Inflation is a man made concept. Why can’t we just.. lower it?

47 views
0

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.

In: 0

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.

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.

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.

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?

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.