The actual case for price controls
The return of inflation has seen some commentators call for a return to wage and price controls. As we saw inan argument for such controls – just not the one that its supporters might assume. Wage/price controls cannot stop inflation, which is caused by monetary policy. What they might be able to do is prevent high unemployment. Since it’s politically difficult to cut wages, amonetary policy that sharply and unexpectedly reduces inflation may lead to aperiod of high unemployment until wages adjust to the lower level. The “dirty little secret” of wage/price controls is that the government’s actual objective is to control wage growth to try to prevent tighter monetary policy causing high unemployment; the price controls are a “fig leaf” to make the policy seem fairer and hence more politically feasible. Historically the UK government was more honest than most about this, calling such controls “incomes policies”. That’s the theory. But it won’t work in the real world. Why? Because they assume a competent and well-intentioned government. But if you had a competent and well-intentioned government, you would never have had the inflation in the first place.
