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The Guardian view on food price caps: better at taming inflation than rate hikes | Editorial
The whisper that the government was considering price caps on food, now the biggest driver of inflation, has produced the inevitable backlash. Out scuttled mini-me Thatcherites and big business PRs waving shrouds. Ministers admitted only to looking into the idea of "voluntary" controls. But the last 15 years have shown that state intervention is considered economic heresy until it becomes politically necessary.
While control of inflation is the job of the Bank of England, the government has made halving inflation this year one of the five pledges on which it wishes to be judged. Since 2008 there has been a turn away from free-market ideology, as it became increasingly clear that the economy was not working in the way textbook models had assumed. This has become obvious in the case of inflation, which mainstream economists mistakenly viewed from the vantage point of the 1970s. Seen from here, rising prices are to do with too much demand in relation to economic capacity on one hand, and too much money chasing too few goods on the other.
This outlook has been overtaken by a new consensus, spearheaded by Isabella Weber, at the University of Massachusetts Amherst, who says that not only is this the wrong interpretation, but so is the idea that rising prices can be tackled by rising interest rates.
Instead, Dr Weber looks at the problem through the lens of distributional conflict between workers and companies. She argues in her latest paper that firms with market power can hike prices, and a widespread acceptance that they have a chance to cash in leads to "seller's inflation". Workers react by attempting to protect real wages. From this perspective, labour conflict is not the origin but the consequence of inflation.
Floating the idea of price controls is a step towards vindicating Dr Weber's thesis – which she first outlined in the Guardian in December 2021 – and the associated phenomenon of greedflation. Her article singled out the long-neglected alternative to rising interest rates to tackle inflation: strategic, targeted price controls. Neoliberals judged this to be an act of madness. But time has been on Dr Weber's side. She ended up advising the German government last year, while many European nations resorted to food price caps. One of the reasons Switzerland had very low inflation in 2022 was its extensive use of price controls.
Given that the Conservatives have intervened with an energy price cap and explicitly acknowledged that this has restrained inflation, it is telling that the government cleaves to old nostrums. As one City analyst wryly noted, "the first rule of profit-led inflation is that you do not talk about profit-led inflation". Even if a more interventionist state is no longer taboo, the shift still needs to be presented as part of a coherent Tory narrative.
That Rishi Sunak is contemplating capping food costs is a tacit admission that without further measures he risks missing his target to cut inflation. The reason Mr Sunak made that promise is that slowing price rises is the only way in which, under his self-imposed rules, he can offer wrong-headed, crowd-pleasing tax cuts before the next election. Such policies have for more than 40 years resulted in growing disillusionment and despair. Mr Sunak's orthodox politics militate against the emergency price-stabilisation policies and inequality-reducing redistribution that would fight inflation in a fair and socially steadying manner. But that is what the country needs.
Could strategic price controls help fight inflation?
Inflation is near a 40-year high. Central banks around the world just promised to intervene. However, a critical factor that is driving up prices remains largely overlooked: an explosion in profits. In 2021, US non-financial profit margins have reached levels not seen since the aftermath of the second world war. This is no coincidence. The end of the war required a sudden restructuring of production which created bottlenecks similar to those caused by the pandemic. Then and now large corporations with market power have used supply problems as an opportunity to increase prices and scoop windfall profits. The Federal Reserve has taken a hawkish turn this month. But cutting monetary stimulus will not fix supply chains. What we need instead is a serious conversation about strategic price controls – just like after the war.
Today economists are divided into two camps on the inflation question: team Transitory argues we ought not to worry about inflation since it will soon go away. Team Stagflation urges for fiscal restraint and a raise in interest rates. But there is a third option: the government could target the specific prices that drive inflation instead of moving to austerity which risks a recession.
To use a metaphor: if your house is on fire, you would not want to wait until the fire eventually dies out. Neither do you wish to destroy the house by flooding it. A skillful firefighter extinguishes the fire where it is burning to prevent contagion and save the house. History teaches us that such a targeted approach is also possible for price increases.
The White House Council of Economic Advisers suggests that the best historical analogy for today’s inflation is the aftermath of the second world war. Then and now there was pent up demand thanks to high household savings. During the war this was a result of rising incomes and rationing; during Covid-19 that of stimulus checks and shutdowns. At both times supply chains were disrupted. This is as far as the White House advisers’ interpretation of the parallel between the two episodes goes. What they do not tell us is that the inflation after the war was not without an alternative.
During the second world war the Roosevelt administration imposed strict price controls and instituted the Office of Price Administration. In comparison with the first world war, price rises were low, while the increase in output was almost beyond imagination. After the war, the question was what to do with the price controls. Should they be released in one big bang as southern Democrats, Republicans and big business were urging? Or did price controls have a role to play in the transition to a postwar economy?
Some of the most distinguished American economists of the 20th century called for a continuation of price controls in the New York Times. This included the likes of Paul Samuelson, Irving Fisher, Frank Knight, Simon Kuznets, Paul Sweezy and Wesley Mitchell, as well as 11 former presidents of the American Economic Association. The reasons they presented for price controls also apply to our present situation.
They argued that as long as bottlenecks made it impossible for supply to meet demand, price controls for important goods should be continued to prevent prices from shooting up. The tsar of wartime price controls, John Kenneth Galbraith, joined these calls. He explained “the role of price controls” would be “strategic”. “No more than the economist ever supposed will it stop inflation,” he added. “But it both establishes the base and gains the time for the measures that do.”
President Truman was aware of the risks of ending price controls. On 30 October 1945, he warned that after the first world war, the US had “simply pulled off the few controls that had been established, and let nature take its course”. And he urged, “The result should stand as a lesson to all of us. A dizzy upward spiral of wages and the cost of living ended in the crash of 1920 – a crash that spread bankruptcy and foreclosure and unemployment throughout the Nation.” Nevertheless, price controls were pulled in 1946, again triggering inflation and a boom-bust cycle.
Today, there is once more a choice between tolerating the ongoing explosion of profits that drives up prices or tailored controls on carefully selected prices. Price controls would buy time to deal with bottlenecks that will continue as long as the pandemic prevails. Strategic price controls could also contribute to the monetary stability needed to mobilize public investments towards economic resilience, climate change mitigation and carbon-neutrality. The cost of waiting for inflation to go away is high. Senator Manchin’s withdrawal from the Build Back Better Act demonstrates the threat of a shrinking policy space at a time when large scale government action is in order. Austerity would be even worse: it risks manufacturing stagflation.
We need a systematic consideration of strategic price controls as a tool in the broader policy response to the enormous macroeconomic challenges instead of pretending there is no alternative beyond wait-and-see or austerity.
Isabella Weber is an assistant professor of economics at the University of Massachusetts Amherst and the author of How China Escaped Shock Therapy
インフレ率は40年ぶりの高値に近づいている。世界中の中央銀行は介入を約束した。しかし、価格を押し上げている重要な要因は、利益の急増というほとんど見落とされています。2021年、米国の非金融利益率は、第二次世界大戦の余波以来見られなかったレベルに達した。これは偶然ではありません。戦争の終結には、パンデミックによって引き起こされたものと同様のボトルネックを引き起こした突然の生産再編を必要とした。当時も現在、市場力を持つ大企業は、価格を上げ、思いがけない利益をすくい取る機会として供給問題を利用しています。連邦準備制度理事会は今月タカ派のターンを取りました。しかし、金融刺激策の削減はサプライチェーンを修正しません。代わりに必要なのは、戦後のように、戦略的な価格統制についての真剣な会話です。
今日、経済学者はインフレ問題について2つの陣営に分かれています。チームトランジトリーは、インフレはすぐになくなるので、インフレについて心配するべきではないと主張しています。チームスタグフレーションは、財政抑制と金利の引き上げを促します。しかし、3番目の選択肢があります。政府は、景気後退の危険性がある緊縮財政に移行するのではなく、インフレを促進する特定の価格をターゲットにすることができます。
比喩を使うには、あなたの家が燃えているなら、火が最終的に消えるまで待ちたくないでしょう。あなたも家を浸水させることで家を破壊したくありません。熟練した消防士は、伝染を防ぎ、家を救うために燃えている火を消火します。歴史は、そのようなターゲットを絞ったアプローチが値上げのためにも可能であることを教えてくれます。
ホワイトハウス経済諮問委員会は、今日のインフレに対する最高の歴史的アナロジーは、第二次世界大戦の余波であることを示唆しています。その後、そして今、高い家計貯蓄のおかげで、抑圧された需要がありました。戦争中、これは収入の増加と配給の結果でした。Covid-19の間、景気刺激策のチェックとシャットダウンの結果でした。どちらの時もサプライチェーンが中断された。これは、2つのエピソードの類似点に関するホワイトハウスの顧問の解釈に関するものです。彼らが私たちに言わないのは、戦後のインフレには代替案がなかったということです。
第二次世界大戦中、ルーズベルト政権は厳格な価格統制を課し、価格管理局を設立した。第一次世界大戦と比較して、価格の上昇は低かったが、生産量の増加はほとんど想像をはるかに超えていた。戦後、問題は価格統制をどうするかだった。南部の民主党員、共和党員、大企業が促していたように、彼らは1つのビッグバンで解放されるべきですか?それとも、価格統制は戦後の経済への移行に果たすべき役割を果たしましたか？
20世紀の最も著名なアメリカの経済学者の一部は、ニューヨークタイムズで価格統制の継続を求めた。これには、ポール・サミュエルソン、アーヴィング・フィッシャー、フランク・ナイト、サイモン・クズネッツ、ポール・スウィージー、ウェズリー・ミッチェル、アメリカ経済協会の11人の元会長などが含まれます。彼らが価格統制のために提示した理由は、私たちの現在の状況にも当てはまります。
彼らは、ボトルネックが供給が需要を満たすことを不可能にしている限り、価格が急上昇するのを防ぐために重要な商品の価格管理を継続すべきだと主張した。戦時中の価格統制のツァーリ、ジョン・ケネス・ガルブレイスがこれらの呼びかけに参加しました。彼は「価格統制の役割」は「戦略的」であると説明した。「経済学者が思っていた以上にインフレを止めることはない」と彼は付け加えた。「しかし、それは基盤を確立し、そうする措置のための時間を得ます。」
トルーマン大統領は、価格統制を終了するリスクを認識していました。1945年10月30日、彼は第一次世界大戦後、米国は「単に確立されたいくつかのコントロールを脱し、自然をそのコースに乗せた」と警告した。そして彼は、「結果は私たち全員への教訓として立つべきだ」と促した。賃金と生活費のめまいがする上昇スパイラルは1920年の暴落で終わりました - 破産と差し押さえと失業を全国に広げた暴落。」それにもかかわらず、価格統制は1946年に撤回され、再びインフレとブームバストのサイクルを引き起こしました。
今日、価格を押し上げる継続的な利益の爆発を許容するか、慎重に選択された価格で調整されたコントロールするかの選択肢が再びあります。価格統制は、パンデミックが続く限り続くボトルネックに対処する時間を稼ぐだろう。戦略的な価格統制は、経済的回復力、気候変動の緩和、カーボンニュートラルに向けて公共投資を動員するために必要な金融の安定にも貢献できます。インフレがなくなるのを待つコストは高い。マンチン上院議員のBuild Back Better Actからの撤退は、大規模な政府の行動が整っている時に政策空間が縮小する脅威を示しています。緊縮財政はさらに悪化するだろう：それはスタグフレーションを製造するリスクがある。
様子見や緊縮財政以外の選択肢がないふりをするのではなく、巨大なマクロ経済の課題に対するより広範な政策対応のツールとして、戦略的価格統制を体系的に検討する必要があります。
イザベラ・ウェーバーは、マサチューセッツ大学アマースト校の経済学助教授であり、How China Escaped Shock Therapyの著者です。
