Moving Price Ceiling Will Turn Malaysia Into The Next Soviet Union

The government announced that it will introduce a moving ceiling price for food items in a bid to strengthen food security, as suggested by the Economic Action Council (EAC). According to a statement, the ceiling price will be adjusted based on changes in the price of various inputs in the supply chain. Furthermore, the Prime Minister added that the country is looking to expand its agro-food ecosystem with supply chains led by government-linked companies (GLCs), government-linked investment companies (GLICs), and government agencies.

“This will lead Malaysia to become a Soviet-style country, – explained Dr Carmelo Ferlito, CEO of the Center for Market Education – where ‘prices’ are fixed by the government authority and production decisions taken by government agencies. This demonstrates an abysmal ignorance of economic theory and history lessons: where these experiments were tried – Dr Ferlito added – famine prevailed, like in the Soviet Union (5.7 to 8.7 million deaths due to Stalin’s economic experiments just 1932-1933) and in Mao’s China (15 to 55 million deaths due to the Great Leap Forward)”.

Dr Ferlito is highly concerned about the decisions taken by the two past governments, which now want to address inflation with central planning after having created it with Lockdowns, monetary expansion, and a reckless expansive fiscal policy. 

The reasons why this new experiment in social engineering cannot work (it was often tried and only brought about death and starvation) are:

  1. Prices are not determined by costs of production (which are also prices), but by the interaction of supply and demand in the market, which is by the interactions between millions of subjective evaluations; government-fixed prices are not prices at all, they are just arbitrary figures.
  1. Prices are interconnected: consumption and production decisions are based on relative prices and profit expectations; if some of the prices are not determined by the market, they do not reflect the structure of demand and supply and therefore constitute a “bad signal”, leading to wrong production decisions; artificial prices will potentially bring to the market wrong products at wrong prices, compromising the entire economic system (failures, unemployment…) and not only the sectors were prices are fixed by the authority.
  1. The State is not an entrepreneur: operating outside the market, government agencies base their production decisions on what bureaucrats think the system needs, rather than what actually the system needs (which spontaneously emerges in the market thanks to price-driven decisions); this means that the economic system will turn to be flooded with products that are not in demand (wasted resources), while there may be a shortage of what the market asks for.
  1. Real prices – corresponding to the structure of supply and demand – emerges in the market and not via costs. Production costs, in fact, are also prices and are determined by supply and demand in the markets for production factors; the entrepreneurial demand for them will be dictated by entrepreneurs’ expectations of consumer prices (expectations about profit); therefore, wrong consumer prices (fixed by the government) will create the chaos in the market for production factors and thus the production structure will turn into a sum of irrational decisions.
  1. Real prices are the way entrepreneurs can judge the success of their decisions via economic calculation (profits and losses): without prices, performances cannot be evaluated and therefore the realm of chaos emerges. 

“The Center for Market Education is highly concerned by the political pretense of being able ‘to fix’ the economy as it was an engine rather than a complex, organic and evolutionary system. Policies require humbleness rather than arrogance, a humbleness dictated by the awareness of what the economy is: a complex and evolutionary network of human interrelationships. Disregarding this will bring the system to collapse on a false pretense of knowledge” – concluded Dr Ferlito.

By Centre of Market Education- CEO Dr Carmelo Ferlito

Comments are from the author and do not reflect BusinessToday’s editorial position.

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