Why Price Controls Are Such a Disaster

Why the Kamala Harris price controls on food will empty the shelves

Price controls are nothing new. They have been tried over and over, all across the world, including in the United States, with the same results. In fact, price controls have performed so poorly over so long a period, that philosophically, liberal and conservative economists essentially have the same position on them; they’re a bad idea. Quite frankly, there practically are no knowledgeable, well-meaning advocates of price controls. Advocates of price controls are almost universally either ignorant, politicians trying to shift the blame for their mistakes, or the supporters of those candidates.

Why can we say that with such confidence?

Well, first and foremost, once you understand the basic principles of economics, it becomes easy to see why price controls don’t work. Here are quotes from the late, great Milton Friedman and Thomas Sowell explaining what happens when price controls are imposed:

Our government? It’s slow, stupid, inefficient and it cares nothing about whether our money is well spent. The private sector? They don’t operate that way. The private sector is fast, smart, efficient and it cares a great deal about profits and expenses. Companies, their investors, and their shareholders are not fine with their profits going down. If it happens, they’re going to adjust. For example, that’s why “shrinkflation” has been relatively common during the inflation we’ve seen since Joe Biden and Kamala Harris got into office:

If profits get too low or worse yet, the companies start losing money, they will stop producing the product entirely. Just to simplify this, if your kid was making $1 per glass of lemonade and selling a lot of it at a stand in front of your house, he’ll probably keep selling it to save up for a bike. On the other hand, if he’s losing money on every glass of lemonade he sells, he’s going to stop selling it because it makes no sense to spend all day selling lemonade only to end the day poorer than when you started.

Companies do the same thing and when the government puts price controls in place, they adjust their behavior. That may mean providing a worse product, less of a product, or sometimes no product at all.

In the seventies, we had price controls on gasoline. The result? Rationing and lines to get gasoline:

Almost 25 years ago, California put price controls on electricity. The result? California’s largest utility filed for bankruptcy, suppliers of power sold to the states around California, and there were rolling blackouts. To this day, some liberals will blame everything except the price controls for that disaster, even though the second they put them in place, there were lots of people correctly pointing out what was going to happen next and they were right:

Many South American countries have tried price controls. It usually ends with empty supermarket shelves. In Venezuela, it was even worse. Near the end, people were abandoning their starving pets and eating zoo animals.

So, if this is so obviously a bad idea, why do politicians keep proposing it?

Well, today Kamala Harris is supposed to be offering up price controls on food. Why do you think she’s doing it? Let’s start with the Deseret News analysis of her proposal:

Vice President Kamala Harris will reportedly call for price controls — a federal ban on food and grocery price gouging by corporations — in a speech on Friday.

...The statement from her campaign said she would concentrate on the meat industry because, “soaring meat prices have accounted for a large part of Americans’ higher grocery bills, even as meat processing companies registered record-breaking profits following the pandemic.”

The price of U.S. food has risen 25% from 2019 to 2023, according to the Economic Research Service.

...An analysis from the White House Council of Economic Advisers released in 2024 showed there were elevated profit margins for grocery retailers, especially during 2021 and 2022. But the report also noted the majority of the price hikes consumers have seen have not come from corporate markups.

Instead, inflation, supply chain issues, rising cost of production for companies, the pandemic, foreign wars, and other factors like avian flu have kept grocery prices high. A study from the Federal Reserve Bank of San Francisco found that across the economy markups have not been a major driver of inflation.

...David Henderson, a research fellow with the Hoover Institution, wrote that there are two outcomes for price control: if the price is above what the market price would be, nothing happens. However, if the price is below the market price, there is a different impact.

“A price ceiling below the free-market price causes buyers to demand more than they wanted at the free-market price and sellers to sell less than they wanted to sell at the free-market price,” wrote Henderson. “The result: a shortage.”

...The University of Chicago’s Kent A. Clark Center for Global Markets surveyed 41 U.S. economy experts in 2022 about inflation. When these experts were asked if higher inflation in the U.S. was due to corporations raising prices to increase their profit margins, the majority of them either disagreed (51%) or strongly disagreed (16%).

These experts were also surveyed on whether or not price controls like those deployed in the 1970s could reduce inflation, the majority of experts said they could not.

Why did we actually have this massive bout of inflation?

The simplified answer is that the Federal Reserve printed a staggering amount of money backed by nothing during COVID. The immediate impact of that was boosting the economy and giving the government lots more money to spend on things like just sending everyone checks in the mail.

It was like a sugar high for the economy that kept it from crashing when the government was stupidly insisting that no one go to work. The flip side of that is that now we have a lot more money than we did before, but the value of the money hasn’t really changed. That means the price of everything has to inflate to match up the cost of goods to the newer, much larger money supply.

Who is at fault for that? The government. Who should people be mad at over that? The government. Know who really doesn’t like that? The government.

Particularly politicians like Kamala Harris who doesn’t want to be kicked out of power. So, price controls are a way of trying to shift the blame. It’s, “We aren’t responsible for this! Those mean, old corporations all just got greedy at the same time and raised their prices all at once! Keep me in power and I’ll fix it by forcing them to charge you less!”

If the population is ignorant enough, this can be a successful strategy for a politician in some cases. Of course, if it works, then inflation just keeps getting worse and worse as the government prints more money and blames the corporations for the higher prices. If you do that for long enough, the next thing you know, you may end up breaking into the zoo because it’s so hard to find food that you want to eat a giraffe.

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