Price fixing and free markets
We’d just like to commend The Guardian for noting an important economic point here:
The timing could hardly have been more appropriate. On the 30th anniversary of sterling being ejected from Europe’s exchange rate mechanism, the pound came under renewed pressure on the currency markets and hit its lowest level against the US dollar in 37 years.
Black Wednesday – 16 September 1992 – has a special place in British postwar economic history: a moment in which the Treasury and the Bank of England took on speculators led by George Soros – and lost.
There will be no such dramatic shootout this time because the ERM debacle marked the end of Britain’s attempts to maintain the pound at a fixed rate against other currencies. Ever since, sterling has been allowed to find its own level.
Quite so. When we tried to fix the price of the pound that caused repeated problems over the many decades we tried to do it. Churchill’s fixing the rate post-WWI at the pre-WWI rate was a gross mistake, matters improved when the pound came off the gold standard in the 1930s.
Fixing again post-WWII led to repeated problems and forced devaluations and that most recent disaster of that Black Wednesday. Since then we’ve not had sterling crises because we’ve not tried to fix the price of sterling.
Of course, this lesson is incomplete, for all too many fail to grasp the significance of this issue. Which is, don’t fix prices. Markets always will out, markets always will win. So it’s something of a pity that near the entirety of all public debate these days is which prices shall we fix, at what level? When the correct answer is none, at none.
It’s entirely fine to then say that we should compensate, or subsidise, or alleviate the pains of, the effects of those market prices upon individuals. If we wish to that is.
But the correct policy is always to subsidise people, not things. Don’t mess with markets, don’t fix prices, even if we then deal with the results of those uncomfortable facts about the universe we inhabit.
Minimum wages, maximum wages, rent control, energy price caps and on and on. The correct answer is simply “No”.