The Financial Times ran a story this weekend headlined, âEuropeâs Politicians Impose Price Caps to Address Soaring Food Costs.â The subheadline explained, âHigh inflation sparks return of controversial measure that retailers say forces them to sell at a loss.â
Itâs never going to work.
The Financial Times began the story this way:
Europeâs retailers and governments are locked in their fiercest tussle over food costs for 50 years, with policymakers resorting to price controls to tackle the worst cost of living crisis for a generation⊠âWe havenât had price controls in a general pattern in the western world since the 1970s,â said Lars Jonung, a Swedish economist and expert on the controversial caps.
When you see references to â70âs economic policy, think Jimmy Carter, the second-worst president in U.S. history (Joe Biden having made Carter look like a scratched-at-the-post non-starter.) Next, remember that all this inflation was caused by Western governments taking advantage of the pandemicâs crisis to print money to fund every stupid idea they ever had.
Now they are dealing with the inevitable consequences.
Price controls are very attractive to politicians grappling with the early stages of hyperinflation. Price controls are easy to implement, they look effective, at least at first they do, and are usually popular with an increasingly desperate public because they seem to provide immediate relief.
If a countryâs current crop of leaders are ones with low IQs, the kind of zany, colorful politicians that get elected/selected during good times, then inflation and price controls are bound to surface somewhere.
Price controls are central planning at its best, or worst, depending on how you look at it. The central planners, who never created anything in their lives, or ever planned anything using their own money, think they know what every good and service should cost better than the market does.
Setting fair prices is easy! You just need a strong government to put those greedy capitalists and opportunists in their places and â voilĂĄ! â the ailing economy will cough itself into new life, and start running smoothly and efficiently for the benefit of the people.
But you knew there was a catch coming.
The problem is with the law of supply and demand. Consider that title. Itâs a âlaw.â We have a âtheoryâ of evolution, a âtheoryâ of gravity, and a âtheoryâ of relativity, but there is a LAW of supply and demand. Itâs a law, because you canât break it without going straight to economic jail.
One of the first provisions in the law of supply and demand is, when planners fix prices, citizens experience scarcity. In other words, when governments mandate low profits in one area of the economy, producers take their money out of that area, and invest it in other, more attractive areas.
So, if profits on carrots fall too low, because sales prices are fixed, people will just invest their money in bitcoin instead of growing carrots, and there wonât be any more carrots to buy. Itâs that simple.
After price controls start, scarcity doesnât dally, and according to the Financial Times, scarcity is already showing up:
Nora, a 32-year-old mother of three in Budapest, said it was âniceâ that price controls had made products such as whole milk cheaper. But she noted that supermarkets had started limiting purchases, meaning she had to visit multiple stores or go shopping every day to take advantage.
See? The reporter knew it, too. They just werenât allowed to come right out and say it.
Eventually scarcity will become a much bigger problem than inflation. Scarcity literally starves citizens. At that point, governments face even less attractive options than price controls: they can remove price controls and issue a new, de-valued currency to stop a gigantic post-control pricing spike, or they can nationalize key industries like agriculture, housing, and other life essentials.
Nationalizing means taking those industries over and running them as a government service. But government is much less efficient than the private sector, so after nationalization, citizens will have to deal with scarcity anyway, plus lower quality, and worst, thereâs nobody to sue when somebody dies after eating an unwashed, wormy apple with dangerous pesticide on it, because you canât sue the government.
FDA fails America - again; European price caps will fail; Pentagon fails to account for $3B; Kim Dotcom's whistleblower; Chuck Todd says FBI failed; Fox layoffs failure; and WSJ covers for pedo Gates.
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