History has a short memory. In recent weeks, as Vice President Kamala Harris’s policy proposals sparked a national conversation about price-controls, that phenomenon is on full display.
Price-controls have failed humanity for thousands. They invariably create devastating shortages and diminish product quality.
These policies decimated Babylonian trade in 1750 B.C. They caused bloodshed in second-century Rome. They nearly starved George Washington’s army at Valley Forge. Within living memory, they also caused an American oil and gas crisis in the 1970s.
Of course, politicians still cannot resist promising their constituents consequence-free price reductions.
Harris has come out in support of a federal ban on “price-gouging” grocery products. She is supportive of price-controls on pharmaceuticals and was the tie-breaking vote in the Senate to pass this policy in the Inflation Reduction Act. She has also promised to cap “unfair rent increases,” echoing support for a Biden-Harris proposal to limit rent increases to 5 percent.
Rather than take accountability for her own administration’s role in causing inflation, Harris has, without evidence, accused corporations and landlords of raising their prices simply because they are “greedy.” In reality, the net profit-margin for retail grocery stores is razor thin and has shrunk under the Biden-Harris administration to 1.18 percent.
Under Harris price-controls on grocery products, Americans will see food shortages and a reduction in food quality. Specifically, food items will become inaccessible, grocery stores will shut down across the country (particularly in poorer areas at risk of becoming food deserts), grocery retailers will consolidate and farms will go out of business.
In 301 A.D., the Roman Emperor Diocletian imposed fixed rates for several food items in response to a spike in inflation. According to Ancient accounts, Diocletian’s edict led to shortages and bloodshed.
The Bengal Famine of 1770 was sparked by price-controls that followed a drought in the region. An estimated 10 million people died — one-third of the Bengal population.
During our own Revolutionary War, price-controls imposed by the Pennsylvania legislature resulted in food shortages and the prices of uncontrolled goods skyrocketing. After Washington’s army nearly starved to death at Valley Forge, the Continental Congress adopted a resolution condemning the use of price-controls.
During WWII, the federal government imposed price-controls on numerous goods such as coffee, meat, sugar, dairy, etc. In addition to shortages, the quality of grocery products also plummeted. Meatpackers sold steaks with an extra bone and filled sausages with cheap additives like soybeans and potatoes, and candy companies shrunk the size of candy bars and loaded them with lower-quality ingredients.
In addition to being the tie-breaking vote, Kamala Harris has also called for an expansion of the price-controls in the Inflation Reduction Act.
Under the act, as is, the drug price-control provisions will lower research and development activity so drastically that it will result in 135 fewer new drugs, generating a loss of 331.5 million life-years in the U.S. That is more life-years lost than the first two years of the coronavirus pandemic.
These consequences are not hypothetical, even though the determined prices haven’t gone into effect yet. Several drug manufacturers have warned of development programs they had to end or will likely have to end, including Eli Lilly, Alnylam, Bristol Myers Squibb, AstraZeneca, Novartis, Sage Therapeutics, Amgen, etc.
Shortages and a loss of innovation in healthcare costs lives. Although Americans understand the negative effects of price-controls on food and housing, it is vital that they understand that price-controls on pharmaceuticals will be equally devastating.
Finally, Harris’s rent-control regime will cause a sharp decrease in new housing. Affordable rentals will be converted to AirBnBs or sold. Millions of higher-risk tenants will be refused any housing (worsening the problem of homelessness), and rent rates will increase on average.
A National Bureau of Economic Research study revealed that the 1994 rent-control expansion in San Francisco led to landlords converting their properties to condos or tenancies-in-common. Additionally, there was a citywide rent price increase of 5.1 percent. Because of existing tenants’ depressed rents, many started staying in apartments for longer than they otherwise would, reducing the supply of rent-controlled properties for potential tenants, thus increasing the prices of other non-controlled properties.
In Cambridge, Mass., where rent-control was abolished, economists found that direct dollar investments in housing units doubled in the few years following that policy reversal.
Further, rent-control policies make it harder for landlords to keep up with apartment maintenance, remodel their units and include perks such as parking or furnished amenities. One study found that, when the number of rent-controlled units double in an urban area, there is a “16.2 percent increase in severely inadequate housing units and a 14.7 percent increase in moderately inadequate housing.”
There are few policies with a worse or longer track record than price-controls. To avoid a nosedive into socialism, Americans must be reminded of the countless countries, lives and economies that have been ruined by price-fixing over the millennia. These ideas are neither new nor “joyous.” They are old and deadly.
Isabelle Morales is a federal affairs manager for Americans for Tax Reform.