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The latest data show price inflation rose 7% last year. That is a 40-year high. How much could the U.S. government do about this? There was once a time when the United States aggressively intervened to hold down prices, and that led to nasty side effects. Darian Woods and Stacey Vanek Smith from NPR's The Indicator have a case history from the past.
DARIAN WOODS, BYLINE: In 1941, the U.S. is frantically retooling for war.
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UNIDENTIFIED PERSON: Our great Pacific outpost in the Hawaiian Islands is ruthlessly bombed as Japan...
WOODS: And following the Pearl Harbor attack, the U.S. joins World War II. There is a materials shortage, and prices are spiking. But President Franklin Delano Roosevelt has a secret weapon to fight inflation, a new division that would come to be called the Office of Price Administration. The Office of Price Administration is headed by an economist named Leon Henderson.
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LEON HENDERSON: We intend to move in now on speculators, profiteers, sharpshooters and chislers.
WOODS: Henderson's early approach had been persuasion, voluntary agreements with industry to limit price rises. But that's no longer working. Roosevelt signs the Emergency Price Control Act of 1942. This gives the Office of Price Administration sweeping powers to enforce price caps and also to administer rations. And then as part of a big package to control inflation. President Roosevelt proposes putting that law into action - a cap on all prices across the economy.
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FRANKLIN D ROOSEVELT: We must fix ceilings on prices and rents.
STACEY VANEK SMITH, BYLINE: Shoes, furniture, chicken. Basically, everything in the economy has to stay the same price. While there are some exceptions, this is a massive deal. Gillian Brunet is an economist at Wesleyan University, and she says this helped - a little.
GILLIAN BRUNET: That gets the annual inflation rate down to, like, the 5 to 8% range - so kind of where we are now.
SMITH: That inflation crept in because businesses would find these workarounds. Like, a business would repackage old products as new and claim that these new products needed a new price. Or, you know, they might be lower-quality goods, skimpflation. So the Office of Price administration goes with a new approach.
BRUNET: Actually explicitly set prices, you know, went around and said, charge X for this. Charge Y for that.
SMITH: And while inflation did mostly stay in check during the war, there were significant downsides. First, some businesses responded by simply not selling cheaper versions of their products, which was detrimental to people on low incomes. Secondly, without high enough prices to compensate businesses for bringing stuff to people, shortages increased, which brings us to the third downside, the black market.
BRUNET: They had what they called meateasies after the speakeasies of prohibition.
WOODS: Meateasy - well, secret butchers.
BRUNET: Yeah, exactly - black market meat sales.
WOODS: Now, after the war, there was this huge wave of consumer spending putting pressure on prices that couldn't move up. And that created shortages. And in 1946, the Republicans won the midterm elections, basically a referendum on the Office of Price Administration, which was soon disestablished.
SMITH: And look. We do have price controls now in the economy. Some states have rent control, for example. But widespread price controls. Those are still frowned upon by many economists. Stacey Vanek Smith.
WOODS: Darian Woods, NPR News.
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