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JOINT ECONOMIC COMMITTEE REPUBLICANS RANKING MEMBER - SENATOR MIKE LEE

The Economics of Price Controls

The Economics of Price Controls

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Executive Summary

Inflation has grown rapidly over the last year and reached a 41-year high of 9.1 percent in June 2022. In response, some policymakers have proposed implementing price controls (in particular, price ceilings) to reduce the cost of inflation for consumers. Instead of sustainably lowering prices, price ceilings cause shortages, reduce product quality, and can make longer-term inflation worse.

Key Points

  • A price ceiling creates a government-mandated maximum price that sellers can charge their customers.

  • Price controls can lower prices for some consumers but also cause shortages which lead to arbitrary rationing and, over time, reduce product innovation and quality.

  • Price controls during the 1970s caused shortages, especially of oil and gasoline. Rapid inflation followed the repeal of price controls.

  • Price controls on prescription drugs—such as those imposed by the Inflation Reduction Act of 2022—stunt pharmaceutical innovation, imposing large, long-run costs on Americans that outweigh the short-run benefits of lower prices.

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