The horsemeat scandal was all over the press at the weekend. You can’t have missed it…
I’m bringing it up today because I think this scandal is related to couple of things we’ve been discussing here at The Right Side recently. First, inflation.
Horsemeat is what you get when inflation stokes up input costs. In this case, trying to beat inflation led the producers one step too far.
Second, it shows just how wary you should be about labels – be it of financial products, food or anything else. Don’t be fooled into thinking that government regulations will keep you safe. More likely, they’ll have the opposite effect – by making you complacent…
Outrunning inflation with horses
In light of price inflation, the supermarkets have been pushing suppliers to keep costs down. The public can’t afford higher prices, so the supermarkets are desperate to keep commodity price inflation from leaking out into the real world.
Last week, I mentioned how the reported inflation figure is suppressed by a fix called ‘substitution’. As I said then – if the price of beef goes up, the statisticians say “hey, people will substitute beef for something else… so let’s not increase the inflation index to reflect the full rise in beef prices.”
But I have to admit, I didn’t think that substitution would have been made by the producers without the public’s knowledge… “let them eat horse!”
I guess in many ways, it shows the ingenuity of a free-market economy and how, left to its own devices, it finds the most cost effective means of production. But then again, it also highlights a major flaw with the system.
Somebody, if not several parties, has clearly been cheating. And this is something most of us are too naive about. Because this level of corruption and cheating is more widespread than many think.
Regulation leads to complacency
In the UK, there’s a general assumption of fair play. It’s a great way to live your life – one shouldn’t be too cynical. But for many, government regulation gives a false sense of security. And I’m talking about in many areas of our lives. Health, food and of course financial sectors are all highly regulated. But the public over-relies on regulation. We’re assured that regulation means we can trust what the labels tell us.
But we only need to look at the City to see how things have changed. “My word is my bond” made the City of London a prominent centre of finance. Now, trust has been outsourced to government regulators. And we’ve seen where that got us. It’s a subtle change but it’s so important for the country.
The City has always had its scammers and cheats. But because there was little regulation, people had to do their homework, and only deal with trusted individuals. It was self-regulation, and it worked.
Because if somebody is intent on cheating, they will. Countless scams have robbed innocent savers over the years. Yet regulation is becoming a bigger and bigger business, and ultimately we all pay the price through higher fees and commissions. And yet the cheats always seem to find a way round it. What a waste!
What do you expect for 99p…
But the biggest problem with regulation is that it fosters complacency and erodes personal responsibility.
Would so many have deposited money with Icelandic banks if they thought they wouldn’t get their money back in the event of a bust?
It’s the same with the food industry. Because of regulations and controls, we’re led to believe that everything we read on a label must be so. How many people ever stop to think about what it takes for a business to produce a 99p lasagne?
Sometimes it’s useful to just stand back and reflect for a while. Forget about what’s on the label and certainly forget about what government says. Because to survive in this environment, you need to be able to think for yourself and read between the lines.
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