Friday, September 5, 2014

Price controls considered in Argentina

An important part of the IB Economics Syllabus (HL and SL) is section 1.3 on Government Intervention which includes indirect taxes, subsidies, price floors (minimum prices) and price ceilings (maximum prices).

The Wall Street Journal has an article titled Argentina's Government Is Considering Price Controls.  Apparently, Argentina's government is considering '...legislation letting the government regulate private-sector prices, profit margins and production levels'.

Quoting from the article:
Business groups say the legislation would be ruinous for an economy already in recession, with companies curbing production, laying off workers and struggling with inflation thought to be around 40% annually.
"This is absolutely ridiculous. It's part of a very primitive ideology that says government officials should decide what people should make, how much they should make and how much they should charge," said Congressman Federico Pinedo of the opposition Pro party.
Supporters say the bill is unpopular among big business because it would prevent monopolies from abusing their power.

As written, the bill would allow the government to "establish, at any stage of the economic process, profit margins, reference prices, maximum and minimum prices, or all or any of these measures."
It would also let the government close businesses for up to 90 days and fine them up to 10 million pesos ($1.2 million) if they raise prices abusively or cause scarcity by hoarding essential goods.
Opposition to the bill is so intense it has united many of the country's disparate business interests, leading big business chambers to speak out in unison.
"We already know exactly what it is like to suffer from these kind of interventionist economic policies," said Luis Etchevehere, president of the Argentine Rural Society, the country's top farm group. "This will lead to divestment and possibly even supply shortages of some products like is now happening in Venezuela."

You can also read on this issue an article from Bloomberg titled Argentina Says It’s No Venezuela as Price Cap Law Debated.

Remember that to earn top marks (L4), examples are expected in Paper 1 (HL and SL) in both part (a) and part (b).  These articles could thus prove useful.

No comments: