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Here are some of our latest articles you may have missed:
Interesting New Paper On How The Fed Produces Disinflation
Analysis: Excellent New Paper Makes National Security Case for Free Trade
Happy Feast of the Assumption!
Price Controls Are Bad
The Soviet Union implemented widespread price controls starting under Stalin in the late 1920s, which lasted until the end of the Soviet era. Price controls were intended to keep prices low and stable, especially for basic goods and food. However, they led to persistent shortages of consumer goods and food. While official prices remained low and stable, there was “repressed inflation” as wages grew faster than the supply of goods. This created excess demand and savings that could not be spent. Consequences of price controls included: constant shortages and empty store shelves, long lines to purchase goods, poor selection and quality of available products, development of black markets with much higher prices, inefficient allocation of resources as producers had no price signals, and lower living standards compared to market economies. In the 1980s, Gorbachev’s reforms partially loosened price controls, but this unleashed the repressed inflation without increasing supply, worsening shortages. This is the main takeaway from this interesting economics PhD thesis on Soviet price controls which we read (alright, skimmed) in preparation for writing this article at the instigation of libertarian policy analyst Corie Whalen.
We can vouch for this as your correspondent has some personal experience of the last days of the Soviet Union. The Kafkaian inefficiency of the Soviet system really must be conveyed through anecdotes to be believed. A relative was once invited to a meeting at an important Soviet Ministry; as she arrived in the grand Tsarist-era building with its magnificent hall and giant marble steps, she noticed that, on each steps of that grand staircase, was a sack of potatoes. As she was led up and to the office of her interlocutor: more sacks of potatoes, seemingly at random everywhere on the floor. Eventually she was explained this strange occurence: it was potato harvest season, and during potato harvest season, every adult Soviet citizen was conscripted for corvée labor to help harvest the potatoes, which they then brought back to their place of work. Except that, since no pickup was arranged, except for what people brought home, the potatoes just stayed there, and rotted.
The most mentioned aspect of the Soviet economic system, because it is the most striking and the most egregious, is the shortages, especially of basic stuff, but the inefficiency and central planning meant that there were also massive overproductions, unconnected with consumer demand. Furthermore, people had plenty of “money,” since they were housed and fed “for free,” and yet received a salary. Obviously there was no bank with no savings account to put the money in, and especially no stocks or bonds to invest in, so people would “save” by buying whatever consumer goods were available. Thus, we remember being in Soviet apartments with countless fridges. Fridges had apparently been overproduced that year, and they were available for a pittance, and there was nothing else to spend money on, so people just bought fridges, and kept them in their apartments, and used them as cupboards and storage areas.
Final story: one factory in the Soviet Union made all the doors in the country. Another factory in the Soviet Union made all the doorknobs in the country. The factory that made the doors made the doors with a nice round hole where the doorknob should go. Except it made all the doors with the hole the wrong size. So all the doors in all the apartments in the Soviet Union (including lavatory doors) had a nice big round hole at waist level, and then another hole someone had punched in with a pike to put the doorknob in.
These are all things we or close family members have personally witnessed.
All of which is a long-winded way of saying: have you heard that Kamala Harris has proposed price controls on food and groceries?
The anecdotes above really are our policy analysis. There is no debate that we are aware of among serious economists and policy analysis (and we do mean serious, not “serious”) on price controls. We don’t believe we have to marshal theories, graphs, or equations. We think it’s much better to try to get people to understand at a personal level what a truly controlled economy is like for the average person.
We suppose we can say they can work surprisingly well in the short term (as Nixon’s did), because producers have inventory, and holding that inventory costs money and the costs to produce that inventory are sunk, so it’s better to sell at a loss than not at all. But eventually, as water rolls downhill, the effects are inevitable.
Less interesting than policy analysis may be political commentary, though we usually try to shy away from that: this is not the first time we have noted the Democratic Party’s decisive turn away from even appearing friendly to markets and capitalism. The Biden-Harris Administration may be the end of the long parenthesis opened by Bill Clinton in 1992. Stunning development.
Policy Links
#Economics – Speaking of, new price controls on drugs have been announced. Price controls on drugs are a specific issue, since the healthcare field is so heavily subsidized and covered with mandates; in a highly-regulated industry, price controls may be necessary to prevent undue profiteering by private actors, but this is a very marginal case. This is more likely pure politicking.
#Immigration – Border patrol agents captured a Palestinian at the Southern border whose name is on the terror watchlist, the Post’s Jennie Taer reports.
#Immigration – You may have noticed we very rarely link to podcasts, because they’re a very inefficient means of conveying information, and we are a tool for busy professionals. However, this one was fascinating, featuring Center for Immigration Studies Executive Director Mark Krikorian and the Center’s Senior Researcher and refugee expert Nayla Rush, covering how the Biden-Harris Administration is using the refugee resettlement program to get around Congressionally-mandated immigration limits. Because the goal is just to do numbers, that’s not even helping the most vulnerable refugees.
#Bidenbucks #ElectionIntegrity – Several states are suing to stop what’s being called a “Bidenbucks” program–the Biden-Harris Administration’s executive order using federal agencies to register and mobilize left-leaning voters ahead of the 2024 election.
Chart of the Day
The US is one of the least racist countries in the world: (Via Missing Data Depot)
Meme of the Day
