ECN 101 Lecture Notes - Lecture 1: Incomes Policy, United States House Committee On Oversight And Government Reform, Aggregate Demand
Document Summary
Another method attempted in the past have been wage and price controls ("incomes policies"). Wage and price controls have been successful in wartime environments in combination with rationing. However, their use in other contexts is far more mixed. Notable failures of their use include the 1972 imposition of wage and price controls by richard nixon. More successful examples include the prices and incomes accord in australia and the wassenaar agreement in the netherlands. They often have perverse effects, due to the distorted signals they send to the market. Artificially low prices often cause rationing and shortages and discourage future investment, resulting in yet further shortages. The usual economic analysis is that any product or service that is under-priced is overconsumed. However, in general the advice of economists is not to impose price controls but to liberalize prices by assuming that the economy will adjust and abandon unprofitable economic activity.
