Are Price Subsidies Price Controls?

Note: I have been informed that contrary to what Carter wrote and I believed, the German policy in question was neither a price control nor a price subsidy in the ordinary sense. Instead, it was effectively a lump sum cash grant to each energy consumer. I’ll keep the text below up so people can read it but also because I think the point about the difference between price controls and price subsidies is worthwhile.

Zach Carter has a new entry in what many have called the greedflation debate. It’s a lovely piece in many ways, but, after reading it, I am just more confused than ever about what people like Carter are actually arguing.

The piece is centered around Isabella Weber, an economist who wrote a piece in the Guardian a while back arguing that we should combat the post-COVID inflation with price controls. Carter tells the story of this argument being widely denounced only to later be embraced.

But the piece never actually provides any examples of Weber’s price-control approach being embraced.

After a long wind up, the big payoff is a single program in Germany aimed specifically at dealing with energy price shocks from the Russia-Ukraine war:

She presented a detailed scheme for regulating the price of natural gas in Germany: households and businesses would be guaranteed a limited supply at an affordable, government-controlled price. Anything they burned in excess of that quota would be subject to the soaring market price. (Producers of natural gas would receive government subsidies to make up for lost profits).

A lot of European countries implemented policies like this. But these are price subsidies, not price controls.

With a price control, the government decides that a company is charging too much for a product, and then forces them to sell it for less. These kinds of price controls are common in the pharmaceutical sector.

With a price subsidy, the government decides that consumers should not have to pay the full amount of the price a company is charging, and then subsidizes that price by covering some of it publicly. These kinds of subsidies are common in the agricultural sector.

To the end consumer, price controls and price subsidies may look the same. But to the companies, they look very different. Price controls force companies to forego profits. Price subsidies do not.

In the rest of his article, Carter lists a variety of other examples that are not price controls but that he says are somehow in the spirit of price controls.

For instance, he says that “the Biden Administration is regulating the price of oil” and then later makes it clear that, by this, he means that the Biden Administration “began selling oil from the U.S. Strategic Petroleum Reserve and issuing price guarantees to drillers in return for expanded production.”

Increasing the supply of oil so as to bring down the market price is not a “price control” in the ordinary sense of the word. He’s far too smart to actually be confused in this way, but if I didn’t know better, I’d think that Carter has confused the technical phrase “price controls” with the more colloquial sense of “getting prices under control.”

I think the topic of price controls — or more generally using non-price mechanisms to ration scarcity — is an interesting one. Price-rationing is not the only way to do rationing and there are times when non-price-rationing is better, such as when triaging emergency services.

But this piece didn’t actually go into the question of price controls and instead chose to say that things like consumer subsidies and policies aimed at increasing supply vindicate price controls. It’s really bizarre.