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Price controls is not regulating markets, is completely closing them. Putting out the fire, not harnessing it. During Soviet times, everybody could afford toil

• gwd 6y ago
  > Price controls is not regulating markets, is completely closing them. Putting out the fire, not harnessing it. Well, no. People manufacturing masks still have a choice as to whether to make masks at the price-controlled price or not. If it's not cost-effective, they won't make any. If it's adequately cost-effective, they'll make the normal amount. If the price controls are still fairly lucrative, they'll be encouraged to make more product. On the other hand, the knowledge that there will be no limits on "surge pricing" might encourage people to build up stockpiles to smooth out shocks in supply or demand; whereas, the knowledge that there will be limits on "surge pricing" might discourage people from building up stockpiles, thus making shocks in supply or demand worse. In both cases, "the market" is still doing what the market does: optimizing for the particular inputs it's given. The question is, which outcome do we prefer? EDIT: And, is the market actually the right tool for this particular job? For instance, in the case of vital medical equipment such as N95 masks, maybe it makes sense to have the government stockpile reserves, rather than relying on the market to do it.
  • nickpp 6y ago
    This experiment has been tried. During the 70s energy crisis, gas price controls succeeded in creating the longest lines and shortages. No other subsequent oil crises had the same disastrous effect, because the market was allowed to solve the problem.
    • gwd 6y ago
      > No other subsequent oil crises had the same disastrous effect, because the market was allowed to solve the problem. How much was the market, and how much was the government? https://en.wikipedia.org/wiki/Strategic_Petroleum_Reserve_(United_States) https://en.wikipedia.org/wiki/Strategic_Petroleum_Reserve_(U...
      • nickpp 6y ago
        I don’t know, but it looks to me that through that Reserve even the government understood that price controls don’t work and tried to solve the problem working with the market rather than against it.
• kristopolous 6y ago
  Things like the Agricultural Adjustment Act came about because Overproduction of commodities (in this case crops) lead to its collapse. The prices go down decreasing the margin so the producers put more in the market, pushing the price down further, reducing their margins further, leading to unpayable debts and bankruptcies. An abundance of commodities disrupts the conditions for the creation of profits. Nobody really disputes the overproduction phenomena and consequences. At the macro-scale this can have a contagion effect and cause what's called a "general glut" identified by both Smith and Ricardo. We saw that in the shale oil bust just recently. Price controls and making the government the buyer of last resort (for instance, the Commodity Credit Corporation) are remedies for fixing this flaw. They are there because of a fundamental flaw in market economics.
  • nickpp 6y ago
    And still capitalism creates abundance and plenty of offer while socialism creates hunger and lack of the basics. I still remember entering a supermarket in the west after the fall of the Berlin Wall. The shock at all that choice... is indescribable.
    • kristopolous 6y ago
      I'm sorry, are you trying to claim that the phenomena of overproduction doesn't exist? Do you have any evidence for the claim? Simply acknowledging an economic phenomena doesn't make someone a soviet communist.
      • nickpp 6y ago
        Being an entrepreneur is risky. Planning your production is just one of those risks. Some will fail and go out of business. Others will take their place. The market will endure. The consumers will benefit.
        • kristopolous 6y ago
          Adam Smiths' theory of the general glut is they won't. It's a vicious cycle effect that can lead to phenomena called recessions and depressions resulting in strangely both unemployment and idle factories (able workers + money to pay them and nobody hiring due to lack of demand). Some really ardent neo-classicalists say they don't exist but I haven't read their evidence carefully enough to speak to it (here's an intro by Rothbard if you're interested: https://mises.org/library/says-law-markets https://mises.org/library/says-law-markets) I personally think some of the most notable Austrians had a bad habit of using arguments of convenience to defend the financial interests of the wealthy benefactors who funded their institutions and reversed their arguments when expedient but that's a separate conversation.