populism gone mad

The Kenyan parliament today passed a law that empowers the finance minister to fix prices of “essential goods” in an effort to tame unscrupulous traders who exploit wananchi with arbitrary price hikes. That is the story the sponsors of the bill want us to believe. Trade Minister Amos Kimunya has criticized the bill as a bad signal to investors. Kenya, he said, is still committed to the principles of economic liberalization. I concur with Mr. Kimunya’s criticism of the bill. Hayek’s old wisdom about the impossibility of controlling the economy still holds; You can’t fix retail prices without also having to fix the costs of production, transportation, advertising etc. And don’t even get me started on the demerits of allowing politicians – like Finance Ministers – to have this much power over the market.

The market definitely needs responsible regulation but in this instance the best way to protect wananchi, if this is the true aim of parliament, would have been to reduce the barriers of entry in the relevant industries and let competition and the invisible hand of the market drive the prices down. It is the best way to do it. President Kibaki should reject this bill.

UPDATE: For more read Jaindi Kisero of the Nation

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