The long term distortive effects of governmental policies

During the Second World War the Roosevelt administration instituted wage and price controls to control wartime inflation. Wage and price controls do all sorts of odd things to the economy. But the effects of this policy were long term. Often when one tries to artificially hold down the price of something, markets react in a different area. When the Office of Price Administration instituted these limits, employers, wanting to attract the best employees, began to offer non-taxed (and non-covered) fringe benefits. That began the offering of widespread health benefits. It changed the face of health care but also altered consumer choices.

So what do we have after almost 60 years of this situation? Health care is a much larger part of the economy than it once was. Obviously that came about, in part, because of advances in medicine, but that is not the only reason. There is some evidence that were people not able to get the things they get as fringes that they might consume 20% less of them than they do now. The tax code is certainly more complicated than it should be (although that is not the exclusive fault of fringe benefits). Finally, some of our basic understandings about how the economy works are simply wrong. For example, all of the catterwalling about the supposed stagnation in wages is based on data which ignores the values of fringes. A good deal of the debates about the negative economic effects of immigration are based on this false data.

One wonders how things would be different if we had never imposed those controls. The thought experiment is helpful in a couple of ways. First, it could help us imagine differences in society that might have been. At the same time, it could also help us think about steps that might be taken with what is today.