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> Instead, take something like food, where it's a commodity. That's a place where markets should be the cleanest and most responsive to price signals. There ar
by nanis 5y ago
> Instead, take something like food, where it's a commodity. That's a place where markets should be the cleanest and most responsive to price signals.
There are a whole lot of distortions on every side of the market for food which interfere with a properly functioning market. There are incredible subsidies paid to farmers to produce specific things (which then cause over-production in those items). There are tariffs to protect privileged farmers. There are actual import and sometimes export quotas. Then, rich countries dump the over-production as in-kind food aid to poor countries undermining poor farmers there.
Case in point is Nebbia v. New York[1] where the supreme court affirmed state interference in free markets by setting a price floor on milk to protect a select few milk producers.
Going back to my first comment. The mechanics are clear. An effective price ceiling leads to too few units being offered relative to the units demanded resulting in perpetual shortages and non-market mechanisms end up determining who gets the benefits of the existing units. Persistent price ceilings lead to chronic reduction in investment producing the thing.
Similarly, effective price floors (minimum price of milk, minimum wage etc) lead to too many units being offered to the market leading to persistently wasted productive resources.
Both reduce the total productive capacity of an economy.
[1]: https://www.law.cornell.edu/supremecourt/text/291/502 https://www.law.cornell.edu/supremecourt/text/291/502
- dbingham 5y agoBut that's the point. There are always going to be distortions. And only some of those distortions come from the government. Perfect markets don't exist and can't exist. They don't line up incentives as advertised, the incentive for the producer to take as much as possible from the consumer drives all kinds of insane and harmful unexpected behavior. And market competition doesn't keep that incentive in check as the theory holds, because all producers share the same incentive and their interests align. Government distortions are sometimes self serving as you've pointed out, but just as often they are attempts to counter act the distortions created by the markets themselves. Economic theory has never been predictive to any reasonable margin of error. And a theory that cannot predict outcomes is not a valid theory.
- nanis 5y ago> Perfect markets don't exist and can't exist. Even diamonds are not perfect. Perfection is good to have in models to demonstrate limiting cases, but not necessary to know the difference between situations where prices are allowed adjust and where prices are not allowed to adjust. The "markets are not perfect" crowd loves to imagine the existence of a "perfect" and benevolent social planner who will always act according to their wishes. Let me know when you find one. (I know, "#realsocialism never been tried). > Economic theory has never been predictive to any reasonable margin of error. And a theory that cannot predict outcomes is not a valid theory. I find it ironic that you make this statement in the context of a clear cut demonstration of what happens when prices are not allowed to adjust. There are a zillion markets across the world where one does not need to depend on the benevolence of the proprietor to get what you want or the benevolence of the customer to earn a living. Those get conveniently ignored. If price controls worked so wonderfully, Uber, which was only an improvement on what was there before it and nothing close to "perfect", would not have become so popular. I would have loved for them to run a continuous double auction, but then nobody every gave me a billion dollars to burn. > distortions created by the markets By definition, distortions are created by interventions in markets.