You can't buck the market: One week to go

Just over a week from now the polls will open in the closest election in decades. It's still not clear if any one party will come out on top. My hunch is that there will be a late swing to the Tories. Apparently 10% of all voters are still undecided and tend to split 2 to 1 in favour of the incumbent. I also think that some UKIPers will swing back to the Tories to deny a Labour/SNP tie up.

We shall see.

I do want to reiterate a point, which I think I've made before, but it's such an important point that it's worth reminding ourselves.

You can't buck the market! It's so old, but still so true! Now, I don't mean this in the way that markets should be let rip, no, there needs to be sensible controls. It's why we have the Monopolies and Merger Commission to make sure that no one company buys out all its competitors to form a monopoly, and why the privatised industries have regulators.

But the Labour Party under Ed Miliband, is falling into some bad 70's style policies. Price freezes, rent controls and compulsory land purchases are some examples of how the Labour leader wants to change our economy. We already know that if we had frozen the energy prices two years ago, when the policy was first raised, we would not have benefitted from recent wholesale oil price falls. It is fine for a company to voluntarily decide to offer price freezes, that is part of competition, and they will factor it into their plans.

For a Government to do it across the whole market means that prices will start to become perverse. Companies would inflate their prices ahead of the price freeze coming in, just to factor in wholesale oil price rises - just in case and the likelihood is that we'd all lose money. Think if you were thinking of selling your house in a rising housing market, knowing that in a week a price freeze will come in. You may know that the house is worth £300,000 today, but you'd put it on the market for £320,000 because in a few months time it will likely be that price.

The same is true for increases in rental values. I've rented, and I also own a property which I rent out. I've never increased the monthly rent, but if I knew I wouldn't be able to I'd probably set a slightly higher rent at the beginning of the tenancy - just in case. Again, this is not particularly want the tenants would want! Recently, I've had to have a legionnaire's disease report done on the property and some remedial action taken. The same is true for all buy to lets due to some new (probably EU) regulations. It's a pain, and with new regulations from a new Government I might just decide to pack it in. That would take the property off the rental market, reduce supply, increase demand, and push up prices. Again, not what the tenants would want.

Every economist knows that rental controls don't work and have precisely the opposite effects of desired results. If you don't believe me, just read Paul Krugman's (the left's most famous living economist) article here. Apparently it's text book economics on how supply and demand works - funny how the two Ed's have missed it.

This all adds up to a complete lack of understanding of how markets work and is profoundly disturbing from someone who used to work in the Treasury. It's college politics - popular but disastrous. Venezuela is an example of the perverse effects of price controls taken to extremes, shortages, queues and high prices. A little tale comes our way of Ed Miliband asking a FTSE-100 CEO why the company had to pay dividends! Again, very disturbing from someone who wants to be First Lord of the Treasury. I hope the CEO shouted at the prospective PM - "it's how we pay a share of our profits to our owners - you first class idiot".

We cannot let the two Eds run free over our economy and ruin it with schoolboy practices - we've matured beyond that.

Let's hope they don't get a chance.

Squiffy.