The Consensus on Price Controls
On the Chicago Booth Initiative on Global Markets last month is the following statement:
Price controls as deployed in the 1970s could successfully reduce US inflation over the next 12 months.
The 43 economists polled, all of them at prestigious colleges, are asked to disagree, strongly disagree, state that they are uncertain, agree, or agree strongly. They also have the option of having no opinion or not answering.
0 people strongly agreed, 10 agreed, 5 were uncertain, 21 disagreed, 4 strongly disagreed, 1 had no opinion, and 2 did not answer. So 25 out of 43 disagreed or disagreed strongly.
Why wasn’t it 43 out of 43, which I would have expected given both basic economic reasoning about price controls and our bad experience in the 1970s?
One reason is that some of the economists polled read the question more carefully than I did. I took the statement to mean the actual cost of getting goods of a given quality. We know that price controls reduce quality and also raise the time cost of getting goods.
But the statement didn’t make clear that those things ought to be included.
My guess is that the ones who expressed disagreement had in mind something like what I had in mind. Some of them, such as Robert Shimer of the University of Chicago, expressed that. And many of those who stated agreement pointed out that the reported inflation number could fall but that there would be huge problems.
Here are the comments from the 9 of the 10 agreers who bothered to give their reasons:
Daron Acemoglu, MIT. Effective price controls, by definition, would reduce price increases, but they would most probably create other huge distortions.
David Autor, MIT. Price controls can of course control prices–but they’re a terrible idea!
Darrell Duffie, Stanford. Barring illegal price setting, this seems to be mechanically true. A more interesting question is whether price controls are a good idea.
Aaron Edlin, Berkeley. Price controls could temporarily reduce inflation at a cost of shortages and possibly later inflation.
Oliver Hart, Harvard. They could reduce inflation but the consequence would be shortages and rationing.
Kenneth Judd, Stanford. Yes, it could reduce inflation over the short run–but only temporally–just as the 1971 controls did. Too much money creation.
Eric Maskin, Harvard. I imagine that price controls could restrain inflation–but that doesn’t mean such controls are a good idea.
Jose Scheinkman, Columbia University. Could lower measured inflation but would generate inefficiencies and cause even higher inflation when controls are lifted (see US 1974)
Richard Schmalensee, MIT. Over 12 months, probably, but with significant costs.
Notice that all 9 are essentially saying that price controls are a bad idea. The only agreer who didn’t give her reasons was Amy Finkelstein of MIT.
4 of the 5 who answered “uncertain” pointed to the problems that those who critique price controls typically point to:
Robert Hall, Stanford. Some observers think that high inflation in 1974 was the result of earlier controls, which would suggest some control effects.
William Nordhaus, Yale. Perhaps could reduce inflation in the short run as 1970s. Would only cause more shortages and a terrible idea.
Carl Shapiro, Berkeley. What does “successfully” mean? Price increases could be controlled to some degree but the underlying supply problems would be made worse.
James Stock, Harvard. There might be some ephemeral success because of the way inflation is measured, but longer-run, price controls would be ineffective.
So 9 of the 10 who agreed think they’re a bad idea and 4 of the 5 who expressed uncertainty think they’re a bad idea. Add those 9 and 4 to the 21 and 5 who disagreed or strongly disagreed, and you get 39 out of 43 who are explicitly critical of price controls.
Not a single one said that price controls are a good idea.
By the way, although I don’t often say positive things about Austan, I loved the University of Chicago’s Austan Goolsbee’s justification for his Strongly Disagree answer:
Just stop. Seriously.