You usually see price controls on commodities when they're soaring on world markets. But not in Colombia, which just slapped price controls on combustibles. We live in surprising times.
When the price of a commodity drops, the price of all its substitutes drops also, since consumers who had been using the substitute switch back to the original commodity. How does this matter to the situation at hand? One word - biofuels.
I'd guess that, like Brazil, Colombia has a fairly powerful ethanol/biodiesel lobby Given that this lobby likes to see higher prices for its product, they'd hate to see gasoline/fossil-diesel prices drop so far as to undercut them. Therefore, they get the government to increase the price of fuel. This assures a minimum level of demand for the biofuels. This also explains why the price of propane is being allowed to fall - propane doesn't have any easily available biofuel alternative.
The one thing I am surprised at, though, is the fact that Colombia is using price controls to enforce this limit. After all, wouldn't it be a whole lot more palatable to just slap a tax on gasoline and diesel, producing more revenue for the government while raising the price of the good. This way, the government is simply giving up the dead-weight loss resulting from the price difference between the market equilibrium and the government price floor.
Why wouldn't they? In democracies, the interests of the people (a majority) often supersede the desires of special interests who only "interest" is immediate greed.
We understand this concept may be tested in one or two of our own states one of these days.
And in other news, the IRS lowered the set rate for compensation for travel mileage for businesses from $0.585 down to $0.55. Who would have predicted that!?
Rob, it would seem M.B. jumped in without noticing the artificial inflation of prices and was probably jonesing for a fight about how socialistic subsidies of commodities are good for the common man, despite reducing overall supply and encouraging waste and overconsumption...
Why would they do this?
Why would they do this?
Perhaps they use cocaine to boost octane levels.
When the price of a commodity drops, the price of all its substitutes drops also, since consumers who had been using the substitute switch back to the original commodity. How does this matter to the situation at hand? One word - biofuels.
I'd guess that, like Brazil, Colombia has a fairly powerful ethanol/biodiesel lobby Given that this lobby likes to see higher prices for its product, they'd hate to see gasoline/fossil-diesel prices drop so far as to undercut them. Therefore, they get the government to increase the price of fuel. This assures a minimum level of demand for the biofuels. This also explains why the price of propane is being allowed to fall - propane doesn't have any easily available biofuel alternative.
The one thing I am surprised at, though, is the fact that Colombia is using price controls to enforce this limit. After all, wouldn't it be a whole lot more palatable to just slap a tax on gasoline and diesel, producing more revenue for the government while raising the price of the good. This way, the government is simply giving up the dead-weight loss resulting from the price difference between the market equilibrium and the government price floor.
Why wouldn't they? In democracies, the interests of the people (a majority) often supersede the desires of special interests who only "interest" is immediate greed.
We understand this concept may be tested in one or two of our own states one of these days.
So M.B., it's in the interest of the "the people," but not special interests, to keep gas prices high?
And in other news, the IRS lowered the set rate for compensation for travel mileage for businesses from $0.585 down to $0.55. Who would have predicted that!?
Rob, it would seem M.B. jumped in without noticing the artificial inflation of prices and was probably jonesing for a fight about how socialistic subsidies of commodities are good for the common man, despite reducing overall supply and encouraging waste and overconsumption...
"All this is being done to give consumers a clear signal of stability."
When I purchase something, only to find the price lower than expected, I feel like I'm standing on quicksand.