Martin HenryTHE GOVERNMENT can barely restrain itself from imposing price controls ostensibly to protect post-Ivan consumers, particularly the poor, from rapacious price gougers. But who will protect sellers and buyers in the market from a Government bent on using the wishes of
politics to try in futility to over-rule the laws of economics?
In the aftermath of a devastating hurricane prices have moved in both directions. Try selling a house on Caribbean Terrace now, or land in Portland Cottage! When power was still widely out, try selling meat or any perishable commodity requiring refrigeration for storage! What is driving the Government frantic, and leading to threats of returning to price control is the upward movement of prices on "survival" items like kerosene and non-perishable foods. But what is driving these prices up? Sure there are greedy gougers out there. But in a
functioning market scarcity, or even the perception of it, drives prices up. Good and wise
governments have always wanted to protect poor buyers from the robbers who sell at 'exorbitant' prices. What they usually succeed in doing is creating huge black markets. In a market buyers naturally want the lowest possible price. But, equally, sellers want the highest possible price. This fact of human nature and desire simply cannot be legislated away.
CONFLICTING DESIRES
Contrary to popular mis-perception, fair price cannot be something set in advance by some great and good authority, but it is the point at which the conflicting desires of buyer and seller are satisfied in free transaction, supply matches demand, and goods clear the market. So what is the 'fair' price for kerosene or sardines or meat? Buyers and sellers can determine that, or the Government can tell them what it should be. There is a famous story of a Roman Caesar, with powers akin to that of God, who commanded fixed prices for food commodities in a period of hardship on pain of death for deviation. Prices went up nonetheless as buyers and sellers were willing to risk death and trade under the table. But governments haven't stopped trying.
Several people in Cabinet with the young and energetic Minister of Commerce will remember when there was a government-
determined "fair" price for the US dollar. The greenback promptly went black. Banks didn't have them. Well, not at the fixed rate of exchange, at any rate. But special deals could always be arranged on the steps and in the streets. And a roaring trade in foreign exchange went on beneath the futile controls of Government. The most predictable results of price controls are corruption and the thriving of a black market which becomes the real market.
Price increases actually serve some very useful purposes: As Adam Smith pointed out so many years ago for corn, then a poor people staple food, in the face of scarcity, price increases lead to a reduction of consumption and therefore a conservation of supply and a postponement of starvation. Price increases signal that the
market needs greater supply and bring new players into the market who see an opportunity to make a buck by selling at lower prices. And price increases push the search for innovative alternatives. Oil spurted past the US$50 barrier on the New York market last week after a rapid climb over the last several months. Now that is a
really big thing for Minister Paulwell to worry about and controlling that price is well beyond him. He will have to work on the conservation and the alternative energy sources like from
yesterday.
KEY FACTORS
The key gouging factors are ignorance (lack of knowledge) in the marketplace, monopoly and cartelisation which is just a big monopoly by several sellers
ganging up against buyers. Before Philip Paulwell went into politics he was the bright lawyer who spearheaded the drafting of the Fair Trading Act and who first headed up the Commission set up to administer the Act. Flooding the market with information and blocking monopolistic cartelisation are the surest way to kill gougers. And it doesn't even have to be the Government's business to inform consumers. After all, the Government itself is a major supplier, and usually a monopoly at that, and needs a lot of watching. Consumer affairs, in places where markets work best, are usually
citizens' organisations.
The Government can better help the deserving needy by
providing direct personal grants rather than by manipulating the market worse than any cartel of gougers. More power more
damage. Check Ivan. Nobody remains on one side of the
market forever. One minute someone is a buyer facing the alleged price gouger, the next minute they are a seller with the option to gouge. "Fair" control couldn't be limited to a handful of "special" Ivan commodities. An entire economy is undergoing major price adjustments in response to a major disaster. There will be bumps and warps, but Government could make things considerably worse. The Minister has lit a JAMAL kitchen bitch fuelled with high-priced post-Ivan kerosene and is walking in the light despite strong temptation to go back to the darkness. Yield not to
temptation.
Martin Henry is a
communication specialist.
