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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The causes of inflation are many and varied, but what we’re seeing now is at least partly (though not entirely) “supply-side inflation”, meaning that it is caused by increased scarcity of goods and services that are in high demand. For instance, sunflower oil has gotten more expensive, because a lot of the world’s sunflower comes from Ukraine. With that country embroiled in a war with its aggressive invader Russia, the supply of sunflower has dropped. When supply shrinks relative to demand, prices go up.
You’re saying: why don’t we just fix this? But how would we do that? We can’t force everybody in the world to sell their sunflower oil at lower prices. And we probably shouldn’t want to either. Scarce goods getting more expensive sucks for people who need those goods, but it’s also an important mechanism to ensure that the supply of these goods doesn’t totally run out. If sunflower oil doubles in price, people will buy less of it, which means that people who really need it can still get their hands on it. Now, if the governments of the world all somehow agreed to force sunflower-producers to lower their prices, what’s going to happen is that the first people “in line” to buy from these producers can snatch up all the sunflower at the new low prices, even if they don’t have a great need for so much oil. (Also, they would likely then sell that oil on the black market for the true market price, but in this scenario we’ll pretend that governments can prevent that.)
Of course, that doesn’t mean that free market price dynamics result in a perfectly equitable situation. If you can’t afford to pay so much for sunflower, you’ll have to go without, even if there are still bottles on the shelves in your supermarket. But letting the market determine the price at least ensures that the small supply of sunflower that is left doesn’t get distributed randomly. And, importantly, it also encourages people to be more frugal with their sunflower oil, using it only when really necessary. E.g. food manufacturers might choose to replace it with a different oil, thus leaving more sunflower oil for those who cannot use a replacement.
The same goes for gasoline and natural gas right now. The supply is simply lower, and no government (except maybe Russia) can fix that. Governments are taking steps to ease the effect of these prices by lowering taxes, but that’s basically all they can do. And again, if you artificially lowered prices below their market price, the result would basically be that a bunch of people rush to the gas station to fill up their tanks, and then the people at the back of the line have to go without gas entirely. That’s not what you want. Given that we are in this predicament, where gasoline is in short supply, you do want prices to reflect that fact, so that people have the ability to weigh their needs against those prices (and e.g. reduce their car use). Again, it’s not perfect, because poor people especially are hit by this, but unless you can increase supply, it’s the least-worst scenario.
Housing prices would be even harder to control. Imagine you paid $400,000 for your house and now the government forces you to sell at $300,000. How is that fair? Sure, if you move and buy a new house, that new house might be cheaper too, so it might all work out okay for you. But not everybody who sells a house also buys a new one, and there’s no guarantee that all houses will go down in value proportionally. So, bottom line, you’d force a lot of home-owners to make a big loss. Not to mention the trouble this would cause with mortgages.
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