International Man: Inflation has recently hit its highest levels since the 1970s as governments worldwide are debasing their fiat currencies at breakneck speed. The cost of living is soaring, and it’s likely to worsen.
In this environment, it is typical for opportunists in government to implement price controls as a misguided solution.
Do you think we’ll see them soon?
Doug Casey: Government never controls itself. It only attempts to control its subjects. I expect the rest of this decade will resemble the 1970s as far as retail price rises are concerned, but it will be much more serious. As a result, the chances of wage and price controls are high.
We need to only look at the actions of Richard Nixon, who often put himself forward as being pro-business and pro-capital. In 1971, he put on very strict wage and price controls. But wage and price controls didn’t begin and they certainly won’t end with Nixon. The idea that government should control its subjects is part of the national DNA. As the Baby Bush put it in 2008, “sometimes you have to abandon free-market principles to save the free-market system.” His statement reminds me of the famous quote from the Vietnam era: “We had to destroy the village in order to save it.”
The government’s share of the economy is much larger now than it was in Nixon’s day. And the people in government are much more left-wing than they were during the Nixon regime 50 years ago. If the Democrats are reelected in November—which I expect, despite Trump’s current lead—you can expect them to further centralize power towards Washington.
Government, as an institution, is congenitally incapable of learning anything. The first example of wage and price controls was under the emperor Diocletian in late Third Century Rome, when he attempted to regulate the price of every good and service, from the largest to the smallest. It turned the Empire into a veritable police state.
I expect the US government to again use price controls in an attempt to disguise the effects of its accelerating debasement of the currency. Trillions of dollars of new debt are being monetized by the Fed every year; the result will be escalating prices. It’s perverse because, in a free market economy, prices would be dropping every year with the growth of capital and improvements in technology.
In any event, as things start falling apart and the standard of living starts dropping, people will cry out for government to “do something.” And it will. They think the government is a cornucopia when it’s actually a predator. War, a unique specialty of government, will be another major impetus for imposing wage and price controls.
We had wage and price controls during World War I and very serious wage and price controls during World War II. They were selectively reimposed for the Korean conflict and, of course, when Nixon was in office during the Vietnam War. With World War III brewing, wage and price controls will definitely be part of the agenda.
International Man: What are some recent historical examples of price controls?
Do you see any parallels with what is happening today?
Doug Casey: As governments found during the days of Diocletian, you can’t control absolutely everything—even when the economy is simple and primitive. But it’s impossible with millions of inputs and billions of transactions daily. Entirely apart from being both destructive and immoral.
Input costs inevitably rise, and retail prices have to reflect that. It becomes physically impossible to produce the goods when costs exceed the sales price. Producers fail if they try to both produce and obey the laws. You arrive at a situation where you can legally have all of “product X” that you want at Y price—except that none exists. During the Nixon controls, we had critical shortages of gasoline because the Arabs raised the price of their oil—due to a depreciating dollar—but US refiners couldn’t raise the price of gasoline.
The average guy won’t blame the government for shortages and a drop in his standard of living. If he’s paying more for beef, he’s going to blame the butcher. If he’s paying more for gasoline, he’s going to blame Exxon. He’s not going to blame the actual source of the problem, the government, because it isn’t selling products and claims they’re fighting inflation by penalizing the evil and greedy producers.
One of the additional dangers of wage and price controls is that more than ever, people will hate the producers who sell them goods. They will go to the government, asking for price controls, which they think is a solution. The result will be black markets, where producers avoid price controls by selling things illegally under the counter for economic prices.
I hasten to say there’s nothing wrong with black markets. Black markets are actually free markets. Black markets are both good and necessary to avoid the negative effects of government intervention. The result will be more discord and social unrest as people blame each other for higher prices, with some ratting out others to the authorities.
International Man: What are some other dangers of price controls?
Doug Casey: Foreign exchange controls, blocked currencies, and domestic wage and price controls are consequences of fiat money creation. After all, the dollar, like everything else, has a price.
Governments usually try to control the price of their fiat currency against other currencies. The result is always massive corruption as people attempt to avoid these controls to preserve their capital.
South Africa is a great example. White people who want to abandon that sinking ship find it very hard and expensive to get their money out of the country. If they can emigrate, it’s likely as paupers.
Capital controls in most countries are highly likely as major parts of the world try to get out of both their local fiat and the dollar in order to use alternatives. Those alternatives may even be Russian rubles or Chinese yuan, although I doubt it. I think most of the world will go to gold or Bitcoin in the face of US foreign exchange controls. The yuan, the ruble, the Euro, the Yen, and the Pound are, if anything, even less trustworthy, and they’re certainly less liquid than the dollar.
China has foreign exchange controls limiting the amount of money that citizens can take out of the country. Whenever and wherever that happens, however, citizens redouble their efforts to get money out of a country. The same is true in Argentina, where the government has attempted to control the diminishing value of the peso, not by slowing the printing press but by enforcing foreign exchange controls. Of course, they haven’t worked; they’ve just lowered the standard of living and made Argentine’s lives miserable for the last 70 years. But Argentina is changing under Milei…
International Man: If shortages are such an obvious outcome of price controls, why do governments keep implementing them as a solution?
What should really be done to address the root of the problem?
Doug Casey: It’s really not an intellectual problem, it’s a psychological problem. Governments sometimes put on these controls out of ignorance. They’re usually not well-educated in economics. And oftentimes they’re dogmatic socialists, Marxists, or Keynsians who’ve been taught 2+2=5.
But in most cases, it’s because they really want to control the population. The people in governments are usually much more interested in control and lining their own pockets than they are in general prosperity.
Capital controls make it much easier for insiders to become wealthy since they have access to buying whatever currency they need from the central bank at a fixed price as opposed to the actual market price.
These people—Keynsians and socialists– think the economy is like a factory where all they have to do is push a button or tighten a screw to make it hum along like it should. But it’s not like a factory or a machine. The economy is more like a rainforest, where if you wipe out some elements and control or poison some part of it, you can wind up killing the whole rainforest. Economies are naturally self-regulating systems. Government intervention never helps and can wind up destroying the whole ecosystem.
So, what should be done to eliminate the root of the problem?
Inflation is 100% caused by government, its central bank, and printing money. Inflation is the result of fiat currencies that are created out of nothing and backed by nothing. This is why I’ve been an anarcho-capitalist for most of my life. Government actually serves very little useful purpose. Since it’s, in effect, legalized coercion, it should only be used to protect you from coercion. It shouldn’t be used to interfere in commercial transactions between citizens.
International Man: What can the average person do to prepare and protect himself?
Doug Casey: Own gold, which will profit from inflation, as people try to get out of the dollar and get into something that has a physical reality in and of itself. Bitcoin is another viable alternative.
As serious as the financial and economic risks the government is creating are, the political risks are much more serious. To minimize these political risks, get your capital out of the country. It will be easier for you to physically leave the country, should that prove necessary.
But if you’re going to stay in the US, you might adopt something my friend Jack Pugsley called The Alpha Strategy, a book he wrote back in the 1980s. It’s out of print, but I urge you to get a copy on Amazon. Essentially, it argues that the best way to beat inflation is to buy goods that you are going to need in quantity when you can get them on special with volume discounts. Then store them away. It’s more convenient because you’ll always have them at hand. Whereas when we get serious price controls you may not be able to get them at all.
Furthermore, as they go up in price, unlike investments, you won’t have to pay capital gains taxes on the increase. The book presents an integrated approach to saving with real goods as opposed to money or investments.
It’s among the most prudent and practical things you can do.
Reprinted with permission from International Man.
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