It doesn’t make sense to me. I used to be all like but then everything increases in price still Yada yada. But recently… why can’t we just lower the prices of petrol artificially. Why can’t we just lower housing prices by law?? Why can’t we erase inflation seeing as it’s completely made up anyway.
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Because it requires everyone else to play along. The government can lower prices all they want, if the industries inquestion dont want to lower prices, they wont. Look at Germany, for instance. In the light of Big Oils price gouging, the german government lowered mineral oil taxes to lower prices by 30 cents a liter. This worked for less than a week, until Big Oil just raised the prices by 30 cents a liter and pocketing the change.
Because it will just lead to shortages and buying anything will be like trying to buy a Playstation 5 or RTX 3070 last year. Inflation is caused by too much money chasing too few goods. You *could* reduce the money supply in the economy, and that’s what you’re essentially doing when you raise interest rates. This makes it harder to borrow money shrinking the supply of money. Some countries have successfully stopped inflation by doing what you’re suggesting paired with policies that limit wage increases which are very unpopular plans.
Well… If your money got more valuable the longer you kept it would you still be out there spending your hard earned money on things that would be “cheaper” for you, if you wait for your money to go up in value to buy them?
At a basic level, the price people are willing to pay for goods and services is determined by supply and demand, and in some ways this could be considered an arbitrary value.
All things, however, have a price floor based on the actual cost to produce something and in this sense all prices are interconnected; when the price of oil goes up, for example, everyone who uses oil in the production or distribution of their product will see an increase in their own costs.
These costs can’t be absorbed by the producer forever and will at some need to be passed on to the consumer otherwise the business will go bankrupt.
Price controls are a mechanism that some governments use to control inflation of certain products, but the costs need to be carried somewhere, so if this isn’t by the consumer it must be the government, otherwise producers will go under and the economy will collapse.
Many goods are bought and sold on international markets so governments have limited control of these prices, the choice is either to buy at an agreeable price, to buy elsewhere, or not to buy at all.
PM of Hungrary has tried that 😀
The conclusion is, there is no free money. Now people that cannot even afford a car, paying my gas money from their tax.
And supply issues are getting more common.
Price is a tool to control demand.
Until oil prices with transportation and etc. dont get cheaper organically (higher supply, lower demand), it is not something that should be controlled by anyone else.
The short answer is because the US Govt doesn’t have the authority to dictate prices of things. We have a semi free market, where the prices of things are determined by a number of factors (cost of production, cost of R&D, transportation costs, etc). This is not a perfect system, what system made by humans ever is, but it’s one that is better than everything else that has been tried. Say the government did say that, for instance, twinkies could only cost 50 cents. That would mean that, no matter what it takes or costs for the company to bring you twinkies, they could only charge 50 cents for it. This might come as a cost for the company, seeing how it actually costs the company 75 cents to bring the twinky to you, and would result in the company going bankrupt. Ergo, no more twinkies. I’m not an economist or anything, but that’s how I understand things.
This is how I eli5 inflation.
Imagine you live in a small village. And there’s one carpenter who makes chairs. He can only make so many in a day.
He has one chair left in his shop and two people come in to buy it. The first says “I really want this chair, I’ll give you £50 for it”. The second says “well I really neeeeed the chair. I’ll give you £60 for it”.
They bid against eachother until one gives up.
Now imagine this happens every day. The carpenter can only make one chair a day. And everyday two new people want to buy it. Suddenly the value has changed, so the carpenter just sets a higher price.
The issue is there is only ever one chair. That is what is causing inflation. Too much demand for not enough goods. You can try and enforce lower prices by law, but then we’ll just run out of goods.
The terrifying thing about what we call the ‘cost of living’ crisis in the UK. Is this is the cost… Of living. Literally the cost of what it takes to live in modern society is becoming unaffordable, because we do not have enough supply of goods (and energy) at the moment for everyone.
>… why can’t we just lower the prices of petrol artificially. Why can’t we just lower housing prices by law??
On this point, do you really want the price of things to be controlled by the government, fuel is supplied by a company and although many governments have adjusted the tax on fuel, the company still sets the cost price which is reflected in the sale price.
Same with houses, do you want the government to say your house is onoy worth 100k now when it was 200k last week, and how would that even work, my house is nicer than next doors so will the government come around and value my house differently to that house?
I live in an exporting region. We sell resources to countries that import.
If you lower the price, we will not sell you anything, and you will get nothing, and then freeze.
How are you supposed to impose laws on other countries? Most countries need to import many things.
You can’t just force people to sell their resources at all loss, they won’t do it unless you enslave them like some colonialist shit.
If you want goods, you must pay for them, or nobody will make them, because nobody will have any incentive.
If you want the gov setting the price of everything, go move to China, see how that’s working out.
Inflation is not what someone created but it is the result of everything that happen in our economy.
What we create is only how to consistency measure it.
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