waiting for food
News just out that President Putin of Russia is imposing price controls is bad news for the Russian people. The price controls will affect staples such as milk, bread, sugar and vegetable oil.
Regulations that set a price below the market rate always create shortages. We have seen price controls do this in the USA in the 1970s with petrol queues. We have seen it with homelessness in New York with rent controls. The same homelessness effect occured in Sweden after WWII when they had rent controls. We see it in public health services all the time where people are constantly lamenting the waiting period for service. And of course the Russian people have seen it all before in nearly every aspect of life during the Soviet era.
When regulations cap a price below the market clearing rate the result is queueing and shortages. And when regulations cap a price above the market clearing rate the result is a glut of unsellable goods or services. We see the latter in remote pockets of Australia where the minimum wage creates a glut in labour services (ie high unemployment).
Price controls disable the central nervous system of an economy. They block the flow of signals that regulate and ration the allocation of resources. They are perhaps one of the most pernicious forms of economic regulation. The social cost and the discontent that it ferments is a poisonous cocktail.
We may hold some hope for the Russians because these measures are said to be temporary. However when governments impose “temporary measures” they often aren’t.
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TAANSTAFL
How many times do these idiots have to learn their painful lessons ?
Central planning is a dirty word. Like genocide and mass murder.
Right on Jono;
I see here a repeat of the Zimbabwe situation about to replay at least in the economic aspects, complete with empty food stores and mass arrests. Recently I reported on the Zimbabwe inflation figure dropping to 6,592% (latest figures, 8000% and 1,000,000 Z$ to the US$). In it was the following: -
This is about to play out again.
>> How many times do these idiots have to learn their painful lessons ?
>> Central planning is a dirty word. Like genocide and mass murder.
Because it’s not the same idiots who have to learn the lessons. Every
generation has to learn them again.
Russia is now a democracy (of sorts). These policies are not designed to
improve the Russian economy, or to ease the suffering of the Russian people.
In a democracy, policies are decided on two criteria:
1. Will this policy attract votes to me; and
2. Will this policy result in greater control for the power bloc?
Let’s explore 1. Most educated people in capitalist countries believe that
government control over prices is essential to ‘fix’ the market to make things
easier for the ‘Aussie Battlers’, or the peasants, or the currently favored
minority groups or whatever. What do we think that the average Russian voter,
forcibly indoctrinated by decades of communist propaganda, thinks of markets?
Lets explore 2. This policy will make the people worse off, and therefore
demanding ever greater government regulation to ‘fix the problem’. Over time, the
problem will get so bad that only the government could possibly fix it – right?
This will be regarded as proof of the failure of the market!
Putin gets 2 out of 2 for this policy. Full marks. It’s a guaranteed political success.
.. it just happens to be a disaster for the Russian people.
Strawman;
Have you ever had a deep and meaningful discussion with Trinifar.
I love your eternal optimism Strawman!
Why is Russia so different from Estonia or Hungary in a pro or anti free enerprise position?
Sadly I think Strawman is spot on.
I agree Terje, I think Strawman understands real politics better than any of us.
Yep… I fear Strawman is right
Governments have a tendency towards greater and greater intervention over time, and the solution to the problems it causes is always yet more intervention.
I agree with Strawman.
Jim brought up a topic of interest to me, Zimbabwe.
Mugabe’s over 80 now, rumoured to be suffering advanced syphilis, and I expect he’s just going to keep doing the same things over and over. It’s worked for him so far, even if millions of people have suffered and died, he and his family have been able to live in luxury.
There are pics available on the net of Zim stores with literally nothing on the shelves after the latest round of price fixing.
Last report I heard, the Zim dollar halved its value in one week from 1US = 500,000 to 1,000,000 ZWD. At the time of its introduction, 1 Zim dollar bought nearly 1.5 US.
Jim writes, Have you ever had a deep and meaningful discussion with Trinifar.
Well, it takes two to have that sort of conversation.
You might be surprised that I mostly agree with Strawman’s assessment and the basic thrust of Terje’s post. However, why look to Putin’s Russia to take issue with price controls? Being an American all I have to do is look out my window. I bet it’s not so different in Oz or the EU. In all three the government props up agriculture and controls the price of food and fuel, perhaps not as directly as what Putin’s doing but it’s certainly interfering with the market. And in the US it is done to get politicians elected — mostly by large corporations donating to political campaigns.
Trinifar,
There are no notable price controls in the Australian farm sector. There are some welfare programs for farmers experiencing drought but these are very modest and are comparable to unemployment benefits. We also have some regulation of international sales by way of the wheat board however this does not entail any direct regulation of price.
Where we do have price regulation in Australia is in the Taxi industry, in some parts of health services and in the labour market. In all of these we can see examples of gluts (ie unemployment in some economic regions) and queues (ie hospital waiting lists).
Taxes and administrative regulations effect prices but they are not as pernicious as direct price regulation because the cost of taxes and administrative regulations can still be sent as a price signal to moderate demand and encourage substitutes. And they don’t entail the huge productivity losses involved in standing in a queue.
Regards,
Terje.
Terje, hate to burst your speculative bubble, but I think Trinifar is onto our Wheat Board. Remember that scandal? Wasn’t that a species of price-fixing? That may have made a bigger impact overseas than we realise.
Nicholas,
The wheat board can not fix the price of wheat. It can merely deal as an export cartel.
Regards,
Terje.
Andy,
Your accent is atrocious! The stress is on the last syllable, so it is written TANSTAAFL, not TAANSTAFL. There Ain’t No Such Thing As A Free Lunch!
“Regulations that set a price below the market rate always create shortages.”
Strictly speaking, that’s only true if you take it in the narrow sense that you probably meant and that most readers will probably take. That is, if you read it as “regulations that require sellers to take a price below the market rate”.
But there are more ways to skin a cat. From Routledge’s Dictionary of Economic Terms, a little over a century old, here’s an example of a regulation that set a price below the market rate and eliminated a shortage, by not acting on sales:-
“Corn Rents: In the Middle Ages the prices of agricultural produce increased rapidly, but rents remained stationary, since the cost of everything except labour had increased, and rents were usually customary. Hence the colleges atOxford and Cambridge and the schools of Winchester and Eton were much impoverished. By an Act of 1576 these were empowered to obtain one-third of their rent in corn at the maximum price at their markets, these prices being usually much below the real market price.”