Neoclassical economic theory makes a strong case against any type of wage and price controls in competitive markets, and some leading economists strongly criticized the Nixon Administration for instituting such controls (Friedman, 1971; Reynolds, 1971).
Wage and price controls do not address the underlying cause of inflation and hence cannot remove inflationary pressures.
Wage and price controls distort that process and remove the natural ability of the economy to steer itself.
Wage and price controls may cause shortages because lower prices lead to higher quantities of goods and services demanded.
Finally, the imposition of wage and price controls actually reduces the purchasing power of the dollar, by legally restricting consumers' rights to use dollars to bid for the goods and services they desire (Alchain and Allen, 1972).
All of this suggests that wage and price controls should not be used if medical care markets are competitive.
Thus, the ESP remains the only example of regulatory wage and price controls upon which hypotheses can be based.
Changes in wages and employment were greater than changes in profits or expenses, suggesting that hospitals eventually reacted to wage and price controls by addressing payroll and staffing mix.
Me results from the National Hospital Rate-Setting Study also suggest that if ESP were implemented in today's hospital reimbursement environment, the results of wage and price controls may be reduced from those levels of effectiveness that were observed in the 1970s.
An immediate return to high list prices after controls are lifted would provide evidence of one of the major problems with wage and price controls noted by leading economists of the day.
The third issue we identified is the industry-specific application of wage and price controls today, as contrasted with the economy-wide (or nearly so) plans of the early 1970s.
Fourth, the general level of inflation in the economy and unemployment levels will affect the impact of new wage and price controls.