In the Telegraph, Charles Moore writes, “Will politicians ever realise that they can’t fix prices?”
The article begins with an anecdote to which I can relate:
When I was about 12, I thought like Rachel Reeves. “Prices are going up too much, so why,” I asked my parents, “don’t we just stop them going up?”
I cannot remember their answer, but I now know what my problem was. I did not understand what a price meant. I thought it was an order from on high (which, in dictatorships, it is). Only gradually did I come to understand it was something infinitely more subtle. It is the result – the signal – of an agreement made between someone who wants to sell something and someone who wants to buy it.
The equivalent “Why don’t we just” moment in my childhood occurred when my parents were moaning about lack of money. Less polite than the young Master Moore, I stamped my little foot and said, “If you haven’t got enough money, go to the bank and get some more.”
I blame fairy stories. I don’t recall ever believing in dragons, but I think I did believe that a Good King (or rather a Good Democratically Elected Prime Minister; I was that sort of kid) had but to say the word and there would be no more poor. I was pretty stupid for a clever seven year old. Our present Democratically Elected Prime Minister is sixty three.
After a brief explanation of what market signals are and how very bad things happen when people distort them, Mr Moore continues,
In my youth, most British politicians of both parties thought in my childish way. In 1972, Ted Heath’s Tories, shocked by the inflationary effect of the artificial boom their own policies had created, intervened to stop the merry-go-round. The Government’s Counter-Inflation (Temporary Provisions) Bill created a Price Commission and a Pay Board. All price rises were frozen for 90 days. Only one Conservative MP, Enoch Powell, voted against this profoundly unconservative measure.
Geoffrey Howe, later a great free-market Chancellor of the Exchequer, was Heath’s minister for consumer affairs. As such, he was the enforcer of every single price control. The utter absurdity of this was brought home to him when he was informed that the Vicar of Trumpington had doubled the charge for brass-rubbing in his church during the freeze. It was part of his job as the relevant Cabinet minister to prevent even that.
Someone recently wrote about the “ratchet” effect of government. I think this is an old idea…but I’d not heard it this way for a long time.
Something’s wrong. So, Government does something; that’s why it exists. One click of the ratchet.
The thing Government does is the wrong thing. Every. Single. Time.
So, the thing gone wrong gets a little better or worse (doesn’t matter which), and the Government uses that to intervene again. And does the wrong thing. Click.
The earlier wrong things never go away. The ratchet tightens. Click.
But bolts have a breaking point.
Stop creating more money from nothing.
Or stop complaining about inflation.
As for price edicts “controls”, “freezes” – they have been tried for thousands of years, and they always cause terrible harm, not good – harm.
It isn’t just the politicians who have this childlike view of the world. Too many ordinary people do as well. People who think that we don’t need farmers because we can just buy food from the supermarket, or that buying meat from the supermarket means that no animals get harmed. Some college kids, disappointed that they couldn’t get tickets for an upcoming concert, asking why they can’t just print more tickets. People not understanding the obvious limitations of wind and solar power. People who are unaware of how many products are made from oil. People who see capitalism as evil and want it to end, completely oblivious about what that would mean in practice.
As for Geoffrey Howe – he was never a free market person.
I remember him as Chancellor in 1979 – Value Added Tax (Sales Tax) was almost doubled, and “National Insurance” tax was also (I seem to remember) increased. And, contrary to the endless lies from the BBC, government spending was NOT cut – not even the government sector pay increases. Government spending went UP.
Howe later supported rigging exchange rates – a form of international price controls. The “Exchange Rate Mechanism” was a disaster.
@Stonyground
People who see capitalism as evil and want it to end
As they type away their moaning and groaning on their iPhone, connected to a massive communications network. Somehow they think the government could create this?
But I’ll do my old dog and pony story here. I think a lot of the problem is branding. I strongly dislike the word “capitalism”. It conjures up images of Mr. Monopoly, or Scrooge McDuck diving in their basement swimming pools filled with gold coins, or cracking the whip at their factory where workers walk the treadmill and beg for more gruel, please sir can I have some more.
“Capitalism” isn’t really about capital, though that is an important part. What really makes us rich are free markets, where people are free to exchange their money or their labor, or their skills, or their entrepreneurship for something of more value to them. Where people are free to defer consumption to create bigger and better things.
The important point is “freedom” where people are free to do as they wish and reap the reward or the merciless punishment of an open and free market.
Allowing the enemies of freedom to call free markets “capitalism” is like embracing their “far right” moniker. And we are even dumb enough to use this horrible word about ourselves. Let’s call it what it is — free markets. Everyone understands what that means. “Capitalism” you have to explain to people to get the image of rich robber barons out of their head.
Our wonderful politicians, in it for the good of the People, know full well that it is not that prices are going up, but rather, that the People are being exploited, by the retailers, for whom goods are buying more money than they used to.
Damn those goods.
Although I note that mid-to-late-stage communism does a great job of getting rid of them!
“shocked by the inflationary effect of the artificial boom their own policies had created”
Were they? Or were they lying about being shocked?
“Government does something; that’s why it exists.”
The problem is that is exactly not why the government exists.
“Let’s call it what it is — free markets.”
Capitalism is about protecting individual rights. Free markets are a result not a cause and they are definitely not the defining characteristic of capitalism. The closest word to describe capitalism is (classical) liberalism, but that designates an entire world view not just politics and economics.
Excellent comments from Mr Ed, bobby b and Steve D.
Thank you Gentleman.
I’m shocked nobody has mentioned yet that Rachel Thieves’ cunning plan (yes, like Baldrick) which is to reduce tax on visitor attractions and control the price of “essentials” is somewhat “Bread and Circuses”. We all know how that turned out don’t we?
@Steve D
Capitalism is about protecting individual rights.
Well why not call it “free-rights-ism” rather than confusing people with the word “capital”. But “free-rights-ism” is a mouthful and we have an alternative: “free markets”. My objection is specifically to the word “capital”, it convinces people that it is all about rich oligarchs controlling them and the government. How much more appealing is “freedom” where nobody gets to control you?
Free markets are a result not a cause and they are definitely not the defining characteristic of capitalism.
That might be so, it sounds to me that you have a particular meaning of capitalism in your mind that I probably don’t fully agree with. The crazy left also has a particular meaning of capitalism that I also don’t agree with. But what I care about is not “capitalism” but “free markets” because I care about freedom, I care about people’s right to make whatever arrangements they want between themselves without interference of government. All the stuff about capital, and macro economics (which I have said here many times I believe is mostly bullshit) is the part I dislike about capitalism, often termed crony capitalism. And it is the stuff that produces all the horrible effects of central government control that people also justifiably hate.
There is no such thing as a fully “free market”, but the world is not black and white, a country prospers in proportion to the degree to which their markets are free. It is why tiny Singapore could rise out of the ashes of WWII to be a powerhouse, whereas its parent Malaysia is (or at least was for a long time) a basket case.