TD₿: How Prices Keep Us from Squandering Resources by Jacob Dowell
TL;DR Government intervention in the market distorts the natural price system and causes inefficiency and waste, and diminishes the potential wealth of society.
Hey Bitcoiners,
As the energy crisis in European continues, the European Commission is scrambling to try to fix the problem of high electricity bills beginning to plague European households and businesses.
European governments have spent the last decade investing billions of dollars in unreliable energy resources and divesting out of reliable energy resources while increasing their dependence on foreign adversaries, like Russia, for their oil & gas. Now that the oil & gas is no longer freely flowing from Russia, European governments have put themselves in a bind.
In addition to those poor energy policy decisions, the ECB also significantly expanded its balance sheet in the wake of the pandemic, resulting in a broad increase in consumer price inflation across the Eurozone. Energy and food prices are soaring as essentials are becoming unaffordable for the citizens of Europe.
This has led to governments pushing the blame on energy producers and power companies for the increase in electricity prices and has resulted in European Commission president, Ursula von der Leyen declaring an energy emergency and hinting at government intervention in energy markets.
It appears the European Commission will eventually resort to some form of price controls to attempt to cap electricity prices for the citizens of Europe.
Historically, price controls have led to poor outcomes. Whenever market prices are interfered with by governments, it inevitably leads to shortages and rationing. Price controls often lead to the misallocation of resources as well as supply and demand imbalances as prices no longer can signal the proper information to market participants.
Jacob Dowell wrote this article that delves into the negative consequences that occur when government disrupts the natural price system of the free market. (07/22/2018)
By manipulating the price system in the energy market, European governments risk making things worse because market participants would no longer be able to accurately communicate with one another and coordinate economic activity with artificial price signals.
It’s a classic example of governments feeling the need to do something to help when the more prudent decision is probably to do nothing and let the free market sort this mess out.
Here’s to hoping for a mild winter in Europe. 🙏
Tick tock next block,
Cory Klippsten
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