In this episode, I want to discuss the possibility of the United States implementing price controls. In this post, we’re going to discuss price controls, why they could come and how that could affect the US economy. Later in the post, I’m going to discuss why having an item that can be bartered, like silver, could be extremely valuable.
What Are price controls?
A price control is simply a law that is imposed that requires producers to sell their goods at a specific price. Rather than allow market forces, or supply and demand determine the price, the price is determined by government bureaucrats.
There are basically two types of price controls. A price ceiling is a maximum amount you can sell something for. A price floor is a minimum amount you have to sell something for.
In this post, we will focus on a price ceiling because this, as we will see soon is more likely to occur in the US economy.
Now just recently we’ve seen price ceilings proposed and even passed by the Biden Administration. In August 2022, President Biden signed the Inflation Reduction Act, which besides containing much pork spending also allowed Medicare to cap the price of prescription drugs. In May of that year, you might remember, gas prices were surging, and an attempt was made to pass a bill called the Consumer Fuel Gouging Prevention act. This would have put a price ceiling on gasoline bought by consumers.
Why might price controls come?
Before diving into the disadvantages of price controls, it’s important to discuss why they could come. Simply stated, if and in my opinion when, inflation begins to spiral out of control, and really increase, I think there is a strong possibility this could be implemented. It’s important to note that I think it is more likely under a Democratic President, but very possible under Republican.
The advantage from a political perspective outweighs the cost of just letting the market decide prices. For example, if inflation spikes then mandated price ceilings will prevent companies from raising prices. This will in turn prevent companies from giving employees wage increases too.
However, as many of you know, price controls have many disadvantages. For price ceilings, they lead to shortages and rationing of resources. Producers won’t make as many goods because it simply won’t be profitable. While price ceilings could temporarily stop inflation, history has shown us too, since they are lifted, we could see an explosion in prices.
Still, it’s important to point out the government tends to think on a short-term basis, and if they have the opportunity to put out fire, they will do so and ignore future problems down the road. This is most evident by our deficit and debt spending.
What is the history of price controls in the United States?
Probably the most famous and well-known example occurred in 1971. The Nixon Presidency mandated price controls through a program known as the Economic Stabilization Program. Prices were frozen for 90 days. After this time, modifications were made to the laws so that companies could raise prices under certain conditions. In 1973, the laws were lifted. During that time inflation was tamed, but it was widely expected that shortages in raw materials would become much worse in 1973 and lead to much economic pain. In other words, a supply shock would have sent inflation skyrocketing even with the price controls.
Inflation in 1973 increased from 3.6 percent to 9 by the end of the year. 1974 would have double digit inflation.
Even worse under the program though was that oil had price controls. As oil price spoke in November 1973, Nixon places another round of price controls on oil. However, this led to worse shortages. This is because American petroleum companies began selling their oil overseas instead of in the United States. Simply stated, they could get a higher price overseas. In a short time, they were removed, but the damage had already been done.
Not only do price ceilings cause shortages and hurt people in both the short term and long term, but the quality of the products will decline too. This is because companies will be forced to substitute to lower quality goods to make profit.
What about rationing?
This is a key question and an important as of shortages exist, then not everyone will be able to buy as much as they need. History shows that there are a couple options. One is simply known as queueing, which is basically a first come first serve. Sometimes limits are placed. In the 1970’s we saw lines wrap around the block as people waited for gasoline. People got up in the middle of the night to buy gas and people even had locks on their gas tanks.
One other method of rationing is known as lottery. In this scenario, people are allowed to buy based on some factor. In the 1970’s, it was based on the last digit on your license plates. Odd numbers could fill up one day, even numbers could fill up the next. Even with this though, it hard to state just how much these price controls hurt the average citizen as they wasted time buying gasoline.
Why is having silver so important?
In my opinion, price controls are very likely to occur. In the digital age, we are in today, it would be very easy to implement and enforce these rules. However, as discussed shortages are inevitable.
As a result, it’s extremely likely that an underground economy could pop up. One where producers are willing to sell extra items, for an additional cost, outside the system. Keep in mind, that a CBDC might be implemented at this time and physical cash might not be wanted.
So, say for example I need extra gasoline but there are extreme shortages. Someone else, who doesn’t need it might be able to go and buy gasoline. I could then buy the gas off them with silver.
There are really countless examples of how this could work, but the bottom line is that silver could be used a form of payment.
We discuss a lot on this channel around having Silver for a SHTF scenario, but price controls would create a situation with massive shortages where having an item you could barter with would be very powerful.
How likely are price controls?
I believe this is a strong possibility in the future as inflation gets out of hand. The advantages are numerous in the beginning as it stops runaway inflation initially. However, it just makes the problem worse in the long run.
Would they be able to enforce the rules?
I believe they would penalize companies that don’t enforce the rules. This would ensure businesses cooperate. Naturally though, an underground economy would pop up and to truly protect these transactions, silver coins and junk silver would be a terrific option.
