Expert on price controls: "Rerun of history"

Published: 2023-03-16

Recently the rate of food price inflation in Sweden has been rising at a remarkable speed, reaching double digit numbers. Sweden follows an international pattern. Food prices in all of Europe are rising as well in the wake of the war in Ukraine. The pattern is unique, we have to go back to the early 1950s for a similar episode.

Price controls back on the policy agenda

Swedish consumers are squeezed by higher food prices. This has created a lively public debate about the causes and consequences of the present rate of inflation. The Left party has proposed a price ceiling on food prices. The Minister of finance has invited the managers of the largest retail firms for a meeting with government officials. In short, price controls as a tool for fighting inflation are back on the policy agenda.

Lars Jonung, professor emeritus, at LUSEM is an expert on price controls since his work for the government committee on price controls in 1977-1981. He has published a book evaluating the effects of price controls on Swedish companies as well as several articles and op-eds on the effects of price controls on the rate of inflation and the allocation of resources. Jonung has been seen and heard in several media in recent weeks and his expertise has been in demand in many places. What is his analysis and is the situation comparable to that in the 1970s and 1980s?

No significant effect on the rate of inflation in the long run

Jonung's main conclusion, based on the evidence from the price control policy in the 1970s and 1980s, is that price controls did not have any significant effect on the rate of inflation in the long run. They had negative effects on the allocation of resources in the Swedish economy, however. He argued that proponents of price controls should be asked to demonstrate using evidence from academic research that controls give rise to any net economic gains to society.

Now with the advent of new proposals for price controls, Jonung has been invited by several media to speak on the use of controls. To him, the present debate reminds of the discussion in the 1970s and 1980s. It is a rerun of history.

Jonung gives the same message here as he did half a century ago:

"Price controls do not eliminate the causes of inflation. It is an attempt by policymakers to fight the symptoms of inflation and please the public with such a short-sighted policy. They will not serve as a constructive tool to hold back inflation," he says.

Jonung has given several interviews during March. Among others for Svenska Dagbladet, Sveriges Radio and TT. He was also just recently invited to record the podcast Varning för prisregleringar (15 March) with Ledarredaktionen /Svenska Dagbladet (SvD). Find all links in the fact box together with a document where Lars Jonung has listed articles, book chapters etc. written by himself about the price regulation policy.