In the latest Economics Explored podcast episode, Adept Economics Director Gene Tunny takes a deep dive into one of the most consistently failed economic policies of the past century: price controls. Despite their enduring political appeal, the evidence is clear—price controls almost always backfire, leading to empty shelves, black markets, and worsening economic hardship.
In this post, we summarise key points from the episode and examine three case studies—the United States, the Soviet Union, and Venezuela—to explore why governments that interfere with price signals inevitably run into trouble.
In any functioning market economy, prices do much more than assign a cost. They act as signals that coordinate production and consumption. When demand rises or supply falls, higher prices tell producers to make more and encourage consumers to use less. This is the price mechanism at work—allocating scarce resources efficiently.
When governments cap prices, they disrupt this feedback loop. The result? Producers don’t get rewarded for increasing output, consumers don’t get the signal to reduce demand, and soon you have shortages and inefficiency.
In 1971, facing rising inflation, U.S. President Richard Nixon introduced a freeze on wages and prices. Initially seen as strong action, the policy quickly proved disastrous.
As Gene Tunny explains on the podcast, this freeze led to shortages of meat and other consumer goods, as farmers couldn’t afford to raise livestock at controlled prices. Supermarket shelves emptied, and black markets flourished. Many businesses found ways to evade the rules or lobbied for exemptions—introducing distortions and inequities.
The policy didn’t solve the underlying inflation problem, which stemmed from heavy government spending and money supply growth. The controls were eventually scrapped in 1974, but not before considerable economic damage had been done.
For most of the 20th century, the Soviet Union operated a centrally planned economy, where prices were determined by the government, rather than by market forces.
As described in the episode, this system led to chronic shortages, even of basic goods like bread and meat. In some cases, Moscow restaurants had to implement “meatless days” due to a lack of supply. Prices did not reflect real scarcity or consumer demand, so producers and consumers operated in an environment detached from economic reality.
Even worse, production incentives were misaligned. Steel plants were rewarded based on tonnage, not utility, resulting in manufacturers producing overly thick steel sheets that had to be shaved down, wasting resources. Durable goods such as refrigerators were heavier than necessary due to the emphasis on quantity rather than quality and efficiency. This inefficiency was baked into the system, ultimately contributing to the collapse of the Soviet economy in the late 1980s.
A more recent example comes from Venezuela, where price controls on essentials such as milk, cooking oil, and toilet paper have created severe shortages.
Attempting to make basic goods more affordable, the government capped prices so low that domestic producers couldn’t cover costs. As Gene highlights in the episode, this led to factory shutdowns, black markets, and even a national toilet paper shortage so severe that the government had to import 39 million rolls (see Venezuela aims to end toilet paper shortage – BBC News).
The recurring theme across all three case studies is simple but powerful: when governments interfere with price signals, they create unintended consequences that are often worse than the original problem.
As Gene Tunny explains, prices help us answer fundamental economic questions—what to produce, how to produce it, and for whom. Undermining this mechanism leads to chaos, not control.
That’s not to say markets are perfect. Negative externalities, such as pollution, can justify interventions like Pigouvian taxes. But heavy-handed price controls rarely succeed—and often hurt the very people they’re intended to help.
Whether it’s Nixon’s failed inflation fix, the Soviet Union’s bread lines, or Venezuela’s toilet paper fiasco, history provides a clear warning: ignoring basic economics comes at a high cost.
Published on 15 September 2025. For further information, please get in touch with us via contact@adepteconomics.com.au or by calling us on 1300 169 870.