Why can’t the government just set a concrete price for everything (Rent, groceries, etc) and forbid it from ever changing? That would prevent inflation from ever happening, right?
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Can you really not see any challenges with that concept at all? Cost of raw materials would be an obvious place to start. And every govt in the world would have to agree lest you just start importing from elsewhere. No pay rises ever even after becoming much more skilled at your job. No motivation for competition to provide better quality or lower cost. It makes no sense whatsoever.
Governments have used price controls in the past. It often leads to shortages and black markets.
Inflation is what happens when people spend more money. Since there’s no new stuff to buy, the shelves get wiped clean. To account for this, businesses raise prices.
So if we fix the price too low, then the economy becomes limited by how fast we can make something, and if we fix the price too high then people complain that the price is too high and corporations walk away with a ton of easy money.
The government doesn’t own the means of production so they can’t set the price. Unless the government just takes over the economy it doesn’t work and the government taking over the economy didn’t work so well for the USSR
Because they would have to apply a price to absolutely everything everything and Private sales between individuals. It’s impossible. The value of the dollar is not just based on five or six product categories.
Sure, but then it causes shortages. High prices are both a disincentive for consumers to consume things, and an incentive for producers to produce things. For instance, high gas prices can make people choose more fuel efficient cars. They can also make certain costly forms of oil extraction profitable. These are both good for supply.
I buy milk by the quart because I rarely need more than that and it costs $2.00. If it cost $.25 a quart, now I might end up getting a gallon and more milk ends up getting consumed (read: spoiled). Except now you have millions of people doing this…*where’s all the extra milk going to come from*? The answer…nowhere. Milk is going to sell out and you won’t be able to find it.
It would also create a lack of innovation. Why make a better blender when you can only charge x amount. You would just end up having crappier and crappier products as the manufacturers use cheaper materials.
The problem with price caps (which is effectively what you’re describing) is that price increases are the result of demand outstripping supply. If you cap the price, often the result is that you run out of the thing you’re controlling. Once that starts to happen, you get black markets; why would I sell my loaves of bread for the government mandated $2 when I could instead sell them on a street corner for $5?
The other thing is that inflation isn’t universally bad. The government tries to maintain a couple percent inflation per year. Inflation is good for people who borrow money, and helps drive people to invest their money, which is good for the economy. You don’t want to completely squash inflation, just like you don’t want to let it grow out of control.
There are other ways to slow inflation besides price caps. Take money out of the economy by taxing the rich (you may have to tax them more to get the same economic effects you would by taxing the poor, but hey, they can afford it). Increase the supply of goods by reducing tariffs and building housing. Increase interest rates (which can reduce employment rates; maybe use the money you’re getting from those taxes to bolster the social safety net?). Experiment with principles from modern monetary theory. There are a lot of things you can try to combat the negative effects of inflation.
Say that rent is worth $700, and the only people willing to rent out their place anymore are people whose places are worth less than $700. No one would be bothered to build rentals if they knew the value of the finished product would be capped low. Resources would move *away* from giving renters a place to live, and *towards* everything and everyone else. Suddenly, you’ve forced the exact opposite of what you wanted to happen, to happen.
Ultimately, price is not an actual quality of an item, it’s a product of other factors, mainly supply and demand. Fixing prices will only bend supply and demand to fit that new intersection. If you want more people to be housed, the only possible way to do that (unless you already screwed up the market, then you could just reverse your screw ups) is to increase supply. Supply can refer to a lot of things though, the supply of the materials, the amount of product produced (houses/apartments in this case) or even the total number of manufacturers (like with insulin). Increase supply, and you undermine high prices. Fix prices low, and you undermine supply.
Some countries do this but generally only for what they consider “essential”. Some control prices for basic foodstuff like milk or wheat/bread. Some countries control fuel prices. A very common one would be things like water and electricity – especially if it is government owned.
The biggest problem is that it is problematic to decide “concrete price”. Set it too low and few producers will make the product. This can be bad for an economy. Second, nearly every product relies on other materials. Say you fix the price of bread but don’t control the price of wheat. So if the price of wheat increases, who would want to make bread at a loss. This effect is even worse if the raw materials are imported since there is no way to fix a price without offering some kind of subsidy.
In short, fixing prices leads to a lot more problems and the more products that have “fixed” prices, the economy tends not to develop as quickly. Many politicians have tried this – and many of these schemes ended badly.
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