Minimum wage, price controls & high prices
Greater productivity, increased production, and good governance, are the panacea for lower costs of living, and increased living standards
For all the efforts of governments to manage living standards by lowering living costs, history has revealed that the marketplace is the final arbiter for deciding on the cost of living. In other words, the market and not the desk of the Minister decides shop prices and wages. Governments can only attempt to increase output by adopting appropriate policy and public investment.
Countries where governments have attempted to intervene in the marketplace through government policy such as attempting to manage tariff and import duty, or establish a minimum wage and price controls have discovered that these policies do not influence prices or living conditions.
The cost and standard of living is a result of the interplay of demand and supply. Consumers and producers in the marketplace, and not governments, decide shop prices and national wages.
The single thing that a country can do to influence national prices is increase production; this can be the result of identifying factor endowments, and then increasing output in specific local markets, especially in the production of food and drink, that every consumer needs.
The world is a village and financial players such as the Federal Reserve in the USA and lesser banks such as the European Central Bank, even the IMF and World Bank decide international price levels, including the value of the currency within a country’s borders. This takes place through currency management and regulation, and the selling of global debt through various instruments and mechanisms. In other words, global finance and capital, and commodity markets, decide the value of the bread on our tables.
The preceding power of the international financial system filters into the operations of local banks and businesses in countries that use global currencies such as the Dollar and Euro, or peg their currencies to the dollar.
Countries in the Caribbean are subject to the dictates of western financial and capital markets. There is not a lot governments in the region can do to lessen the power of the global banking system on the local marketplace apart from increasing the local output of homemade products and services.
The value of the Dollar for example decides the standard of living in the Virgin Islands. Consumers can groan about prices in supermarkets, but there is little that government can do to reduce prices that are set outside the borders of the country.
In an import economy, the situation is even more acute. Prices in the shops in the Virgin Islands are set abroad by alien markets, after the interplay of market activity in London, New York, and various European Capitals, including places in Asia such as Shanghai.
In the Virgin Islands, the importer pays the duties and shipping costs, and then decides the price he needs to set to make a profit with the capital he or she owns. Intervening in that series of events by government to reduce prices is near impossible.
Still one can try.
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