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Variations | Zombie economics

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IN Oct. 1974, the Saipan Municipal Council passed an ordinance that was first implemented about 4,000 years ago.

Like other ill-advised measures, the ordinance was well-intentioned — and popular. The municipal council’s goal was to “control food prices,” and because many people — here, there and everywhere, since ever since —  believed that government was a magic wand, the ordinance proposed the creation of a price control board and identified the reason why prices were high on island. And no, the culprit wasn’t supply and demand, nor the geographical location of the island nor any other relevant economic factors. No. The council stated that prices were high because of the “increasing profits taken by vendors.”

As American economist David I. Meiselman noted in his foreword to a 1978 book about the history of price controls, “I know of no other economic and public policy measure whose effects have been tested over such diverse historical experience in different times, places, peoples, modes of government and systems of economic organization….” And yet “many of us have not yet found out what forty centuries of history tell us about wage and price controls.” (Spoiler alert: Price controls don’t work, and usually result in shortages. But like zombies, price control measures never die.)

In 1974, in any case, the price control ordinance passed by the Saipan Municipal Council would create a price control board composed of five residents of Saipan appointed by the mayor. The board would, among other things, set the “maximum prices which may be lawfully charged for staple commodities.” The board would also determine which commodities were “staple.”  Penalties that included fines and up to 10 days in prison could be imposed on violators.

In their abovementioned 1978 book, economists Robert L. Scheuttinger and Eamonn F. Butler wrote that the “notion that there is a ‘just’ or ‘fair’ price for a certain commodity, a price which can and ought to be enforced by government, is apparently coterminous with civilization. For the past forty-six centuries (at least) governments all over the world have tried to fix wages and prices from time to time. When their efforts failed, as they usually did, governments then put the blame on the wickedness and dishonesty of their subjects, rather than upon the ineffectiveness of the official policy. The same tendencies remain today.”

The passion for economic planning, they added, is likewise perennial. “Centralized planning regularly appears in every generation and is just as readily discarded after several years of fruitless experimentation, only to rise again on a subsequent occasion…. Human nature being what it is, every other decade or so the same old plans are dusted off, perhaps given a new name, and the process is begun anew.”

On Saipan in 1974, a merchant told Marianas Variety that “if that’s what they want,” referring to the price controls proposed by the Popular Party-dominated municipal council, then “we will stop importing those items and see how they like it then.”

MV reported that local businesses were “disgusted” by the price control ordinance. “All agreed that the mark up limit…of 10% above…cost was very unreasonable.” One store noted that its operating expenses alone ran 18%. Another said that besides operating expenses, merchants must also pay import and sales taxes. “Maybe we have to close,” a local store owner said. Another local businessman said although the Popular (now known as the Democratic) Party favored U.S. citizenship for the local people it was against free enterprise “upon which U.S. economics is based.” A price control proponent, for his part, said “too much hate” existed on Saipan, and “what is needed is…dialogue and cooperation between local leaders and businessmen.”

In a letter to the Marianas district administrator — the NMI was still under the Trust Territory government — local businesses said they “believe wholeheartedly in the free enterprise, [and that a] competitive pricing [is] the best and only effective way to control retail prices…. Regular prices in our stores compare very favorably with the regular prices advertised for Guam and yet we have to pay much higher shipping costs and do not have the volume buying benefits possible due to Guam’s larger population.”  The local businesses said the enactment of the ordinance would “result in higher prices and short supply on Saipan because it would deprive local merchants of the incentive to buy at the most advantageous price at the source.”

In Nov. 1974, MV reported that the district administrator  agreed with local businesses, and vetoed the price control ordinance. The proposed 10% mark up limit, the district administrator stated, would either shut down businesses or require that the government subsidize them.

In ancient Egypt, Scheuttinger and Butler wrote, “all prices were fixed by fiat at all levels” enforced by “a whole army of inspectors. There was nothing but inventories, censuses of men and animals...estimations of harvests to come…. One of the first effects of harsh price controls on farm goods is the abandonment of farms and the consequent fall in the supplies of food.”

In 1974, think tank founder Antony Fisher published a book regarding “the sorry history of government intervention of all sorts in the economy (not only of wage and price controls).” He titled it, “Must History Repeat Itself?”

Today, price controls remain popular not only in (as Gore Vidal would put it), the United States of Amnesia, but all over the world.

 

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