Domestic Economy

Economist Brands Price Control Attempts ‘Pipe Dream’

Economist Brands Price Control Attempts ‘Pipe Dream’
Economist Brands Price Control Attempts ‘Pipe Dream’

Attempts to control market prices frequently backfire, so the Iranian government needs to come up with new strategies to answer calls for economic transformation and improvement.
This was stated by Hossein Haqgou, an economic analyst, in a write-up for the Persian-language daily Ta’adol. The translation of the article follows:
Market regulation is now the government’s main concern. Public patience is wearing thin over price increases on a monthly, weekly and even daily basis.  
President Ebrahim Raeisi, who stepped into office with the promise of improving lives and livelihoods, told his Cabinet members in his latest meeting, “My top priority, after the preliminary success of the vaccination program, is regulating the market of essential goods. People must have easy access to commodities they need at reasonable prices. The Market Regulation Headquarters will constantly hold meetings until the market reaches equilibrium; after all, the philosophy behind our presence is for people to experience calm.”
Ludwig von Mises, the prominent Austrian economist of the 20th century, argues that governments intervene in markets and pricing to reduce prices. Their goal is to help consumers have access to goods at cheaper prices but their efforts backfire, as the prices increase or goods disappear from markets altogether. Why?
The economist explains that by setting prices at lower levels than the market price, demand goes up and governments will have no option but to solve the shortage by emptying their warehouses. This will prove ineffective at stopping the price from rising. On the other hand, production at mandated prices becomes economically unviable, so producers reduce or stop production.
To counter the crisis, governments begin controlling the prices of raw materials and wages, not only in one market but in all markets, otherwise all resources will be poured into businesses that have stayed under the radar of government intervention. As a redult, shortages and price increases become more evident in various sectors and governments are forced to introduce policies like goods rationing.
Mises says, “Government intervention is not only unnecessary and useless, but also harmful. It is unnecessary because the interdependence of market phenomena narrowly circumscribes individual action and economic relations. It is useless because government regulation cannot achieve the objectives it is supposed to achieve. And it is harmful because it hampers productive efforts where, from the consumers’ viewpoint, they are most useful and valuable.”

Past Experience

The implementation of pricing policy over the past five decades (before and after the Islamic Revolution), under different names, has led to the disappearance of goods subjected to this policy from the market. Today’s “market regulation” would produce no different result, if carried out in accordance with the same method of pricing.
The government set the ceiling of annual rent increases at 25% this year. Even so, data released by the Statistical Center of Iran show a 47% jump in rents. The annual inflation rate has increased to the worrying levels of around 50%. The promises of allocating billion-rial loans for super projects like mass construction of residential units further increase the inflation rates.
The government needs to change course and ditch failed strategies. It must avoid presenting them in another form under a different title and take the economy to the point of no return.
To improve the country’s current upsetting situation, our options are to respect the right to own property and freely trade goods and services, interact with the outside world, reduce crises and tensions with the aim of stopping capital flight, attract new resources, reduce governmental and semi-governmental monopolistic practices and create a competitive environment with the private sector at its core.
All other alternatives are destined to fail; no headquarters, taskforces, meetings and projects under a command system would be able to control the scourge of high inflation. The government’s regulations would lead to irregularities. This is only a pipe dream that leads to nightmare!
A century of experience and the failure of centralization and control policies testify to this reality.  




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