An Overview of Price Controls
Since the advent of the New Deal era, the debate surrounding price controls has encapsulated popular economics and politics. Often, the economics and politics have contradicted each other, too. If we are going to critically conceptualize winning policies for a conservative economy, it is important that we recognize this divide. Even more importantly, it is essential we realize this divide is natural and organic. Economic consensus is not always correct, and historically it has not been either. In fact, the story of the most famous economists throughout time, whether that be John Maynard Keynes or Milton Friedman; has been their ability to throw sledgehammers at the proverbial behemoth of economic orthodoxy.
Roosevelt’s New Deal plunged economic orthodoxy into a pit of irrelevancy, by thrusting a plethora of new altercapitalist ideas into policy once considered heretical by the economic establishment. This is the decade where Social Security, public works, unions, and most importantly to this piece; price controls were first established. Justified by Keynes and his contemporaries, Roosevelt laid out the first truly interventionist economic policy in the United States. This was, evidently, both good and bad. It was good in that it created the necessary infrastructure for economic recovery and the social safety net. Even before the Great Depression, the Panic of 1893 – which received no government response – proved the necessity of developing one. However, the long-term negative effects of the New Deal demonstrated a consistent barrier to progress. The New Deal, intentional or not, created the American Welfare state. The social safety net that was supposed to disappear during economic booms, as theorized by Keynes, was unpopular politically – so it continued. The New Deal from this point forward, became an era.
Price controls were always a factor in the New Deal era. From public housing pushed by rent control, to agricultural subsidies and the minimum wage, the Keynesian consensus viewed controlling floors and ceilings as everyday monetary policy. But this easygoing attitude did not last long before it became a noticeable problem. The first cracks were seen in the dissolving of the Economic Stabilization Agency in 1953, which was unpopular with business interests for its over-intervention in the economy to “stabilize” prices and wages. Again in 1970, Richard Nixon took unprecedented action in Executive Order 11615, imposing 90-day freeze on wages and prices to counter inflation. Yet, it was not until the disastrous Carter crude oil price controls of the 1970s, that the public finally had enough with price controls. After being in the purview of the American consciousness for quite some time, it was now front- in-center, and completely ineffective and unpopular.
This populist attitude was one reason for the election of Ronald Reagan in 1980, the rebirth of neoclassical economic ideas throughout his administration, and eventually wider academia. For the new neoclassical consensus emerging – spearheaded by Milton Friedman and Chicago School confidants, price controls were equivalent to bloody murder. Friedman’s frequent attacks on public housing are representing of this prevailing sentiment. The success of this group of heterodox tastemakers is represented even to this day, in what has become our neoliberal consensus. They hold to many of the same assumptions of the neoclassicals, albeit with a wider diversity of opinion on the scale of the welfare state. Agreed to by both is the danger of price controls, with one extremely important exception – the minimum wage.
Right neoliberals have traditionally been against the minimum wage, citing the price control concerns of yesteryear and neoclassical orthodoxy as reason. In practice, this has always played out as attempting to conserve the status quo – as it is shockingly unpopular to tell people that their wage should be cut! Left neoliberals, on the other hand, have traditionally supported a raising of the minimum wage alongside inflation. In practice, this has been promises of raising it, or more popular today – the often-heard moniker of “$15”.
But what has made the minimum wage such a resilient issue to neoliberalism is not just political, it is also a divided economic opinion. More and more economists are coming around to supporting some form of a minimum wage. According to the Initiative on Global Markets, 42% of economists agree or strongly agree that, “A federal minimum wage that is pegged to state and/or local conditions such as the cost of living would be preferable to the current arrangements that give states a role in setting the policy.” This is a stark contrast from the past, when the minimum wage had similar unfavorability to other price controls by economists. These self-evident political factors, and changing economic perspective, have made the minimum wage a uniquely resilient public policy.
The Minimum Wage, Today
The push does not seem to be going away, either. Pedro Gonzalez made waves for his Newsweek article delivering a conservative case for the $15 minimum wage. Senators Mitt Romney and Tom Cotton proposed a gradual increase in the minimum wage over 5 years, and Senator Josh Hawley a $15 minimum wage for corporations making over $1 billion dollars. As right neoliberalism in the GOP is swallowed by a wave of working class conservatism, so too has the largest bloc against the minimum wage. The New Right has an incredible opportunity to utilize this open space to propose new ideas. Let us look beyond price controls, and towards creative solutions for addressing our tumultuous state.
The Case for Ordoliberalism
In Michael Lind’s latest masterpiece, The New Class War, he argues (harkening back to the work of John Kenneth Galbraith and James Burnham) that a new elite stemming from the professional managerial class have became the predominant self-interested policymakers in the West. Lind argues that a return to democratic pluralism – that being a balance between the interests of the employer and employee in society, is necessary. Oren Cass has a similar thesis in his Once and Future Worker, where he argues a return to productive pluralism – or a recognition of the value that producing has on the human soul and wider economic fabric. By uniting these two ideas of democratic pluralism and productive pluralism, we can imagine an economy centered around the common good of a producer and worker equilibrium.
These same assumptions emerged under different names in the years following World War II in Germany, as they attempted to create a stable social market economy. Known often here as “Ordoliberalism”, the German model championed by Walter Eucken and Franz Böhm provided an altercapitalist alternative that prioritized the theoretical balance of power Adam Smith championed in his Wealth of Nations. Using these axioms, Germany instituted some of the strongest anti-competition laws in Europe, firmly preventing the development of monopolies and oligopolies. Workplace democracy and sectoral bargaining were instituted as well. Even to this day, despite the neoliberal reforms in recent years, 59% of the German economy is covered sectorally. Further, co-determination laws enforcing workplace democracy have only been strengthened. Work councils, elected by the employees, provide a direct and ingrained corporate branch for working class interests that we lack, and frequently negotiate wages and benefits for their constituents. It should be noted to union-skeptic conservatives that trade unions have historically been opposed to work councils because of how effective they are in cutting unions out of the picture entirely. These factors of ordoliberal philosophy and policy address both the democratic pluralism and productive pluralism concerns of Lind and Cass, respectively.
But how effective has ordoliberalism really been for Germany in terms of economic sustainability? It’s frugal to lay the entirety of German economic success on one, very niche economic doctrine. However, if we were to take the height of ordoliberal implementation (1970-1979) and measure the success during that era, we can see that the main aggregate of GDP per capita rose nearly 4-fold from 208,867 in 1970 to 852,855 in 1979. These type of gains, especially in the economic ruin that was the 1970s, were pretty remarkable. Not only does it work, but the costs in economic maximalism are negligible.
Naturally, the question arises why these reforms have not already been implemented. The reason descends from the aforementioned neoliberal economic consensus that largely still reigns to this day. This is the ideology of Lind’s “managerial class”, and they are not sympathetic to ideas of a balanced, pluralistic economy. These ordoliberal interests lie entirely with the populist, working class Left and Right in America. Only through challenging the status quo and forcing creativity into the discussion surrounding wages, can we seriously begin to move beyond price controls. It is time we took some lessons from the Rhine.