price controls and the free market

With prices in Israel on basic goods, like with many other products, skyrocketing, the government is finally waking up to the news of inflation and increasing prices, despite the focus they gave to fighting the rise in cost of living during the election campaigns. For the past 3 months they havent done a thing except push the judicial reform that they cancelled, along with some personal laws to benefit Netanyahu. And they wake up shocked 3 months later that inflation is still rising and prices are going up even more.

There is a lot of talk about what to do with different members of the government floating different proposals. Not being an expert in finances and economy I am not one to say what proposals are better and which are worse.. At least one, however, is surprising, at least to me.

Minister of Economy and Industry Nir Barkat said that the coming increase in prices announced by Coca Cola is shocking, with Coca Cola in Israel being the most expensive Coca Cola products anywhere in the world. Barkat now wants to add some Coca Cola products to the list of products with controlled prices. The government would set the maximum price Coca Cola can be sold for and no store would be allowed to sell it for higher, just like basic milk and bread products.

source: Ynet

So they cut the tax, and Coca Cola almost immediately raises the prices - they must have seen people will continue buying it even at the higher prices, so they can take advantage of that, this time bringing in that revenue for themselves instead of for the government. And now the government is again trying to make it cheaper rather than encouraging alternatives, cheaper alternatives, maybe even healthier alternatives.

This is somewhat surprising, considering Barkat is a free market guy. Price Controls are anything but free market. Sure, they will be able to keep prices down, somewhat, but Coca Cola will respond by producing less, as it wont be worth it to them to produce large amounts that they cant profit much off of., There will be shortages of Coca Cola just like there are sometimes shortages of milk or butter or eggs. That's just what happens with price controlled items. 

Barkat should probably open the market to alternative imports so Coca Cola can be imported cheaper from Eastern Europe or wherever. Or maybe they should let the prices go up and maybe Israelis, many of whom are struggling to keep up with inflation, will just stop buying Coca Cola and will switch to other brands like Pepsi or RC, or maybe even fruit juices or water (or seltzer). When people stop buying, prices will go down. That is the basics of economy, and even I remember that from my university days. Supply and Demand.

Whatever happens, and whether it is a good idea or not economically, it is weird that Coca Cola would be price controlled. Israel has used price controls to keep prices down on basic products that everyone needs, and it "would be a crime" to allow them to become too expensive for kids to eat. Coca Cola is a basic product similar to milk, eggs and basic bread? Israelis love Coca Cola, but still, price controls like milk?

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