Todd Buchholz’s “New ideas from dead economists” is a classic little history of economic thought. But sometimes one must go back centuries to dead theologians and philosophers to understand contemporary issues.
That is the case for Minnesota Attorney General Keith Ellison’s action against Sparboe Eggs — so taken because the prices the company charged for eggs during some months in 2020 exceeded a limit mandated in Gov. Tim Walz’s COVID emergency orders.
To help understand this kerfuffle, one can go back to 13th century Catholic theologian Thomas Aquinas, Greek philosopher Aristotle and 16th century Protestant reformer John Calvin.
The core principle here is that of “just price” — a doctrine that has caused more hunger, suffering and waste of resources than nearly any other idea in western philosophy. Yet it remains strong in Catholic social thought and in the secular political and economic cultures of Latin America. It is big among U.S. progressives too.
It is also one of those ideas — like the rent control initiatives currently being considered in both Twin Cities — that universally maddens economists across a wide ranges of political affinities or schools of view within their discipline.
Understand that prices are not just ad hoc, isolated numbers. They are key in complex information-generating and incentive-transmitting social systems that promote efficient use of resources to meet people’s needs. Yes, market systems don’t work perfectly in all circumstances. Often victims are created. But they usually are better than alternatives — especially when cautious, prudent measures to correct “market failures” are applied. Prices should not be dictated, nor their movements quashed, without deep consideration and for important reasons. Limiting price rises to an arbitrary percentage during an epidemic in which the incomes of the large majority of households did not suffer do not meet these standards.
One needs to look at historical real-world outcomes. Economists dislike rent controls because it is impossible to find a historical case where they did suppress housing supply — either construction or the offering of more rental housing, thereby actually raising prices for those entering the market, disincentivizing home ownership, with resulting benefits flowing more to higher- rather than lower-income people.
Similarly, in the old days, religious scholars Calvin and Aquinas railed at grain merchants with full warehouses who raised prices after short harvests. If they had grain in store, they should continue to sell at pre-shortage prices, the theologians thought. After all, the goods had been produced even before rains began to fail or frost hit.
The problem is that if we ban any increase in price in times of scarcity, we also kill incentives to build warehouses to guard against future scarcity. And these worthy theologians never proposed any remedy for the merchant when a bumper crop depressed prices. Calvin did not order consumers in Geneva to buy grain at above-market prices just to keep merchants from losing money. Nor did Gov. Walz or his well-meaning cohorts in other states with similar price-limit edicts.
The same doctrines applied to trade. If a Venetian merchant sent five ships to Constantinople and one foundered on the way back, was it permissible in the ideas of well-meaning theologians for him to charge more for the remaining cargoes when landed on the Rialto? No. The loss of a ship was the will of God. Spreading the cost of that loss was sinful, an attempt to evade the will of God.
Similar situations arise today. If a hurricane down trees, leaving hundreds of thousands without power, some enterprising individuals fill rental trucks with chainsaws and generators swept off the shelves of big box stores in the north. Driving through the night, they soon are parked somewhere, selling saws and generators at double the price. People sitting in comfortable chairs watching TV news are outraged at such gouging, such greedy advantage-taking of those in need! Yet they themselves don’t rent trucks to drive south filled with tools that they will sell at cost plus a few bucks for gas.
Granted there are situations where wage and price controls are the least-bad alternative, such as major wars. These also usually involve a vast rigmarole of rationing and hordes of workers tallying costs, quantities and allowable prices as the Office of Price Administration did during World War II.
This is imperative in some situations. The real historical example of allotting “Dresser couplings” is part of Herman Wouk’s novel “War and Remembrance.” These allowed the quick and inexact connection of steel pipe without elaborate threading. They speeded dropping engines into wooden landing craft. They also permitted connecting successive sections of the enormous gaseous-diffusion cascade at Oak Ridge, Tenn., for bomb-grade uranium. There wasn’t time or information for markets to work.
The impulse to keep anyone from sinning seems a natural one to some, but they leave objective questions unanswered. Why a 20 percent price limit rather than 17 or 24? Why eggs but not sauerkraut?
Many food prices fluctuate all the time. Why cap one that is just coming off a five year low just as one that is at a three-year high? What was magically “just” about the particular set of prices in effect just before the price controls were imposed? Egg prices rose far more dramatically when millions of Minnesota chickens died of avian flu in 2015 and they subsequently plunged to historic lows in the year prior to COVID. Government did nothing in either case.
Proponents will say that we need to protect the poor. Yet when price caps bite, there usually are shortages — as would happen with rent controls. If one has to hunt for eggs during a pandemic, who can do so more easily? Mid-level earners working safely from home, with two computers to check prices and availability, plus two vehicles to snatch up suddenly-discovered stocks? Or the 80-year-old pensioner or single mother living in a rental who must take a bus and walk 10 blocks to scope out one supermarket? As with rent controls, in real life, most of the benefits accrue to those far from needy.
In a historic situation such as a pandemic, helping the most affected and poorest to continue to meet their needs is an admirable and essential function of government. There are efficient and proven ways to do this, particularly if a system is planned and ready to be implemented ahead of time. Ad hoc price controls imposed on an arbitrary set of products at some arbitrary sweeping percentage increase cause more harm and injustice than they help or solve. Aristotle, Aquinas, Calvin and the lot were bright thinkers, but on “just price” they were not only dead wrong, but tragically so.
St. Paul economist and writer Edward Lotterman can be reached at stpaul@edlotterman.com.
Real World Economics: When good intentions go bad - TwinCities.com-Pioneer Press
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