Weekly Market Update by Retirement Lifestyle Advocates

          I find it remarkable how economic cycles repeat themselves.

          I also find it remarkable how unaware of this phenomenon many US citizens and aspiring retirees are.

          Presumed Democratic presidential candidate Kamala Harris, his past week suggested that price controls be used to control inflation.  This from UPI (Source:  https://www.msn.com/en-us/news/other/kamala-harris-to-propose-federal-ban-on-food-and-grocery-price-gouging/ar-AA1oR0Zc?ocid=BingNewsSerp):

Vice President Kamala Harris will propose a federal ban on corporate food and grocery price gouging when she lays out her policies in a North Carolina campaign speech Friday.

According to the campaign, the proposal against price gouging is part of the larger Harris economic policy platform she plans to roll out publicly at a Friday campaign rally in Raleigh.

“There’s a big difference between fair pricing in competitive markets, and excessive prices unrelated to the costs of doing business,” the Harris campaign said in a statement. “Americans can see that difference in their grocery bills.”

Directly addressing soaring meat prices, Harris will focus on corporate consolidation in that market as one reason meat prices are so high.

          While many American voters may find the idea of price controls appealing, the bottom line is this:  they don’t work and always lead to product shortages.

          In 1971, when President Richard Nixon eliminated the link between the US Dollar and gold, he also imposed price controls.  A review of the recorded conversations between Nixon and his advisors that are available for review reveals that Nixon and his advisors knew that price controls wouldn’t work, but also calculated that rolling them out prior to the 1972 election might be politically helpful.

          This from “The Cato Institute” on the topic (emphasis added) (Source:  https://www.cato.org/commentary/remembering-nixons-wage-price-controls):       

On Aug. 15, 1971, in a nationally televised address, Nixon announced, “I am today ordering a freeze on all prices and wages throughout the United States.”

After a 90-day freeze, increases would have to be approved by a “Pay Board” and a “Price Commission,” with an eye toward eventually lifting controls — conveniently, after the 1972 election.

Putting the U.S. economy “into a permanent straitjacket would … stifle the expansion of our free enterprise system,” Nixon said. As President George W. Bush put it in 2008, sometimes you have to “abandon free-market principles to save the free-market system.”

There was no national emergency in the summer of ’71: unemployment stood at 6 percent, inflation only a point higher than it is now. Yet, after Nixon’s announcement, the markets rallied, the press swooned, and even though his speech pre-empted the popular Western Bonanza, the people loved it, too — 75 percent backed the plan in polls.

As Nobel Prize-winning economist Milton Friedman correctly predicted, however, Nixon’s gambit ended “in utter failure and the emergence into the open of the suppressed inflation.” The people would pay the price — but not until after he’d coasted to a landslide re-election in 1972 over Democratic Sen. George McGovern.

By the time Nixon reimposed a temporary freeze in June 1973, Daniel Yergin and Joseph Stanislaw explain in The Commanding Heights: The Battle for the World Economy, it was obvious that price controls didn’t work: “Ranchers stopped shipping their cattle to the market, farmers drowned their chickens, and consumers emptied the shelves of supermarkets.”

Several lessons from Nixon’s folly remain highly relevant today.

First, it’s usually Congress that lays the foundation for an imperial presidency with unconstitutional delegations of authority to the executive branch. The Economic Stabilization Act of 1970 gave Nixon legislative cover for his actions.

The act was “a political dare,” according to top Nixon official George Shultz — the Democrats thought Nixon wouldn’t use the powers they’d granted him, but he called their bluff.

Second, the damage presidents do with economic powers they shouldn’t have can take years to repair. Price hikes from the 1973 Arab oil embargo made it politically difficult to unwind controls on gasoline, which led to the gas lines of the late 1970s.

Third, the episode shows the enduring relevance of cartoonist Walt Kelly’s Pogo Principle: “We have met the enemy, and he is us.” As noted, the freeze was overwhelmingly popular. “Bold” presidential action on the economy often is, even when “just stand there — don’t do something!” would be wiser counsel.

In the recent debt-limit fight, for example, liberal Democrats who’d spent eight years railing against Bush’s executive unilateralism begged Obama to break the law and unilaterally raise the debt ceiling, using a fig leaf of a constitutional argument based on the 14th Amendment.

Occasionally, though, we learn something from our mistakes. As Shultz told Nixon in 1973, at least the debacle had convinced everyone “that wage-price controls are not the answer.”

          The bottom line when it comes to price controls is this:  when the profit motive is removed from a business, the business owner quits producing the product.

          If it costs more to raise a chicken to maturity than a farmer can receive for selling the chicken, the farmer quits producing the chicken.  It really is that simple.

          Price controls eventually lead to empty store shelves and product shortages.  Price controls also disrupt supply chains and cause even more inflation when they are lifted.

          Price controls have no positive or redeeming economic purpose.  They are nothing more than a political tool used by short-sighted politicians who are incapable of thinking past the next election.

          Price controls were used in the United States in the 1940s as well.

          In addition to price controls to try to keep inflation in check, the government also issued ration stamps to try to appease an angry populace.  When the price controls were lifted in the late 1940’s, inflation surged.

          This from “NPR” (Source:  https://www.npr.org/sections/money/2022/02/08/1078035048/price-controls-black-markets-and-skimpflation-the-wwii-battle-against-inflation):

When the government ended up lifting price controls in 1946, it was like it violently awoke inflation from its slumber. In 1947, the annual inflation rate jumped to more than 20 percent. That is far and away the highest annual rate of inflation the US has seen in the last 80 years.

For the most part, most mainstream economists these days are dead set against reinstating a sprawling system of price controls and rationing. They argue it would result in a lot of costly bureaucracy. It would destroy market incentives that boost the production of goods and services and could lead to shortages. It would lead to black markets and skimpflation and other forms of hidden inflation.

          Bottom line:  price controls never work.  Should the politicians decide to try them again, this indisputable fact will be proven once again.

          I think it was Albert Einstein who is attributed with this quote:

“The definition of insanity is doing the same thing and expecting a different result.”

          This week’s RLA radio program features an interview that I did with Mr. Kerry Lutz, the founder of “The Financial Survival Network”.

          The radio program is posted and available now by clicking on the "Podcast" tab at the top of this page.  The weekly Headline Roundup newscast is also posted there.  If you haven’t yet done so, check out the free resources available on the website.

“Only an educated and informed people will be a free people.”

                                                      -John F. Kennedy