For a long time I followed the standard economist line that price controls are always bad. I’ve applied this to interest rates, where it unquestionably works. But in some areas it’s clear that price controls are needed to block the destruction by Wall Street monsters. Henry Wallace made a strong case for price controls, perhaps taking it too far in the other direction.
The economists ignore the most important difference.
When profit is in control and competition is fairly open, price controls create a form of monopoly and block the function of the profit feedback loop. This applies to interest rates, which are normally determined by competition among bond issuers and banks. If two equally riskless bonds have different interest rates, the higher interest will sell better, placing upward pressure on the rate. If two equally good banks offer different rates on the same mortgage, the lower will win, placing downward pressure on the rate. Customers benefit both ways. QE and ZIRP placed a zero ceiling on interest in both directions, discouraging real investment and encouraging risky bets and debts. Powell restored the normal balance in 2022, and business now has a better chance of functioning as it should.
The rule doesn’t apply when a monopoly is ALREADY controlling price. When Blackrock can raise all housing prices by taking half of the properties off the market, government needs to control Blackrock. When Bell Tel owns all the telephone connections, government needs to control Bell.
Polistra's Mill 