It is almost certain that the president of the company did not set the price of the last product you bought at Walmart, Costco or Amazon.
If the boss of a major multinational retailer were to set daily prices for tens of thousands of items in hundreds of different markets, he wouldn’t have time to do much else.
Such micromanagement would be a terrible idea for a large retailer because the company president would inevitably set many of the prices too low.
By the time you were able to tell that some items were overselling, those items might have been out of stock. Or it could set prices too high, causing inventory to build and forcing the company to cut prices more than it otherwise would.
Either way, the company could lose billions of dollars and go bankrupt if top management doesn’t delegate decision-making to pricing managers or other employees close enough to allow them to make informed decisions about appropriate pricing. at a certain moment. store or for a particular product.
Governments are even less qualified than corporate executives to fix prices or micromanage the economy.
In true socialist economies, where the government is responsible for setting prices, shortages and queues for bread are common for precisely that reason.
Venezuela was once the richest country in Latin America. So that nationalized industry after industry, putting the government in control of the means of production. Government technocrats now have the power to dictate prices in much of the economy.
Today, more than 76% of Venezuelans live in extreme poverty, despite the country’s rich oil reserves.
The mismanagement of centrally planned economies around the world and throughout history has caused similar economic pain for people from Soviet Russia and East Germany to Maoist China and North Korea.
Never trust government micro-managers to run an economy. From their lofty positions, they will drive the economy straight to the ground.
But the problem of central planning is not just a problem for openly socialist countries. Central planning takes a softer form here at home than in Venezuela, but US lawmakers are increasingly trying to control prices and investment decisions in the private sector.
In the span of less than a month this summer, Congress and the president committed to more than $1 trillion in targeted subsidies, taxes and regulatory changes aimed at influencing prices and private investments in energy, higher education, health care and technology.
On August 16, President Joe Biden signed into law the so-called Reduce Inflation Act. The new law imposes a tax on methane emissions from certain oil and natural gas producers, which will start at $900 per metric ton in 2024 and increase to $1,500 by 2026. The intent of such fees and taxes is to increase the price of fuels. conventional. and reduce its use.
The same legislation lavished $369 billion in tax credits and other handouts for the purchase or production of certain forms of green energy, such as electric vehicles and charging stations, solar panels, and wind turbine components. Those subsidies are intended to lower the prices of preferred items and subsidize entire supply chains for “green” cars, building materials and energy technologies favored by the government.
Unfortunately, we’ve seen “green” policies like these before, and they don’t work as well as intended, at least not for consumers.
California subsidizes green energy and taxes and heavily regulates oil and gas. As a result, the average Californian pays $6.42 for a gallon of gasoline, more than twice as much as in other parts of the country. Electricity prices in California are also almost double the national average.
The misnamed Inflation Reduction Act will also give the Secretary of Health and Human Services the power to effectively set the price of 20 drugs sold to Medicare beneficiaries. this will reduce future investment in life-saving drugs and lead to higher prices for unregulated drugs.
On August 24, President Joe Biden announced that his administration to transfer up to $20,000 of student loan debt per borrower to U.S. taxpayers at a cost between approximately $500 billion and $1 trillion. Unless the courts strike it down, that will retroactively lower the price of college, law school and medical school for millions of students lucky enough to pay off their debts.
However, by setting the precedent that student loan debt could be written off, the administration’s actions will encourage future students to take on more debt and make it easier for colleges to increase tuition in the future. After all, students who attend affordable colleges will benefit less from such debt transfers.
On August 9, Biden signed the Create Useful Incentives for Semiconductor Production for America (CHIPS) Act, which included $280 billion for tax credits to semiconductor manufacturers, corporate donations to technology companies and other new funding for federal agencies.
But while companies in government-favored industries will get advantageous deals to encourage them to invest, companies that aren’t lucky enough to qualify for those corporate benefits will face a less investment-friendly tax code in 2022 and beyond.
Businesses will lose the ability to deduct research and development and capital expenses in the year they incur those costs. Companies are losing research and development spending in 2022, and are expected to gradually lose capital spending between 2023 and 2027. That compounds the hurt for companies not in favored industries, since the cost of investment is already being eroded. firing amidst a dizzying rise. Interest rates.
The federal government took a socialist turn in the summer of 2022. Federal lawmakers picked a handful of industries they deemed worthy of investment (and a few they deemed unworthy), and used the tax code and other policies to effectively change the prices of those investments. .
In a free economy, thousands of interactions between ordinary buyers and sellers of goods and services determine prices. Prices reflect the reality of production costs and trade-offs, and reflect the accumulated knowledge and preferences of everyone in the market.
There is wisdom in the decisions of millions of ordinary men and women. But Congress and the president have overturned that wisdom.
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