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Martin Wolf Needs a History Lesson

14.09.2016 • Central Banks

From Kris Sayce – Port Phillip Insider (Australia) –

Interest rates are simply the price of money.

For the government — through its supposedly but not in reality ‘independent’ central bank — to attempt to control the price of money is no less idiotic than the government attempting to control the price of anything else. Unfortunately, experience and history shows that whenever governments try to implement price controls, it leads to disaster, unintended consequences, or both.

Governments try to exert price controls over gas and electricity prices. The result is higher and higher gas and electricity prices. The government exerts price controls over private health insurance premiums. The result is the institutionalisation of higher premiums. The government exerts price controls over taxi services. The result is a poor level of service, as taxi companies have no room to charge a premium for good service. The government controls the price of labour through minimum wages, which results in institutionalised unemployment, the notion that 5% unemployment equates to ‘full employment’, and a generally poor level of service in the services industry.

Yet, despite all these failures, the government and the bureaucracy instead that the free market could never be left with the responsibility of setting interest rates — even though setting interest rates is probably the most natural of all free market price settings.

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