Zimbabwe is the latest nation to experiment with price controls as a method to make food affordable. It is an unspeakable tragedy that Zimbabwe’s people should end up being a object lesson in what happens when someone tries to wish away the laws of human action. And yet, when it comes to price controls, everything old is new again. I learned about the magic of price controls in a class where we were discussing Allende’s Chile. The teacher spoke of the government prosecuting merchants who did not “cooperate” with the regime’s price control laws, as though it was a simple matter of whacking the uncooperative over the head until they got with the program, and then prices would go down. Unfortunately for people in Allende’s Chile, Mugabe’s Zimbabwe, and countless people for the 30 years in between, leaders have ever failed to learn that the laws of human action do not change just because the state decrees that it should be so. Perhaps they never learn this lesson because although no one can escape the laws of human action, leaders can easily escape the laws they impose on others.
Source link: http://blog.mises.org/6291/all-together-now-price-controls-cause-shortages/
All together now: price controls cause shortages!
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Price ceilings cause shortage.
I don’t think socialists will ever get it.
Price ceilings and floors both cause shortages. One of supply the other of demand.
For a socialist, Mugabe seems quite egoistically wanting to have a birthday cake, when citizens in Zimbabwe cannot even buy a loaf of bread.
Many politicians are well aware that price controls do not work. But if we think politicians only do things that they think will benefit people and preserve the peoples’ rights, we miss the point of politics entirely. Politics is always about gaining, maintaining, and increasing power. As a politician, if your constituency believes you can help them with price controls, you’ll be in favor of price controls. When they fail it is a simple thing to blame greedy businesses and thereby justify grabbing more power.
In siege situations – a very special case – there is no production anyway, so price controls “work”, sort of. That is, the downside isn’t there, or more precisely you have the downside anyway (no marginal downside). But the controls don’t pry loose any stocks people may be holding back, they just remove the incentive to do so; for prying loose, you need additional measures. And “printing money” works just as well, provided only that there is a real commitment to pay back the paper after the siege has lifted.
But it’s still a bad idea, because it’s a great temptation to misapply the special case. After all, that’s what Germany did in 1914-18, followed by continuing it afterwards (with no prospect of redeeming the debts from reparations).
Here’s some more food for thought: shortages cause price controls.
Sounds like the situation in Venezuela http://news.bbc.co.uk/1/hi/business/6364515.stm
But…but…but…affordable food for everyone is such a great idea. I can’t believe you would oppose price controls for food. Why do you hate the poor so much?*
*Comments made with tongue planted firmly in cheek.
In siege situations – a very special case – there is no production anyway, so price controls “work”, sort of.
Interesting point. However, even in this case, a price control would lead to an early shortage due to the calculation problem. With a price control, people would use up their rations as fast as possible because they would not know their true cost – they would only know they can get X amount of food today. With a market price system, different foods would command different prices, allowing people to better allocate their resouces to those foods they can find cheaper or to those they prefer. Of course, people would ration their intake much better by knowing which foods are still abundant. They could also allocate some resources to saving food for later, something that a ration system would not allow – again, by impeding people’s economic calculation.
A rations system would also lead, inevitably, to black markets and hoarding – which are not bad in themselves, but why allow it that way, if you can allow it in the open through a free market, something that would be more efficient?
Another problem. Let us say that a price control is set in order to avoid civilian upset; the only way to achieve this would be with a price cap on all food or certain foods. It could also lead to prosecution of hoarders and black market merchants. That would only lead to the same problem: people would not know the true cost and scarcity of a product, and would allocate their resources inefficiently, buying more of a more desirable product (with the price cap), instead of buying less of it (if more scarce) and saving for later with less desirable but more durable foodstuffs, and so on.
A price system allows a people to better withstand a siege. Say that prices at first are not very high – people’s caloric intake would be high. This would prepare them for the moment food started to command higher and higher prices. People would eat less food each time, but with a gradient, and not abruptly as with a rationing system. This would allow people to better withstand a siege than if they ate X amount of food at one time, and then something like 1/2X amount tomorrow – that would lead to many people going hungry, because of the abruptness. A person that has to suddendly lower their intake would suffer psychologically, for sure, and not only biologically. A person that, however, through the price system, has provided for him or herself more rationally, will better withstand shortages. As well, a person’s body that is not starved abruptly can better withstand a slightly less intake each day.
By the way, I do not believe there would be no production at all, with a price system – people would plant tomatoes in tin cans if it came to that, especially if they could obtain a profit from it.
Sorry for the bad proofreading. Meant to say:
“A person that has to suddendly lower his or her intake . . .”
Mr. Lawrence:
What is the origin of the “siege situation”? Sounds like we are just picking a point at which to state a cause/effect.
But are the shortages perhaps acceptable sometimes?
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