The Risky Business of Price Controls and Guaranteed Prices

The anticipated national elections have spawned a spate of misguided and unaffordable claims and counter claims. There have been calls for price controls for ‘essential commodities’ and a higher guaranteed price for paddy farmers as well as the introduction of a guaranteed price for fish. When considering such requests, it is important to learn from the mistakes of the past. Repeating policies, which have undermined the development of the country and ultimately imposed additional burdens on the people, would not serve anyone’s interest, particularly those who need ‘relief’ the most. In this connection, it would be useful to examine why price controls and subsidizing ‘essential commodities’ was a failed policy in the past. There is also merit in considering what the best instrument is for providing relief and how it can be targeted to those most in need. Finally, one needs to understand how best to treat the causes rather than the symptoms of the ‘cost of living problem’ which are triggering the pressure for these distortionary policies.