Price Controls Fail to Lower Costs, Israeli Consumers Pay More
Translated & summarized from Arutz Sheva by baba
Israel's price controls on essential goods like dairy and bread have led to higher price increases than in unregulated categories, contrary to their intended purpose. Historical examples, like U.S. price freezes, show such policies cause shortages and economic distortions. Data indicates regulated products have become significantly more expensive than their unregulated counterparts. The article argues that free competition and open markets, not government intervention, are the effective solutions to reduce the high cost of living in Israel.
The story in 6 lines · by baba
- Regulated dairy prices in Israel rose 11.3% versus 3.1% for all dairy products.
- Regulated bread prices increased at double the rate of the broader bread category.
- Israel is the only OECD country with direct government intervention in food pricing.
- Price controls can lead to shortages and economic distortions, as seen in U.S. history.
- Free competition and open markets are presented as the true solutions to lower prices.
- Vulnerable populations may be harmed by price controls through cross-subsidization.
Despite government price controls on essential goods, regulated dairy products in Israel have increased in price by 11.3% compared to a 3.1% rise in all dairy products, and regulated bread has become more expensive at double the rate of the broader category. This situation mirrors historical failures of price controls, such as President Richard Nixon's 1971 wage and price freeze in the U.S., which led to shortages and the culling of one million chicks weekly due to farmers being unable to cover costs.
Israeli politicians frequently resort to price controls as a populist solution to rising food costs, but the article argues this approach is flawed. Israel is the only OECD country with direct government intervention in food pricing, yet its food prices are 37% higher than the OECD average and 51% higher than in the EU. Proponents argue controls protect consumers from monopolies, but data from the Knesset's Research and Information Center shows regulated dairy prices rose 3.5 times faster than the overall dairy index between 2014 and 2023. Similarly, regulated bread prices increased by 21.7% from 2011 to 2023, while the broader bread category index rose only 11%.
The article also points to the butter market, where deregulation in early 2020, following a period of shortage under price controls and high import tariffs, led to increased availability, product variety, and lower prices. It contends that free competition and open markets, not price controls, are the true solutions for lowering prices. For example, prices in the footwear industry, with 98.4% import competition, fell by 22.7% between 2010 and 2021, while fresh fruit prices, with import restrictions, rose 41.1% in the same period.
Furthermore, price controls can harm vulnerable populations through "cross-subsidization," where monopolies compensate for capped profits on regulated items by increasing prices on unregulated ones. For instance, while white bread is controlled, whole wheat bread, recommended for health, is 82% more expensive than the Western average. The author concludes that government price setting is incapable of accurately reflecting market dynamics and advocates for dismantling import tariffs and price controls in favor of free competition to combat the high cost of living.
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