Isabella Weber and the Historical Case for Price Controls
Cancelling Christmas was, of course, a disaster. Raised in West Germany during the reunification era, Isabella Weber had been working as an economist in either Britain or the United States for the better part of a decade. An annual winter flight back to Europe was the most important remaining link to her German friends and family. But in December, 2021, the Omicron variant was surging, and transcontinental travel felt too risky. Weber and her husband drove from the academic enclave of Amherst, Massachusetts, to a pandemic-vacated bed-and-breakfast in the Adirondacks, hoping to make the best of a sad situation. Maybe Weber could finally learn how to ski.
Instead, without warning, her career began to implode. Just before New Year’s Eve, while Weber was on the bunny slopes, a short article on inflation that she’d written for the Guardian inexplicably went viral. A business-school professor called it “the worst” take of the year. Random Bitcoin guys called her “stupid.” The Nobel laureate Paul Krugman called her “truly stupid.” Conservatives at Fox News, Commentary, and National Review piled on, declaring Weber’s idea “perverse,” “fundamentally unsound,” and “certainly wrong.”
“It was straight-out awful,” she told me. “It’s difficult to describe as anything other than that.”
She gave up on skiing. The proprietor of the hotel made extra soup to cheer her up. But every time Weber checked her phone she was being mocked by a new round of critics. “The ugliness of the reaction to Weber’s op-ed is depressing,” Adam Tooze wrote, in his popular “Chartbook” newsletter. “Depressing and telling.”
In a matter of hours, Weber, who was thirty-three years old, had transformed from an obscure but respected academic at the University of Massachusetts, Amherst, into the most hated woman in economics—simply for proposing a “serious conversation about strategic price controls.” The uproar was clearly about something much deeper than a policy suggestion. Weber was challenging an article of faith, one that had been emotionally charged during the waning years of the Cold War and rarely disputed in its aftermath. For decades, the notion of a government capping prices had evoked Nixonian cynicism or Communist incompetence. And Weber was making her case in a climate of economic fear. Although the most acute disruptions of the pandemic seemed to be over—businesses were reopening and jobs were coming back—supply chains remained snarled and prices were rising faster than they had in forty years. Fringe fantasies of hyperinflation and economic doom were starting to go mainstream.
But Weber’s argument was carefully grounded in history. Price controls, she argued, had been an essential element of the U.S. mobilization strategy during the Second World War. And there were several striking similarities between the economy of the nineteen-forties and that of the present day, including very high consumer demand for goods, record corporate profits, and production bottlenecks in important areas. Back then, the Office of Price Administration simply prohibited companies from raising prices above certain levels. Violators could be sued, or worse. In 1944, Montgomery Ward, the department-store chain, refused to accept the terms of a collective-bargaining agreement—a cap on the price of labor—brokered by the government. President Roosevelt ordered the National Guard to seize the business and remove Sewell Avery, its chairman, from its headquarters.
The O.P.A. program was born of necessity. The traditional inflation-control tactic—jacking up interest rates—would have reduced employment and industrial activity, making it harder for the military to obtain the supplies that it needed to fight. Industry-specific price controls contained consumer costs while encouraging companies to boost profits through higher sales volume. The initiative worked. During the First World War, inflation had run rampant. During much of the Second, it was close to two per cent. And yet factories were operating at peak levels. If contemporary policymakers could do the same thing, Weber argued, they could limit inflation without inducing layoffs and wage cuts.
Today, in a host of key sectors, that’s more or less happening. The European Union is regulating the price of natural gas, the Biden Administration is regulating the price of oil, and the G-7 is enforcing a global cap on the price of petroleum products produced in Russia. Inflation appears to be cooling, and by nearly every measure we are living in the best labor market in a quarter century.