The Private Sector’s Wage and Price Controls…
Price controls may be enacted with the best of intentions, but they often don't work. Most attempts to control prices often struggle to overcome the economic forces of supply and demand for any significant length of time. When prices are established by commerce in a free market, prices shift to maintain the balance between supply and demand.
- Price Controls – Investopedia
By Gregg Wall (1-8-22)
There were two interesting stories I was looking at writing this week, one, on private sector wage and price controls, and a second, what good democratic government looks like, right here in Canada, with the recent passage of LGBTQ protections (w/ the elimination of conversion therapy) and reparations for First Nation’s children.
So, I flipped a Toonie… Polar Bear, the economics story; Monarch, the Canadian good governance story.
And we get polar bear and wage and price controls.
Entering college in the early eighties some of my earliest memories in economics class concerned the heresy of government intervention into markets. This was a time when laisses-faire was ascendant, inflation was being tamed by a man named Paul Volcker, and the economy and the Reagan Revolution were about to take off. So, of course, it would come as no surprise that wage and price controls were talked down in the classroom and roundly berated by professors and textbooks. Afterall, the market was all knowing. Wage and price controls interfered with markets and business interests, and said controls were known to fail. At that time, ironically enough, President Nixon was pointed out as yet the latest example where wage and price controls had been enacted and were a failure; that is to say, they did not cure inflation, which would grow to double-digits by the late seventies.
Some additional points the textbooks made: if the price control is set too low, it can cause shortages, as manufacturers cannot breakeven at the established price point. Quite simply, they cannot make a buck and they stop producing. Or producers and manufactures may take short cuts and the quality of goods and products suffer. So best to let sleeping dogs lie, shelve the government intervention, and let markets take care of things?
But the reality is price controls do work… and there is no better example than right here in Canada, where drug manufacturers, Big Pharma, are subject to pricing constraints set by the Federal Government and regulatory authorities. And I’m happy to report there is no price gouging, vis-a-vis the United States, and there are – surprise – no shortages of medicines in Canada. In fact, as best as I can tell, if the price control is set above the cost inputs of said medicine, or product (ingredients, labor, factory, overhead, tax, with a nominal profit margin), there is zero reason for said price control not to work. There is zero excuse for price gouging that is endemic within the U.S.
Moreover, the entire premise of the libertarian argument, against price controls, assumes that we have a much purer form of capitalism than is practiced in the U.S. today. Real capitalism is traditionally defined as many competing entrants/entities in a given marketplace, versus the perversion that exists in America today… an economy that has been allowed to metastasize into cartel and monopoly, in sector after sector after sector. Ideally then, many competing entrants, competing against each other, holds greed and unwarranted/unmerited price increases in check.
But that’s not what we have in America today, is it?
As mentioned, in America today, we have a monopoly economy where unelected and unaccountable corporate dictators set their own prices, or price controls (characterized as exhibiting zero restraint), and, as they increasingly are the only game in town, throughout rural America, they set the going hourly wage. As they face no competition – and there is no price or wage discovery, beyond what said monopolist or corporate dictator sets - there are no checks on greed and the prices set by monopolies and utilities. And as congress is entirely corrupt, bought off and paid for, and often fully invested in these companies… the government serves as zero check against the predatory wage & price controls put in place by America’s monopolies and utilities. Our American regulatory agencies and Justice Department – which have done little to enforce antitrust, and regulate monopolistic price fixing, manipulation, and Wall St – are in fact, entirely captured.
But the chaos and nihilism doesn’t end there. For just as the consumer is gouged, workers and suppliers face the complete opposite, they are shorted. Their wages & earnings stagnate. As there are no competitors for their labor, nor safety net to help labor through employer/labor negotiations, the American worker must accept what Walmart, Amazon, or the local utility offers. Suppliers and many mom & pops too, like cattle producers, are crushed by monopsony power, as a cartel of meat processors dictates the price per head of cattle (as we read recently in a New York Times piece).
Wall Street of course plays a role as well, a convenient one for many monopolies and it is this: Wall St speculators bid up commodities and cost inputs, which monopolists are all too happy to pass onto the consumer. The ever-rising commodity price, thanks to Wall St speculators, also provides a convenient excuse for the monopolist to hike prices ever higher, and of course, a convenient reason to tack on additional overhead, markup, and profit load. The prices soar higher and higher under monopoly and utilities, w/ zero checks provided by a functioning free market economy, competition, and zero American government intervention. It's the mirror image of government setting price, except today we have unaccountable corporate dictators, or CEOs, setting price & wages.
Perhaps it’s because I’ve been reading Jung’s Synchronicity, but my subconscious in bubbling up many theories once used against the government (by libertarians and the neoclassical school of economics), like wage and price controls, and they are manifesting themselves, in of all places, within America’s neoliberal economy. (Notice too, shortages are appearing when we hand the economic car keys over, entirely, to the private sector, monopolies, and cartels.)
Such irony then, that wage and price controls are manifesting themselves in the private sector, under the perversion that is the monopoly/statist economy, and to the complete detriment of consumers, labor, responsible government, and the economy itself.
And to the exclusive reward of a predatory elite.
Copyright JM Hamilton Publishing 2022
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