage/price controls is that the government’s actual objective is to control wage growth, and the price controls are a fig leaf added to make the policy seem more “fair”, thus making it more politically feasible. The UK government was more honest than most, calling them “incomes policies”.
So why don’t wage/price controls work in the real world? Because they only work if you assume a competent and well-intentioned government, and if you had a competent and well-intentioned government then you never would have had the high persistent inflation in the first place.
Thus in 1971, the corrupt Nixon administration tried to juice the economy with expansionary monetary and fiscal policy in order to get re-elected in 1972, and then simultaneously imposed wage/price controls to delay the adverse effects of this stimulus until after the election.
If you have a credible 2% inflation target, then there is absolutely no benefit to wage/price controls. If you don’t have a credible monetary policy, then wage/price controls won’t solve your problem.