This picture makes the obvious point that if we got an extremely large person to put on extremely large rubber gloves and gave them an extremely large scalpel, there is no end to the good they could do, starting with fixing up our crumbling political system
One measure of the success of a social movement is the extent to which it creates a ‘commonsense’ that even its ideological opponents get roped into. That was the great triumph of neoliberalism — bringing the moderate progressive left into its fold. In fact it was the left — fancying itself the less stupid party and full of people who think about policy — who were the original entrepreneurs of deregulation in Australia, New Zealand and even the US — Jimmy Carter set off a lot of deregulation in transport and some other stuff in infrastructure. (One can even include Jim Callighan’s Government in the UK if you include his now canonical proposition that you can’t spend your way out of a recession — which is wrong by the way, but in context it probably wasn’t.)
And before neoliberalism, it was Nixon who embraced the New Deal consensus — and helped extend it to the environment and who said “we’re all Keynesians now”. Anyway, remember how they hated profiteers and got into all kinds of government intervention including rationing in WWII. Well that made good economic sense. And some government intervention in the presence of commodity price spikes makes sense today. Such interventions include domestic price caps and windfall taxes.
In the piece below Isabella Webber explores the case. It’s a pity that these discussions don’t simultaneously discuss institutional developments that might make government intervention safer and more likely to be unwound through time. Even if one has established that they’re good policy, there remain good reasons for neoliberal hesitancy on price controls based on the prospect of those policies being deployed on behalf of powerful interests — or political expediency — rather than the public interest.
The kinds of institutions one needs, require some insulation of the policy from day-to-day politics. We’ve traditionally dealt with that with independent agencies — like the RBA and the ACCC, though I’m increasingly persuaded that citizens’ juries can more effectively internalise the issues and arrive at the right answers.
The history of price stabilization goes back centuries, from the mists of classical China (my own research focus) to the major crises of the past century: World War II, the Korean War, and the stagflation of the 1970s in the United States. In each case, price-stabilization policies served as emergency measures aimed not just at “fighting inflation,” but at doing so in a fair and socially stabilizing manner. Their primary purpose was to attack profiteering (from wars, famines, and disasters) head-on. They have tended to work in highly concentrated markets, and when implemented before inflation spirals out of control, while performing poorly otherwise. And when carried out in democratic societies, through a mobilization of the population behind a common project of price restraint, they have been massively popular – especially when weighed against the alternative of austerity.
But by late 2021, that history had dropped out of the common sense of economics.
In February 2022, my colleague, Sebastian Dullien, and I set out to establish that there are indeed feasible alternatives to macroeconomic tightening. We proposed a fiscally financed price cap on basic household consumption that would preserve market prices at the margins. This led to another round of criticism from economists. But our proposal also received strong endorsements from a wide range of interest groups.
Fast forward to September 2022, when I found myself appointed to a German government commission charged with designing a price-stabilization policy to address the energy crisis following Russia’s invasion of Ukraine. There, we developed the so-called “gas-price brake,” and the key principles that I had been advocating were subsequently enshrined in German law.
Germany is not alone in implementing a price policy. Across Europe (and in the United Kingdom), governments have implemented various forms of price controls to contain the war’s fallout in global energy markets. The European Union has enacted a gas-price cap, the G7 has imposed a price ceiling on imported Russian oil, and the US government has leaned on the price of oil by releasing supply from its Strategic Petroleum Reserve.
Moreover, leading economists have rushed to endorse selective, targeted price controls. By January of this year, Paul Krugman of the New York Times, for example, was suggesting that it might not be so foolish after all to respond to price explosions with price policies, even though he had criticized this approach earlier.
I wrote this piece before I discovered that my normal subscription didn’t cover it — they wanted a ‘Premium’ contribution. I found a way to access it and reproduced the extract above, but just a warning. If you press the “More Here” button below, you may be able to read the rest of the piece, but save it because, if my experience is anything to go by, you’ll get locked out.