As part of a recent Washington Post symposium on combating inflation, the Roosevelt Institute’s Todd Tucker proposed implementing price controls, asserting that the “time is now to begin destigmatizing greater democratic control over price levels.” The idea that price controls would bolster democracy is not new. President Franklin D. Roosevelt argued that a system of price controls and rationing was “the only Democratic, equitable solution.” Chester Bowles, administrator of the Office of Price Administration (OPA) from 1943 to 1946, referred to the OPA’s work as “big democracy in action.”
OPA was indeed big, with broad participation. More than 100,000 volunteers served on 5,500 local price control boards, or “little OPAs,” in nearly every county, with members “drawn from all walks of life—farmers, housewives, merchants, artisans, professional men, and wage earners,” according to Harvey Mansfield’s A Short History of the OPA. It is tempting to romanticize the work of the OPA and to imagine price controls as a democratically legitimate solution to our inflation problem. As a macroeconomist and economic historian, however, I have qualms about price controls on economic grounds. But I am just as concerned about their implications for democracy.
As Mansfield explains, the origins of the OPA were distinctly undemocratic: “Its statutes and its regulations on specific commodities were law, not in answer to popular insistence, but because economists—worse yet, Government economists . . . convinced the President and Congress that swift action according to their prescription was needed.” Once in place, the price-control system expanded both the surveillance state and the administrative state, delegating enormous power to unelected technocrats and bureaucrats.
Delegation to technocrats is sometimes justified in policy areas requiring substantial expertise, but not without strong checks and accountability mechanisms to maintain democratic legitimacy. Judicial review is one such check, but Congress knew that consistent enforcement of price controls across the country would be impossible if the OPA’s regulations and orders could be challenged in district courts. The Emergency Price Control Act of 1942 thus granted exclusive jurisdiction to a new Emergency Court of Appeals staffed with New Deal judges who almost always sided with the OPA’s administrator. Meanwhile, the OPA administrator could bring suit in federal and state courts to enforce even regulations under review by the Emergency Court. The OPA instituted 280,724 sanctions from 1942 to 1947, and won 94 percent of cases brought to judgment, collecting more than $73 million in fines and leading the American Bar Association to express concern over “kangaroo courts.”
Even with more appropriate checks in place, delegation of the price system to technocrats would still be unjustified. Government economists, no matter how well intentioned, simply cannot outperform the market mechanism when it comes to aggregating and transmitting highly dispersed information via prices. This is why black markets, rationing, and shortages were so pervasive under the reign of the OPA. Today our economy is larger and more complex than it was in the 1940s. Interfering with price signals would cause even greater havoc. Tucker notes that “many more officials would need to be hired” to administer price controls and adds that “if we think future crises might merit price controls, expanding governments’ abilities now to track prices throughout supply chains is a must.” But no number of government economists, even equipped with high-tech surveillance technology, can match market mechanisms when it comes to solving the knowledge problem.
Price controls would massively increase the role not only of government economists and bureaucrats but also of corporate and industry lobbyists. This was dramatically demonstrated in the Korean War era. As two legal scholars wrote in 1952, “The role of the Congressman dealing with price control legislation is not a happy one. He is besieged by delegations from industries affected by price regulations; he receives telegrams and letters from scores of influential constituents; he is under constant, relentless and unceasing pressure to protect the interests of particular constituents.” Today, there is already a sense that corporate capture of government threatens American democracy. Price controls would exacerbate this democratic discontent and further undermine public confidence in Congress and our democratic institutions.
Inflation, now at a 40-year high, is a serious economic and social threat, but monetary policy, not price controls, is the democratically legitimate solution. Leaving price stabilization to an independent central bank like the Federal Reserve might seem even less democratic than imposing price controls, but while Fed officials are not democratically elected, they have a mandate from Congress and face various accountability mechanisms. This system is certainly imperfect and is undermined when the Fed strays from its mandate. A more constrained, predictable, and narrowly focused central bank could prioritize price stability and leave politics to the politicians. Compared with price controls, rule-based monetary policy entails much less state intervention in our daily lives and is much more likely to work.