Wednesday, July 3, 2013

Price controls once again

I was off for a few days. In a previous post on price controls, in the comments, I suggested the book by Hugh Rockoff "Drastic measures A history of wage and price controls in the United States" and posted the following quote, which suggests under which conditions they were efficient in the 1940s (1984, p. 108):
"In a sense the democratic process wrote its own evaluation of controls: Selective controls were a failure; the hold-the-line policy was initially a success; but failed when, at the end of the war, the constraints on collective bargaining and rationing became too confining. The statistical record, on the whole, tends to confirm this judgment. Perhaps the simplest question is, Did controls "work" in the elementary sense that the rate of inflation was kept below some arbitrarily small figure, say 5 percent per year? The answer that emerges (Table 4.3) depends on the particular subperiod one examines. From April 1943, when President Roosevelt issued the Hold-the-Line Order, until June 1946, when controls temporarily expired, inflation was held to a measured rate of only 2.3 percent per year. The true rate was probably somewhat higher, but even with an allowance for errors in the published index - an estimate of inflation partially corrected for these errors is in parentheses - controls were a success in this elementary sense. On the other hand, under less than total control the rate of inflation was not effectively restrained. Of particular interest are the periods April 1942 to April 1943 and February 1946 to June 1946 which give the rate of inflation under the General Maximum Price Regulation and under President Truman's reconversion policy, respectively. In both cases the economy was under extensive price controls, but in neither case was the rate of inflation held down. The difference seems to be that during the high tide of price controls, they were backed up by a vigorous enforcement effort and three important supplementary measures - wage controls, the seizure of noncomplying industries, and rationing both of resources and of final products."
The book is available here.

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