10 how did the us government control price increases for scarce goods? Ideas

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trols, Black Markets, And Skimpflation: The WWII Battle Against Inflation

With inflation surging right now, U.S. leaders are naturally thinking about how to fight it. In modern times, that responsibility has mostly fallen to the Federal Reserve. The Fed can (and likely will) raise interest rates to cool down the economy, which should — theoretically — lower demand for goods and services and reduce upward pressure on prices. This will also likely bring pain to many Americans as the economy is forced to slow down.

Back during World War II, the United States took a radically different approach to fighting inflation. And the mess that ensued might explain why the Biden Administration, and most other policymakers, are reluctant to try it out again. Planet Money just released a great episode that delves into this history with some different details (and cool archival sounds!), and you should check it out.

The threat of inflation loomed even larger during WWII than it does today. As America became an “arsenal of democracy,” we spent massively on machines and supplies for war. The federal deficit skyrocketed, from about 3 percent of GDP in 1939 to almost 27 percent of GDP in 1943 — which is far and away the worst the deficit has ever been. Meanwhile, factories, workers, and materials were all repurposed for the war. Millions of productive workers left the labor force to enlist in the armed services.


12th October 1939: American President Franklin Delano Roosevelt addresses America.

Topical Press Agency/Getty Images

12th October 1939: American President Franklin Delano Roosevelt addresses America.

Topical Press Agency/Getty Images

This combination of factors — lots of deficit spending boosting demand in the economy, and war measures reducing the capacity of the economy to supply and satisfy that demand — was a recipe for runaway inflation. President Franklin Roosevelt and his administration knew this. They had seen rampant inflation during and after World War I: prices rose more than 80 percent between the war years of 1917 and 1920. The administration wanted to prevent that from happening again. So they embarked on a monumental effort to cool inflation by freezing prices with price controls.

The policy effectively neutralized one of the central functions of the free market, which is the allocation of scarce resources. In a free market, if there’s not enough of something, the market responds by raising prices. This reduces demand for that product. It also sends a signal to businesses to produce and supply more of that product. Without this price mechanism, most economists believe, the market struggles to remedy shortages and society scrambles to figure out who gets what.

During the early 1940s, when the federal government began eliminating free-market pricing on goods in short supply, it had to begin allocating these scarce resources in a different way. It created a rationing system where the government assigned ration stamps to citizens.


World War II Poster

National Archives


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National Archives

World War II Poster

National Archives

To buy products in short supply — like coffee, canned foods, dairy, meat, bicycles, cars, tires, gasoline, clothes, and sugar — American consumers not only had to pay money, they also had to use government-issued ration stamps. The aim was to limit the amount of a particular good or goods that any one person or household could purchase, and ensure more equitable distribution during wartime. The government sent each American household ration books containing removable stamps with ration points. And it created a complicated and ever-changing system of assigning ration points to specific products.

To achieve all this, the federal government erected a sprawling and intrusive bureaucratic apparatus under the Office of Price Administration (OPA). During the war, the OPA and related agencies employed hundreds of thousands of federal employees and community volunteers, including twice the number of economists as the U.S. Department of Treasury. It’s a lot of work to centrally plan an economy.


World War II Poster

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National Archives

World War II Poster

National Archives

But despite the tireless efforts of the government, the system was plagued by all sorts of problems. Nowhere was this more apparent than with meat.

The Beef With Price Controls

On March 29, 1943, the federal government added meat (and cheese) to its system of price controls. This policy may have helped ensure a steady supply of meat for American soldiers, and it may have kept prices in check, but by multiple historical accounts, meat price controls and rationing proved to be one of the most unpopular areas of government intrusion during and after the war.

The meat industry, like other industries that faced price controls, hated the OPA system. And without the ability to legally raise prices, businesses resorted to other tactics to maximize their profits. One is a phenomenon we’ve dubbed “Skimpflation” at Planet Money. That’s when instead of simply raising prices, companies skimp on the goods and services they provide, degrading the quality of the stuff they sell. This seems to be happening now, especially in the service sector, which is struggling to recruit and retain workers. Instead of paying workers enough to attract and retain them, some businesses are skimping on customer service. It’s a form of stealth inflation.

During World War II, many businesses couldn’t legally raise prices, and skimpflation seems to have been one way they tried to maintain profitability. For example, meatpackers began filling sausages and hot dogs with “soybeans, potatoes, or cracker meal,” according to a vivid book by historian Richard R. Lingeman. Meatpackers and butchers added more fat to hamburgers. They sold steaks with extra bone. They began selling horse meat, muskrat meat, and other alternative meats.

“Another practice — dubbed the red market — was upgrading or selling a low grade of meat at the ceiling and point price of a top-grade cut,” Lingeman writes.

Other meat sellers simply ignored price controls and sold their meat on the black market. The very term “black market” was still new back then — and it “exploded in popularity with the coming of World War II rationing,” according to the Online Etymology Dictionary. By all historical accounts, the black market for price-controlled products flourished during the war. The black market for meat became so lucrative that cattle rustling — or cattle stealing — saw a revival. “Sometimes ranchers caught the rustlers in the act, and gun battles ensued in the tradition of the wild West,” Lingeman writes.


World War II Poster

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Meanwhile, many Americans — who ate a lot of meat back then — were pissed. In 1943, lumberjacks in Washington state and miners in Pennsylvania went on strike, largely over a shortage of meat. The government ended up doubling the meat ration for miners (it’s unclear if lumberjacks also got an increased ration).

Of course, not everyone was equally affected by meat shortages and rationing. “One group of Americans weather all meat shortages very nicely,” Lingeman writes, “the nation’s 2,800,000 vegetarians. In war, there is always someone who profits.”

However, it wasn’t just vegetarians who seemed to do just fine during the OPA system. Some historical accounts actually find that average meat consumption went up during the war. One reason is that many low-income Americans could barely afford meat during the Great Depression, and massive government spending helped stimulate the economy back into action. With plentiful jobs during the war years and a system of equal rationing and price controls, the bottom third of American earners actually increased their meat consumption by around 17 percent, by one calculation. The top two-thirds, however, saw their meat consumption decline by around 4 percent.

As the war came to an end, government officials struggled to turn off the system. In the summer of 1946, congressional legislation that authorized price controls lapsed, and food prices shot up. The cost of meat doubled. Cowering in the face of a public backlash, President Truman and a Democratic Congress reinstituted price controls on meat. This infuriated the meat industry. Once again unable to raise prices, many meat producers and sellers were reluctant to ramp up production, and many actively resisted doing so. Meat sellers, led by livestock ranchers, withheld meat from the market. One reason was anticipation that price controls would soon expire and they could make more money selling meat if they waited. Another was an effort to punish the Democrats before the 1946 midterm elections and deliver a deathblow to the system of price controls. By September of 1946, meat production had fallen drastically, plummeting over 80 percent from the previous year.

The tactic proved highly successful. American voters grew angry with the government. Historian Meg Jacobs (who we spoke to in our recent Planet Money episode) writes that 1946 came to be known as the “beefsteak elections.” The Democratic Party was slaughtered (sorry) at the polls. “Voters blamed ineffectual government price controls for their meatless dinner plates,” Jacobs writes. “For the first time since 1930, the electorate returned control of Congress to the Republicans. More than that, they rejected the notion that the state ought to play a direct role in overseeing the wage, price, and production policies of private enterprise.”

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With its byzantine system of price controls, the federal government was able to keep inflation in check during the war. As the sunset of these controls approached, however, a group of 54 respected economists published an open letter in the New York Times warning that — without maintaining price controls — pent-up postwar demand and inadequate supply would unleash a dramatic surge in inflation. They advised Washington to remove the controls slowly and strategically. Policymakers didn’t listen. When the government ended up lifting price controls in 1946, it was like it violently awoke inflation from its slumber. In 1947, the annual inflation rate jumped to more than 20 percent. That is far and away the highest annual rate of inflation the US has seen in the last 80 years.

For the most part, most mainstream economists these days are dead set against reinstating a sprawling system of price controls and rationing. They argue it would result in a lot of costly bureaucracy. It would destroy market incentives that boost production of goods and services and could lead to shortages. It would lead to black markets and skimpflation and other forms of hidden inflation.

That said, there are some progressive economists now arguing that some strategic price controls might make sense. Isabella Weber, an economist at the University of Massachusetts Amherst, contends that price controls could help prevent corporations from profiteering from supply chain bottlenecks during the pandemic, and help lower prices for consumers. But even these economists aren’t suggesting that we resurrect something as beefed up as World War II price controls.

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Price Controls, Black Markets, And Skimpflation – NPR

Price Controls, Black Markets, And Skimpflation - NPR

  • Author: npr.org

  • Rating: 3⭐ (41211 rating)

  • Highest Rate: 5⭐

  • Lowest Rate: 2⭐

  • Sumary: To control inflation during WWII, the U.S. government resorted to wide-ranging price controls. Their unintended consequences might explain why today’s policymakers are reluctant to try it again.

  • Matching Result: During the early 1940s, when the federal government began eliminating free-market pricing on goods in short supply, it had to begin allocating …

  • Intro: Price Controls, Black Markets, And Skimpflation: The WWII Battle Against Inflation With inflation surging right now, U.S. leaders are naturally thinking about how to fight it. In modern times, that responsibility has mostly fallen to the Federal Reserve. The Fed can (and likely will) raise interest rates to cool down…
  • Source: https://www.npr.org/sections/money/2022/02/08/1078035048/price-controls-black-markets-and-skimpflation-the-wwii-battle-against-inflation

Price Controls – Econlib

Price Controls - Econlib

  • Author: econlib.org

  • Rating: 3⭐ (41211 rating)

  • Highest Rate: 5⭐

  • Lowest Rate: 2⭐

  • Sumary: Governments have been trying to set maximum or minimum prices since ancient times. The Old Testament prohibited interest on loans to fellow Israelites; medieval governments fixed the maximum price of bread; and in recent years, governments in the United States have fixed the price of gasoline, the…

  • Matching Result: When the government introduces price ceilings and causes a shortage of both lines, the manufacturer may discontinue the lower-priced line, causing the consumer …

  • Intro: Price Controls – Econlib Governments have been trying to set maximum or minimum prices since ancient times. The Old Testament prohibited interest on loans to fellow Israelites; medieval governments fixed the maximum price of bread; and in recent years, governments in the United States have fixed the price of gasoline,…
  • Source: https://www.econlib.org/library/Enc/PriceControls.html

Why Price Controls Should Stay in the History Books

Why Price Controls Should Stay in the History Books

  • Author: stlouisfed.org

  • Rating: 3⭐ (41211 rating)

  • Highest Rate: 5⭐

  • Lowest Rate: 2⭐

  • Sumary: Prices allocate scarce resources. Price controls distort those signals, leading to the inefficient allocation of goods and services.

  • Matching Result: Governments can impose such regulations on a broad range of goods and services or, more commonly, on a market for a single good. Governments can …

  • Intro: Why Price Controls Should Stay in the History Books KEY TAKEAWAYS As inflation rises, some have called on the government to impose price controls. But such controls have significant costs that increase with their duration and breadth. Prices allocate scarce resources. Price controls distort those signals, leading to the inefficient…
  • Source: https://www.stlouisfed.org/publications/regional-economist/2022/mar/why-price-controls-should-stay-history-books

What Goes Wrong When Government Interferes With Prices

What Goes Wrong When Government Interferes With Prices

  • Author: hoover.org

  • Rating: 3⭐ (41211 rating)

  • Highest Rate: 5⭐

  • Lowest Rate: 2⭐

  • Sumary: Prices are a fact of life, and so is complaining about them. You probably prefer lower prices on just about everything, but especially when buying a house or paying for college, and you wish for higher prices when…

  • Matching Result: Anti-price-gouging laws prevented prices from rising. With the prices remaining largely fixed, businesses had little incentive to increase …

  • Intro: What Goes Wrong When Government Interferes With Prices Prices are a fact of life, and so is complaining about them. You probably prefer lower prices on just about everything, but especially when buying a house or paying for college, and you wish for higher prices when it comes time to…
  • Source: https://www.hoover.org/research/what-goes-wrong-when-government-interferes-prices

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Rationing: Definition, Purposes, Historical Example

Rationing: Definition, Purposes, Historical Example

  • Author: investopedia.com

  • Rating: 3⭐ (41211 rating)

  • Highest Rate: 5⭐

  • Lowest Rate: 2⭐

  • Sumary: Rationing is the practice of controlling the distribution of a good or service in order to cope with scarcity.

  • Matching Result: The 1973 Arab oil embargo caused gasoline supplies in the U.S. to plummet, pushing up prices. The federal government responded by rationing domestic oil …

  • Intro: Rationing: Definition, Purposes, Historical Example What Is Rationing? Rationing is the practice of controlling the distribution of a good or service in order to cope with scarcity. Rationing is a mandate of the government, at the local or federal level. It can be undertaken in response to adverse weather conditions,…
  • Source: https://www.investopedia.com/terms/r/rationing.asp

Frequently Asked Questions About how did the us government control price increases for scarce goods?

If you have questions that need to be answered about the topic how did the us government control price increases for scarce goods?, then this section may help you solve it.

The US government managed prices in what way?

U.S. PCE Inflation is at Its Highest Level Since 1982 Governments can either put a floor under prices with policies like the minimum wage or control the rise of prices with price ceilings, like rent controls. The following table provides some examples of typical price controls.

How can the government stop the market’s rising prices for goods?

Price management by the government may take the form of b>price ceilings, or price floors, imposed on specific goods and services by the authorities/b>. It may also happen as a result of other policies.

How did the US government restrict how much of a limited supply a person could buy?

The government gave each person, even infants, a certain number of “points,” which had to be turned in with money to buy goods made with restricted items. Rationing involved setting limits on the purchase of certain high-demand items.

When were there price controls in the US?

United States In 1906, as part of the Hepburn Act, price controls were first implemented nationally. During World War I, the War Industries Board was created in order to establish priorities, fix prices, and standardize goods in order to support American military efforts.

What are two instances of a government setting prices?

Price floors and price ceilings are two examples of price controls that governments can enact to regulate market pricing of goods and services.

What are the two different types of price controls that the government imposes?

The two types of price controls are price ceilings and price floors, and as their names imply, they work in opposition to one another. A price ceiling establishes a maximum cost, preventing prices from rising above a particular level.

How can the government address the issue of market shortages?

Supply chain with regulations. On the demand side, because panic buying can lead to supply shortages, the government can regulate consumer spending by capping the amount of a product that can be purchased at the essential value.

How can rising prices be regulated?

Production growth – If the production of the pertinent goods is enhanced, the market’s availability of those goods will also grow, lowering their price by default.

How did the US government reduce the supply of in-demand items brainy?

The right response is: The US government issued ration books with stamps to limit the quantity of scarce goods that a person could purchase.

Which government policy restricts the quantity of scarce goods that people can purchase during a war?

When the United States declared war after the attack on Pearl Harbor, the American government established a system of rationing, limiting the amount of certain goods that a person could purchase. Rationing was not only one of those ways, but it was also a way Americans contributed to the war effort.

Why did the US government impose rationing and price controls?

The federal government responded with a complex system of price control along with related rationing and rent control programs. Decreasing supplies of civilian goods combined with increasing war expenditures and consumer incomes conspired to raise prices at an alarming rate.

How is inflation combated by the government?

The goal of a contractionary monetary policy is to reduce the money supply within an economy by raising interest rates, which helps slow economic growth by making credit more expensive, which decreases consumer and business spending.5 This type of monetary policy is becoming more and more popular for containing inflation.

What are the reasons for price increases and how can they be stopped?

Regarding the variables influencing the rise in the general price level, it is important to note that on the demand side, the population has grown quickly, incomes have increased, the government’s non-development spending has increased, and the money supply has increased.

What are the two main reasons for price increases?

Demand-pull conditions occur when consumer demand pulls prices up, while cost-push conditions occur when supply costs push prices higher. Both demand-pull and cost-push conditions are major contributors to inflation, but they each exert pressure on prices differently.

What two strategies does a government use to manage inflation?

Fiscal Policies The government can address an inflationary gap when demand exceeds supply in one of two ways: first, by reducing overall government spending and transfer payments; second, by raising taxes, which results in lower demand from individuals and a decline in the money supply of the economy.

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