Price Controls and Subsidies

Lets explore Price Controls and Subsidies. My second favorite thing to Google search.

 

Whats the first you ask? Tea cup pigs inside teacups! Duh. Back on track now. According to the Cambridge Dictionary. A price control is a limit set by government on the price that can be charged by companies for particular goods or services.

 

Sounds great! I think.

 

I am stuck asking myself Why? Why do we need price controls?

 

According to Investopediacom price controls are

usually implemented as a means of direct economic intervention to manage the affordability of certain goods. Governments most commonly implement price controls on stapes, essential items suck as food or energy products”.

 

Sounds reasonable, try and make sure we don’t run out of the basic necessities of life. I can agree with that to a point, but I am still not sure. When so much influence and leverage is given to people I tend to cringe.

 

Now lets look at government subsidies. A government subsidy is money paid by a government to help an organization or industry reduce its costs, so that it can provide products or services at lower prices.

 

Sounds great! These sound like such good ideas, but there is a nugget of suspicion in the back of my brain.

 

I recently read an article that had these pros and cons on subsidies that are specific to agriculture. Taking just the bullet points here is what was said.

 

Pros of Agricultural Subsidies

1. It lessens the need to source food from outside borders

2. It gives farmers access to consistent income

3. It helps manage food supply

Cons of Agricultural Subsidies

1. It damages the environment

2. It involves government intervention

3. It hurts agricultural businesses growing produce not covered by subsidies

 

Now I know little about most governmental programs. In saying that it’s always been my philosophy that if a product or service cannot withstand the stresses of the market place something more effective or efficient will naturally take its place. Similar to an organism adapting to its environment. As long as the adaptations lead to a more effective interaction with the environment then the organism with thrive. If the adaptations are not beneficial the organism will more then likely parish.

 

Of course our government isn’t an amoeba, but maybe those natural laws may still apply.

 

Lets say an energy company has an inefficient business model yet has been around for a while and was able to get away with it for whatever reasons. The idea would be to prop it up so we don’t have to deal with the pain of the energy company collapsing. Maybe in the short term that is a good idea, but what about in 50, 75, 100 years when that company is still around syphoning resources just so it can stay afloat.

 

I say rip that bandaid off. Allow a more effective and efficient organization to come in and learn from the previous ones mistakes. Things don’t improve if you sweep them under the rug. You gotta air that puppy out and beat it with a tennis racket!

 

 

Of course I am left with more questions then answers. What questions came to your mind?

 

Comment below and lets see if we can answer some in a future blog post.

 

Also here is a Crash Course video on the same topics