Price Controls.

First Published: 1999-06-22

by Rick Lowe

The issue of price controls is a political football. Food stores, new and used car dealers and pharmacies have all recently been “searched” in the interest of the “small man”… to give the impression that our wonderful government is protecting us against those dreadful business people who might be trying to make a profit.

      While the officers the Ministry of Consumer Welfare and Aviation are fulfilling their responsibilities as the law allows recent events have shown the folly of this legislation. In fact some of the original arguments against these laws are now coming back into focus. For example, in a flourishing market government-set prices are unnecessary. The market itself is the impersonal, totally fair regulator that provides goods for all at the least possible price.

The case of the used car dealers.

      In recent years the demand for used cars has grown and a few bright entrepreneurs found a source for well-priced cars. Excessive licensing fees on older Japanese cars results in the Japanese consumer changing his car every three to five years. This creates a “glut” of used cars and overseas markets like the Bahamas became home to these vehicles as the demand increased.

      The importers of these Japanese used cars were able to buy at a relatively low price making it possible for a higher than usual profit margin.

      The resulting competition produced the following:-

  1. The consumer gets a vehicle they want at a reasonable price;
  2. Government loses revenue because of the cheaper values of these cars;
  3. The Ministry of Consumer Welfare and Aviation become concerned because businessmen are allegedly making more mark up than allowed by law; and
  4. Local manufacturers- representatives and parts suppliers cannot readily supply the necessary parts.

      It is very interesting however, that without more regulation the market has adjusted.

The cry of discrimination.

      As a result of the Ministry of Consumer Welfare and Aviation fulfilling its mandate of controlling prices there have been cries of foul play. This proves the fallacy of price controls. The very “small man” who the law was supposed to protect has now scratched and clawed his way into business and feels he is being discriminated against. Isn-t that interesting? It also creates a policy issue for the government to deal with. We are sophisticated enough as a people to know if we are being ripped off or getting value for money. Besides, as more businesses open the price will slowly regulate itself because there will be a level that the businessman is not willing to go below and a corresponding range the consumer will not or cannot go above.

Politics of appeasement.

      Politics of appeasement… whereby he who shouts the loudest gets what he wants simply will not work as it has in the past. We have more access to the market of the USA and we are more upwardly mobile. Therefore political policies designed to make one group feel they are being protected from another persons greed will soon be a thing of the past. Policies will have to be designed in consultation with the community and businesses directly affected, with sensible discussion and analysis before they are implemented.

      Price controls have never been a sensible policy, unfortunately “The confidence of the anointed (political leaders) in their own articulated “reason” has as its counterpoint their complete distrust in systemic social processes, operating without their guidance and intervention. Thus the operation of a free market is suspect in their eyes, no matter how often it works, and government control of economic activity appears rational, no matter how many times it fails.” (Thomas Sowell)

      “Economists may not know much. But (they) know one thing very well: how to produce surpluses and shortages. Do you want a surplus? Have government legislate a minimum price that is above the price that would otherwise prevail.” (Milton Friedman) To create shortages just do the opposite.

Raise the Mark Up Limit?

      There are valid suggestions being circulated that representation should be made to government to raise the mark up allowed on used cars to forty (40) percent. I disagree; my recommendation is that we should scrap price controls completely.

      Instead of the legislators controlling others while “protecting” their own professions they should spend a bit more time raising the level of the debate instead of creating mischief on the one hand and appeasement on the other.

 

Read Forty Centuries of Wage and Price Controls here…

Here’s a snippet:

The record of governmental attempts to control wages and prices is clear.
Such efforts have been made in one form or another periodically in almost all times and all places since the very beginning of organized society. In all times and in all places they have just as invariably failed to achieve their announced purposes. Time after time an historian has laconically concluded, « ••• the plan to control rising prices failed utterly.” Or, “… the laws were soon repealed since no one paid any attention to them.”


Read more posts by Rick Lowe here…

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