Don’t let populists determine prices

Economic literacy among politicians has never been high, but it seems to be taking a big hit from populists in both left and right lately. Whether the Hungary Viktor Orban explains: “Prices do not rise, they are raised”, ” Viktor Orban is a conservative Lodestar. Now he wants to determine the price of eggs. – The New York Times Or the mayor of New York Zohram Mandani, who suggests that he “will immediately freeze the rent for all stabilized tenants” Platform – For NYC There is an almost conspiracy perception of price determination and the need for political intervention. Shades of the sixties.

I always told about how the oil markets were less politized in the nineties, and noticed that price checks on energy were considered far beyond regular thinking. That was an important change: oil price controls were drawn up in 1970 by Republican Richard Nixon as part of his more general fight against inflation, for example. When his wider wage and price checks turned out to be unworkable, he nevertheless maintained controls on the pit prices of the pits, so that they kept far below international prices and thus undermines his own urge for energy independence.

Conservatives have long argued that markets should determine the prices, but this was often misunderstood if the resulting prices would behave the way they wanted. Twice on the International Energy Forum, American secretaries of energy insisted that free markets would stabilize oil prices and I had to point out that the raw material prices were inherently unstable. In my experience she and many others used the expression ‘stable prices’ as a replacement for ‘lower prices’. A free market generates prices that balance the supply and supply, which does not necessarily translate into lower or higher prices.

Producers also ask for stable prices with which they mean higher prices. Whether they are farmers, miners or oil companies, it is typical to hear that the prices are not enough to support new investments, and low prices now mean a Squeeze range later. The deceased economist Richard Gordon, who listened to various consultants, complained that the prices were too low to allow investments in tankers, oil drill platforms and refineries, noted that “as economists, when we have learned one thing, it is that markets are clear and usually faster and at lower prices than we expect.” (That’s a paraphrase.)

The deregulation movement that was defended by Alfred Kahn, Margaret Thatcher and Ronald Reagan was largely intended to reduce the recording of the regulations, with which industries succeeded in bringing the regulations to their advantage and protect them against competition. But this also extended to the deregulation of oil and gas prices in the United States and the removal of the Monoponia stream of British gas over the natural gas supply of the North Sea. The resulting prices in both countries were more volatile and mostly lower.

For many such as Viktor Orban, the prices are determined by ‘someone’, and rising prices yield to research and action, whether it is oil prices, food prices, rental prices or interest rates. But markets are like the tides and they do not respond to the modern king who orders them to go back more than the tide responded to his import. (Opinions are divided on whether he thought he could control the tide or demonstrate the limits to his power to his supporters.)

In fact, the ‘invisible hand’ of Adam Smith should have been ‘invisible hands’ because the market represents decisions from countless participants. The prices can vary enormously in the short term, but in the long term the foundations of supply and demand win. Various efforts to circumvent market forces have always been approved and usually have failed, whether it has been the efforts of the US government to set or influence the attempts of agricultural prices or attempts from mineral producers to cartelation, including stabilization agreements for raw material price between producers and consumers. Every number of politicians complained that speculators influenced the currency values, interest rates and/or raw material prices, but their interventions have almost always failed, sometimes spectacular.

The point is that nobody knows the ‘correct’ price of everything, that is, the price that supply and demand can balance. Economists and experts in the field of exchange rates, oil prices, etc., regularly admit that they make bad phone calls (including me) and most would hate suggesting that they must be authorized to set them randomly. Even worse, most people who want to set up prizes have prejudices that guarantee the resulting errors (think of apartments in New York City) or surpassed (think of the US government cheese in the 1980s).

That brings us back to the invisible hands of Adam Smith or, to use the current pop culture term, crowd sourcing. Every particular trader or speculator can be wrong, and the consensus about the equilibrium price can be wild off-base, but with the constant iteration of thousands of buyers and sellers who assess the market balance, they succeed in stumbling in the long term to stumble into balance.

It is reminiscent of the joke from the Soviet era. Stalin wakes up in a hospital surrounded by officials of the Communist Party. Welcome back, comrade! They shout, the miracle of socialist medicine has enabled us to bring you back to life. It is now the year 2050 and the whole world is communist except new Zeeland. Why not new -Zeeland? Stalin asks. Well, pick up the Apparatchiks, someone has to tell us what the prices are.