Price controls are often called for and sometimes implemented. We saw that when food prices spiked in the late 2000s and many poorer countries capped prices or banned exports. This year, the French government has limited energy price rises to 4%. In the UK, the energy price cap is a temporary form of price control – delaying, rather than preventing, energy bill rises.
These controls happen despite economists overwhelmingly opposing them. They worry, rightly, in many cases, that imposing them can make shortages worse by removing incentives for new entrants to produce whatever is in short supply or for supply to be reallocated from areas of less scarcity.
A new paper helps explain why economists don’t get their way, using a survey to investigate people’s responses to sudden price rises. The main conclusion is that economists ≠ the public, who prioritise morals over models; the vast majority favour price controls for reasons of fairness and access to goods, especially essentials, with only 32% favouring unregulated prices. Before the economists among you get depressed, the authors show public attitudes can shift significantly when exposed to the downsides of not allowing prices to rise.
The most surprising finding – relevant for today’s inflation surge driven by the rising wholesale cost of energy – is that public support for unregulated prices only rises slightly (4.7 percentage points) when people are told that higher prices reflect higher production costs. The conclusion? Our energy suppliers should be expecting exactly zero success in their campaign to get the government to scrap the energy price cap.