Price Controls do not Reduce Inflation [with Comments]

The "What" of what I want to say today is already pretty clear from the title of my paper. However, I should explain to you the "Why" of the paper: why in the fIrst place I want to bring to your attention the fact that price controls do not reduce inflation. We probably all agree that Pakistan has more inflation than it needs and we share the popular desire to lower inflation or at least to keep it from rising. Unfortunately, fear of inflation seems to dominate Pakistan's discussion of many economic policies that have little to do with inflation or the cost of living. For example, both the public debate and the political debate over what prices the government should set for its agencies' sales of wheat and fuels is dominated by a widespread belief that raising these prices, or using a flexible market -determined pricing policy, would be inflationary. Tax reforms and export development are also constrained in Pakistan by the popular fear that they would be inflationary. In my view, none of these fears of inflation is justifIed. However, false fears of inflation exist, and the longer we let them distort policy, the more we delay many of the important steps Pakistan needs to take to increase both the national rate of private investment and the level of government spending on social programmes for the worst -off groups in the population. In this paper, I will very briefly explain why some of these widespread fears of inflation are unfounded. I will also suggest some non-technical arguments that economists can use, not in scholarly debate, but in the popular and political debate over economic policy to bring home some of these points.