


NRPLUS MEMBER ARTICLE N ot long after Canadian politicians mused about trying to make food more affordable by subjecting grocery chains to special taxation, more crackpot ideas have surfaced. The latest is proposed by Vass Bednar, the executive director of a public-policy master’s program at McMaster University in Ontario, who recently wrote in the Globe and Mail that the government should impose price controls on “core grocery goods.” The column appeared in the newspaper’s business section. I eagerly await a forthcoming column in the Globe and Mail’s health section on the benefits of smoking a thousand cigarettes every fortnight.
“Price controls aren’t a new idea,” Bednar writes. One example given is rent controls, a policy not known to be widely advocated by the economically astute. Two other examples cited are Pierre Trudeau’s Anti-Inflation Act in 1975 and Richard Nixon’s 90-day freeze on wages and prices in 1971. Nixon’s price controls, Bednar allows, “has been cited as a catalyst for stagflation,” but a freeze on grocery-store products would be different because “the landscape is more consolidated” and “the intervention is for a subset of goods, not an entire marketplace.” It is the constant refrain of central planners: The last time this central-planning initiative was tried it was a disaster, but this time will be different. The problem is that it never is.
The best argument against the Nixon price controls of 1971 was actually given by Nixon himself while in conversation with George Shultz, the director of the Office of Management and Budget who was in charge of administering the controls. “The difficulty with wage-price controls and a wage board, as you know,” Nixon explained, “is that the G** d***ed things will not work. They didn’t work even at the end of World War II. They will never work in peacetime.” Nixon also suggested price controls were “a socialist scheme, a scheme to socialize America,” but went ahead with the policy because he expected it to be a political winner, even though he knew it would be an economic disaster. “I know the reasons you do it [wage and price controls], for cosmetic reasons,” Nixon said.
The economics behind price controls are not difficult: They are deleterious because market prices ration demand and encourage supply. The role of prices is at the foundation of the modern economy and setting price ceilings below the market price is the surest way to create a shortage, provoke a misallocation of capital, and reduce the availability of the products being controlled. “The worst thing you can do to a market, or to a society,” economist Don Boudreaux said, “is price controls. The market can take a lot of beating, with high taxes, inefficient regulations, and keep performing reasonably well. You might not even notice in any grand sense the costs. But controlling prices is a calamity.” The Venezuelan experience with price controls, including on food, have not been a success. Somehow its mention escaped the Globe and Mail column.
The only cases in which price controls may not be calamitous are when the ceiling is set far above the market price or the floor set far below it so that the controls are effectively meaningless. Thomas Sowell gives the example of minimum-wage laws: When he was a teenager in 1948, black-teenage unemployment was relatively low because the minimum-wage law passed a decade earlier was not indexed to inflation, and a decade of inflation had rendered it irrelevant. It was only after the minimum wage was escalated to keep up with inflation — in other words, the price control raised to make it more impactful — that black-teenage unemployment skyrocketed. The most benign price control is one that doesn’t really affect prices.
This idea held by politician and activists that grocery stores earn monopoly profits that can be regulated back to consumers through price controls is preposterous. For Canada’s largest grocery companies — Loblaw, Empire Company, and Metro — net income to common shareholders as a percentage of sales is in the low single digits. And in fact, their reported net profit margins overstate their margins on food products because these companies also include pharmacies or drug stores, which have much higher margins than food. Food sales are a highly competitive industry and there is no room for government to regulate profits away. Trying to do it through price controls would be particularly stupid. Whether in the 1970s or today, the damned things don’t work.