Glory Be! Ed Miliband has brought back price controls
ED Miliband has rather stunned the business world with his announcement that if Labour’s elected next time they’re going to bring back price controls. Because, you know, Ed Miliband, in his previous job as Climate Change Wallah in the Government made electricity too expensive for us all. The problem with this of course is that price controls simply do not work:
Mr Miliband has pledged that one of his first acts in office would be to pass emergency legislation forbidding energy companies from increasing domestic prices until 2017.
His promise is designed to persuade voters that only Labour can restore living standards eroded by years of prices rising faster than incomes.
However, energy chiefs and political opponents have warned that his plans could in fact lead to higher bills in the short term as well as blackouts and power shortages.
If you were told that in two years’ time you were not allowed to raise your prices what would you be doing in the next two years before that ban?
Quite, you’d be raising prices now, wouldn’t you?
However, it’s the longer term that is the real problem here for as I’ve said, price controls just don’t work. If you set the price below the free market price then fewer people will be willing to supply whatever it is. Thus we get shortages of what ever it is: in this case, because the price of electricity will be below the market price then there will be less electricity than everyone would like.
And, of course, if you set the price below the market price then everyone will desire to use more electricity than they would if it were more expensive. So we not only get supply falling, we get demand rising. And yes, supply and demand really are important, this isn’t some neoliberal invention it’s how the universe operates.
Of course, if you set the price above the free market price then there’s no bleedin’ point to doing it, is there? So price fixing either fails because it creates shortages or there’s no damn point to it anyway.
This isn’t the brightest political or economic idea that anyone’s ever come up with quite frankly.