Adam Smith Institute

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We really do insist that prices work

As with our insistence yesterday, prices really do work.

We don’t need a government plan simply because we’ve already got a plan. Those prices work because prices do work. If soaring energy bills hitting wallet by wallet don’t incentivise people to insulate the loft - those few who haven’t done that already - then nothing will. It’s precisely because energy bills are soaring that we don’t need any more or other government plan.

Today’s example runs the other way:

Soaring energy costs could threaten future of electric cars, experts warn

Well, yes. One of the things we know about humans is that they, we, do less of more expensive things and more of cheaper.

Until recently ownership of electric cars had been gaining in attractiveness as the cost of petrol rose. But since recent rises in electricity prices – in Germany of around a third compared with a year ago – the price differential has shrunk.

That is the way the world, we inhabitants of it, work. It is entirely true that as electricity prices rise then electric cars become less enticing and so fewer will buy them. Just as it is also true that as energy prices rise then people will undertake actions to reduce their energy consumption. Turn down the thermostat, wear a jumper, insulate the house, fiddle with the boiler and all the rest.

It really is true that prices work - which is why we do not, in fact, need grand plans forcing action upon people. Because prices have already changed to incentivise exactly those changes.

We may well need to do some work on aiding people dealing with the extremes of those incentives and prices - but the rush to change behaviour is already underway.