Editing Price controls (section)

==Criticism==

The primary criticism leveled against the price ceiling type of price controls is that by keeping prices artificially low, demand is increased to the point where supply cannot keep up, leading to shortages in the price-controlled product.<ref name="Wessels">Walter J. Wessels, ''Economics'' (2000), pp. 232–33.</ref>  For example, [[Lactantius]] wrote that [[Diocletian]] "by various taxes, he had made all things exceedingly expensive, attempted by a law to limit their prices. Then much blood [of merchants] was shed for trifles, men were afraid to offer anything for sale, and the scarcity became more excessive and grievous than ever. Until, in the end, the [price limit] law, after having proved destructive to many people, was from mere necessity abolished."<ref>{{cite book|chapter-url=http://www.ccel.org/ccel/schaff/anf07.iii.v.vii.html|title=On the Deaths of the Persecutors|author=Lactantius|work=ca. 300|chapter=CHAP. VII. |publisher=Calvin College |edition=Christian Classics Ethereal Library|author-link=Lactantius}}</ref>

As with Diocletian's [[Edict on Maximum Prices]], shortages lead to [[black market]]s where prices for the same good exceed those of an uncontrolled market.<ref name="Wessels"/> Furthermore, once controls are removed, prices will immediately increase, which can temporarily shock the economic system.<ref name="Wessels"/> Black markets flourish in most countries during [[war]]time. States that are engaged in [[total war]] or other large-scale, extended [[war]]s often impose restrictions on home use of critical resources that are needed for the war effort, such as [[food]], [[gasoline]], [[rubber]], [[metal]], etc., typically through [[rationing]]. In most cases, a black market develops to supply rationed goods at exorbitant prices. The [[rationing]] and price controls enforced in many countries during [[World War II]] encouraged widespread black market activity.<ref name="TheHomeFront">{{cite book |title=The Home Front|date=July 1945|isbn=978-1904897118|publisher=Imperial War Museum|location=London|edition=facsimile}}</ref> One source of black-market meat under wartime rationing was by farmers declaring fewer domestic animal births to the [[Minister of Food (United Kingdom)|Ministry of Food]] than actually happened. Another in Britain was supplies from the US, intended only for use in US army bases on British land, but leaked into the local native British black market.<!-- Rationning is not price control. -->

A classic example of how price controls cause shortages was during the [[1973 world oil market chronology|Arab oil embargo]] between October 19, 1973, and March 17, 1974. Long lines of cars and trucks quickly appeared at retail gas stations in the U.S. and some stations closed because of a shortage of fuel at the low price set by the [[U.S. Cost of Living Council]]. The fixed price was below what the market would otherwise bear and, as a result, the inventory disappeared. It made no difference whether prices were voluntarily or involuntarily posted below the market clearing price. Scarcity resulted in either case. Price controls have been criticised as failing to achieve their proximate aim by some opponents of the policy or strategy, which is enacted to reduce prices paid by retail consumers, but such controls in certain circumstances may cause side effects which can reduce supply.<ref>Taylor and Van Doren, pp. 26–28</ref><ref>Thomas Sowell, ''Applied Economics: Thinking Beyond Stage One'' (2008), pp. 7–9, 112–113, {{ISBN|0465003451}}</ref> [[Nobel Prize in Economics|Nobel Memorial Prize]] winner [[Milton Friedman]] said, "We economists don't know much, but we do know how to create a shortage. If you want to create a shortage of tomatoes, for example, just pass a law that retailers can't sell tomatoes for more than two cents per pound. Instantly you'll have a tomato shortage. It's the same with oil or gas."<ref>"Controls blamed for U.S. energy woes", ''Los Angeles Times'', February 13, 1977, Milton Friedman press conference in Los Angeles.</ref>

U.S. President [[Richard Nixon]]'s [[Secretary of the Treasury]], [[George Shultz]], enacting Nixon's "New Economic Policy", lifted price controls that had begun in 1971 (part of the "[[Nixon Shock]]"). This lifting of price controls resulted in a rapid increase in prices. Price freezes were re-established five months later.<ref>{{cite web|url=http://www.treasury.gov/about/history/Pages/gpschultz.aspx |title=George P. Shultz (1972–1974) |publisher=Treasury.gov |date=2010-11-20 |access-date=2013-09-27}}</ref> [[Stagflation]] was eventually ended in the United States when the Federal Reserve under chairman [[Paul Volcker]] raised interest rates to unusually high levels. This successfully ended high inflation but caused a recession that ended in the early 1980s.