Kamala Harris proposes price controls; Milton Friedman responds

Presidential candidate and current Vice President Kamala Harris recently revealed her economic agenda. Not a bad idea, given most voters are struggling to comprehend her vision for the country since she was selected as the Democratic nominee by party insiders. She emphasized price controls as the centerpiece of her plan.

Government-imposed price controls limit the prices charged for goods and services. While they may provide immediate relief from rising costs, their long-term consequences can be far-reaching and extremely harmful.

It’s essential to understand that although price controls might seem beneficial in the short term, they often lead to unintended negative consequences. Price controls can take the form of price ceilings, which set a maximum price, or price floors, which establish a minimum price.

Harris’s proposal for price controls may seem appealing to many voters as it promises immediate relief from rising prices. For example, with the cost of living for most Americans increasing rapidly, setting limits on prices for essential items such as food, housing, or fuel may appear necessary to protect the most vulnerable.

Harris argues that price controls ensure fairness and prevent businesses from exploiting by raising prices to unaffordable levels.

Milton Friedman argued that price controls do not address the root causes of inflation. Instead, they merely hide its symptoms. By artificially lowering prices, price controls can lead to shortages, reduced quality, and black markets. For instance, if grocery prices are capped, suppliers may find it unprofitable to produce or sell groceries, leading to bread lines or a complete lack of availability.

Price controls discourage investment and innovation. When businesses are unable to charge fair prices for their goods and services, they may reduce production, compromise on quality, or leave the market altogether. This leads to fewer choices for consumers and ultimately harms the very people the controls were meant to protect.

According to Friedman, inflation is mainly caused by an excessive increase in the money supply. When the government prints more money than the economy can support, prices rise because more dollars chase the same amount of goods and services.

The actual solution to inflation is not to cap prices but to implement responsible monetary policies that control the growth of the money supply.