A very timely quote of the day:
I am afraid that the chances that we shall have price and wage controls are unfortunately not negligible. It is a device that governments have repeatedly resorted to to try to cover up the effects of their own policies. It is offered as a cure for inflation. It is not a cure for inflation. It has never been a cure for inflation. It is an alleged cure that is far worse than the disease because its effect is to repress the symptoms, to repress the consequences of the more basic force
I always say that if you want to analyze wage and price control, the simplest analogy that brings it home, is to think of a kettle on your stove in which there’s water and the water is boiling. It’s got a cover on it, and the boiling water is threatening to throw the cover off. Now, obvious sensible thing to do is to turn down the heat under the the kettle. Another thing you can do is to take a brick and put it on top of the kettle, and at the same time, turn up the heat.
That is precisely what President Nixon did in 1971, when he simultaneously put a brick on top of the kettle by freezing prices and wages, and at the same time, launched on a more expensive monetary and fiscal policy, which turned up the heat under the kettle.
And what happened? The lid of the kettle blew up. You held it down for a little while, and then you had a 12%, 13% inflation. That has been the experience every time, not simply over the last 20, 30 years, but for 2,000 years. Emperor Diocletian tried the same thing in Rome 2,000 years ago with identically the same results.
