Gene J. Puskar/AP Photo
Posted gas prices at a Sunoco mini-mart in Pittsburgh, July 12, 2022
A bill set to be introduced in the House tomorrow would create a task force on emergency price stabilization, intended to recommend strategic price controls.
The proposal, led by Rep. Jamaal Bowman (D-NY), would charge a subgroup of the existing Supply Chain Disruptions Task Force with advising the White House on how to respond to high costs and volatility, and would empower President Biden to recommend setting ceilings and floors on prices.
The sub-task force would be granted subpoena power to examine corporate earnings and expenses, focusing on five sectors: housing, health care, food, energy, and transportation. In an interview with the Prospect, Bowman argued that oversight and regulation of the private sector, including preventing runaway prices in strategically important sectors, is part of a healthy democracy.
“This is not about controlling prices across the entire economy. It’s really looking at where price-gouging is happening, where supply chain shortages are happening,” Bowman said. “Giving the American people a look at corporate books.”
Bowman added that he already supports measures to contain costs, including national rent control and the Heating and Cooling Relief Act, a measure to cap utility bills. While the legislation on emergency price stabilization is unlikely to pass, housing groups said it could be a useful tool to push for rent relief.
“We need people in the president’s administration talking about the rent,” Tara Raghuveer, the director of Kansas City Tenants, told the Prospect of her group’s support for the bill. “I’m not holding my breath that Congress is going to act quickly on this, or much else, right now. We’re going to use this as part of our organizing strategy to push for additional vision and creativity among members of the Biden administration, to explore every avenue they have to institute rent regulation.”
It would not be the first time an American president enacted price controls. During the Second World War, of course, virtually all prices were subject to strict controls under the Office of Price Administration. As economist John Kenneth Galbraith (who worked in the OPA) explained years later, the controls worked well and indeed were central to successful wartime mobilization.
In the 1970s, Congress gave Republican President Richard Nixon the authority to freeze wages and prices through an amendment to the Defense Production Act. The policy was carried out by no less a figure than Dick Cheney, under the supervision of Donald Rumsfeld, as economics researcher Nathan Tankus recently observed. (Responding to criticisms of that policy, and a subsequent jump in inflation, Tankus writes, “To me, the lesson of the Nixon ‘price control’ experience is that you don’t put Richard Nixon, Donald Rumsfeld and Dick Cheney in charge of the economy.”)
Those powers expired in 1974. Bowman’s bill would give Biden new authority to implement strategic price controls. (A subsection would also study whether the president could creatively use existing authorities to manage prices.)
There are competing diagnoses of the recent price increase in food, fuel, and other basic goods. Corporate profits surged as consumer demand recovered after the pandemic, setting off some of the current rise in prices. Many companies have pocketed windfall earnings for shareholders, rather than reinvesting them in greater production. After posting its highest-ever profits for the second quarter in a row last week, Shell announced that it would speed up its share buyback program this year. But it did not increase its capital expenditure plans for 2022.
The government’s principal tool used so far in response has been a blunt instrument: interest rate hikes by the Fed.
Biden voiced criticisms of that capital discipline, jawboning high profits at oil refineries in a letter to fossil fuel executives earlier this summer. The Federal Reserve, meanwhile, has fingered the hot labor market as a culprit for inflation. Chair Jerome Powell said in June that the number of job openings indicates a “real imbalance in wage negotiating.”
Liberal economists have questioned whether labor market power is really driving the high costs, pointing out corporate profits and supply chain shocks due to the war in Ukraine and related trade restrictions. Progressive analysts, including those at the think tank Employ America, also emphasize the role of long-term underinvestment stemming from the weak post-2008 recovery, which they examine in their paper “The Physical Capacity Shortage View of Inflation.”
The government’s principal tool used so far in response has been a blunt instrument: interest rate hikes by the Fed. An emerging debate among policymakers asks whether dampening demand through higher rates will actually alleviate inflation caused by supply shortages—and whether it is fair to make workers bear the pain of an economy stretched thin by war and a pandemic.
“Let’s use a scalpel rather than a sledgehammer,” said Mark Paul, an economist at Rutgers University, who helped write the price controls bill. Isabella Weber, an economist at University of Massachusetts, Amherst whose case for price controls set off a firestorm of debate earlier this year, also advised Bowman’s office closely on the design of the legislation.
“Putting a lid on price is not gonna unblock the Port of L.A. It’s not going to end the war in Ukraine. But at the same time, an exploding price is not going to unblock the port of L.A.,” Weber told the Prospect. “You can prevent prices from shooting up at a time when the price explosion will not have a supply reaction, because there’s an actual, physical barrier, or because you have issued political sanctions, or because the Suez is blocked by a big ship.”
Addressing price hikes driven by supply shortages, in other words, takes time. And if the past few months have shown that a price run-up won’t necessarily persuade executives to invest in more production, the same logic holds in the other direction: Blunting the price signal will not necessarily hold back investments in supply. For instance, Paul said, rent regulation can be designed so that it does not inhibit supply, by renting new construction at fair market value, before price control kicks in.
In Paul’s view, the housing market—where various price regulations already exist in many cities—is the clearest candidate for government involvement to stabilize costs. On price controls for oil, he said, “the jury’s still out.”
Bowman’s bill also states that the task force could recommend establishing price floors, including through purchasing, procurement, and price supports, and could “promote the expansion of relevant productive capacity and, as appropriate, of stockpiles and reserves.”
Raghuveer, the tenant organizer in Kansas City, described a shortage of truly affordable housing, but said that supply problems will take at least three to five years to fix. “That does nothing for the tenant who couldn’t pay rent yesterday,” she said. “Anyone who tells you that a supply-side intervention right now is going to be the answer to the current inflation crisis is lying to you.”
Tax reform, such as corporate taxes proposed in the Inflation Reduction Act, a new compromise between Sens. Chuck Schumer and Joe Manchin, could also help ease inflation. Democratic co-sponsors of the price controls bill include Jan Schakowsky of Illinois, Jerry Nadler of New York, and Rashida Tlaib of Michigan.
Bowman said he was inspired by history to introduce the measure. “The Great Depression and World War II was a time when the American people were going through compounding crises at the same time. In response to that, we did not just implement a windfall profits tax, we also implemented price controls. And we’re going through a similar time right now,” he said.
Bowman acknowledged that calling for price controls could be controversial, but said, “I like ideas that are out there. I think the orthodoxy has left a lot to be desired.”
