Inflation-fighting blundersThe new administration’s measures to stabilize consumer prices are similar to those from 30 years ago when economic growth was emphasized as the country’s primary goal. As soon as the president said measures to stabilize prices should be prepared, ministries started regulating prices, as was done in the 1970s and 1980s.
It is understandable if the government wants to regulate prices for public goods and services, which it directly controls, but it is not right for the government to regulate prices in the private sector. The benefits are doubtful and such attempts might disturb the market’s function.
The outline of government measures to stabilize prices is to identify which goods are being hoarded, analyze manufacturing costs when product prices increase and find ways to lower them, and form a monitoring team to regulate excessive increases in prices and the practice of hoarding.
These are exactly the same measures as were taken 30 years ago, even though the economy has gotten several times bigger and the country has long outgrown a government-driven economy.
In the world’s 13th-largest economy in the 21st country, the government is threatening not to let the price of ramen noodles go up by more than 90 won (10 cents). If a company has steel rebar stocks above a certain amount, the government categorizes it as hoarding.
There is no way for civil workers to determine the manufacturing costs for ramen or what are reasonable stocks of steel bars. If the situation persists, the government might find itself deciding supply and demand of all products whose prices go up and reasonable quantities of stock for logistics companies. This is not a market economy. The administration said it would respect market principles but it is distrusting and ignoring them from the early stages of its term.
Inflation these days is being caused by a surge in raw materials prices such as oil, iron ore and grain, which lead to increased manufacturing costs. To press those who sell end products is not the right solution. Consumers might suffer for the time being but if things are left to the market, people will adapt and survive inflation, which is one of the merits of the market economy.
Without government intervention, people will save money and find ways to economize. The government must not waste energy on old-fashioned price regulation. Instead, it must focus on enhancing competitiveness by lifting regulations.