Tuesday, September 28, 2010

Water on stone

The biggest criticism of Labour's GST policy is that it won't make any difference. Yesterday, Bill English said it was worth only $1 a week, while today on Public Address Russell Brown argues

But assuming it is passed on in its entirety to consumers – not a given – a 15% move in fruit and vegetable prices is insignificant in comparison to the seasonal movement in prices, or even the gap between different outlets at any time of year.
Sure. And the same can be argued about the effect of the ETS on petrol prices (a 3.5c/l rise is well within the normal fluctuations caused by international supply, demand, and panic). But no-one (and certainly not Bill English) doubts its efficacy. Though perhaps that's because in the case of the ETS it was placed in an explicit market context.

Small changes in price add up to produce big changes in behaviour. That's how markets work. Make something cheaper, and if people want more of it, they'll buy more. Make it more expensive, and to the extent they can reduce demand, they'll buy less. Its like water on stone. One drip doesn't do anything. But let it drip for long enough, you get holes. Its not rocket-science.

Labour's GST policy applies exactly this logic to fresh fruit and vegetables. And the Otago study quantifies the effect. Doubters need to explain why that study is false, and why the same logic they accept everywhere else, for everything, doesn't apply in this case.

Meanwhile, as for retailers not passing any cut on, I think the solution to that is political pressure. At the merest hint of price gouging, the appropriate select committee should declare an inquiry, compel the gougers to appear and explain themselves, and shit all over them with bad PR. Again, its not rocket science - all it needs is politicians with a backbone. Though given the unanimous vote for the Canterbury Enabling Act, I really wonder whether we have any of them left.