14 September 2005

Price stability is not a goal

Much confusion in, for example, the UK Government about price stability, in this case the price of petrol. One of the first benefits of a Social Policy Bond regime is that it would clarify what are ends and what are means to ends. Price stability is not, or should not be, a goal of government policy. Market prices are signals that allocate resources efficiently. They embody masses of information that cannot be assessed by planners. If the price of some essential commodity is too high for some people, then government should give financial assistance to those people to enable them to make their own decisions about how much of the commodity to buy. Today's agricultural subsisidies should be a lesson to all politicians: like a drug habit, they are easy to start and hell to give up.

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