Price Manipulation of Goods Changes Behavior / by kevin murray

In a free and open economy, price controls would be seldom used, and the price of goods sold would be essentially what the market would bear, and while it certainly makes sense for certain critical infrastructure commodities such as electricity to have some sort of basic pricing structure, the control and the exercise of such should be kept minimal and efficient.  So too, in order to have normalized pricing to begin with, economies need to have real competition, and the more competition, the more efficient and fair the pricing will be for consumers of such.  That is to say, if one is buying any commodity that is controlled by just one entity or a group of entities as in an oligopoly, or via governmental control, than pricing will not reflect the true cost of those goods and hence will unfairly benefit one party to the exclusion of others.

 

The thing about governments is that for whatever reason, noble or not, they like to control prices from fluctuating or to manipulate prices so as to encourage consumption of one sort and to discourage consumption of another source, in which, perhaps though their intentions are right, the follow-through in application is often disappointing.  This means that the more manipulation that is made by authorities into free markets, the more distorted the economics of a given product is tilted and thereby the winners and losers will be changed because of this interference, and those that are beneficiaries of such manipulation, will now have a vested interest in seeing that business continues as usual, compounding the error of this interference.

 

People aren't stupid, so that if gasoline is taxed or priced at a certain high range, people will drive somewhat less, car pooling will increase, cars that achieve greater gas mileage will see their value go up, and alternative energy sources will be utilized, because most people do not have unlimited budgets and hence must adjust by using less gasoline.  On the other hand, when gasoline prices are held artificially low, such as in a country like Venezuela, the public will take advantage of this cheap energy by using a lot more of it, and in addition, since Venezuela borders Colombia, find a way to transport gas illegally and somewhat dangerously to Colombia, which is good overall for Colombians, good for the traders of such, as well as those receiving bribes to allow such a transport, but an overall waste of a precious commodity because it's price has been manipulated.

 

The bottom line is that the more wrong that a price is, by being held artificially low, because of governmental interference of all its many stripes, the more that the people will buy such a product for individual usage or for possible trade if circumstances allow.  So too, the more that a price of a good is artificially inflated, the less the public will use it, and they will instead search for alternatives that will serve as good substitutes. 

 

The problem that governments have in conjunction with vital corporations is that they are unable to see the invisible hand of the marketplace when they get together to determine what goods should be focused on and manufactured, what the prices should be, and this or that, making all sorts of assumptions and projections without recognizing that changing prices produces changes in behavior because man's mind and man's pocketbook is ever able to figure out correctly what collectively is their best move, upsetting master plan economies again and again.