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2/5/13

How to Create a Shortage - 101

By Grant Davies

If you want to create a shortage in a hurry, just pass a law to "freeze" the price of the target commodity. In this case, the commodity is food and the place is Argentina. The news came out yesterday in this story.

The economically ignorant people in Argentina are about to get a lesson in "How to create shortages 101." I suggest they get in line at the grocery store now while they can because it will be a while before the alternate retailers of food and other grocery items - also known as the black market - are set up to deliver the needed commodities to the Argentinian populace.

In case anyone needs a refresher course in "unintended (and bad) consequences", I refer them to the long lines at the gas stations that people my age had to endure just a few decades back, 1979 to be exact.

The price of gas was frozen by the economic literates back then and the lines became blocks, sometimes miles, long. Soon there was rationing schemes of every type being tried, and corruption and favoritism became rampant. The same thing happened with the supply of impossible to find "rent controlled" apartments in NY and other goofy places that tried the same nonsense with the housing commodity.

Here's what it looks like in Venezuela 
Sellers and buyers will soon find "workarounds" to the wonderfully low food prices in Argentina, but it will be messy as it all unfolds. And the people at the front of the line will be able to profit on whatever they can obtain - but don't need themselves - by selling it at a higher price to those who didn't get in line. So the commodity will find its price anyway.

Can't find what you need? Just buy something else while it's still available so you can trade it for what you do need. Just don't expect the quality or selection to be too high because the sellers will only be offering products that don't have sufficient demand to warrant higher prices, if they can find any, that is.

It's possible, perhaps likely, that hunger will find its victims if the nitwits running the show don't back down quickly.

In the end, since inflation (in the words of Milton Friedman) " is everywhere and always a monetary phenomenon" it cannot be stopped by trying to control the price mechanism. The law of supply and demand will always win out. It's a law the politicians never made so it cannot be repealed.

So what about us here in the good old US? Higher prices are coming to this country soon. They have already begun to show themselves in many commodities despite slack demand. So, the only question is; will the politicians here make the same stupid mistakes they have made before and copycat the Argentinian illiterates? Take a guess.

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