Friday, November 23, 2007

Price controls divorced from reality

Here's what you get when you combine growing demand fueled by growing oil income with tough enforcement of price controls:
The lines formed at dawn and remained long throughout the day - hundreds upon hundreds of _____s queuing up to buy scarce milk, chicken and sugar at state-run outdoor markets staffed by soldiers in fatigues.
...
The long lines for basic foods at subsidised prices are paradoxical for an oil-rich nation. Shopping malls are bustling, new car sales are booming and privately owned supermarkets are stocked with American potato chips, French wines and Swiss Gruyere cheese.

Yet other foods covered by price controls - eggs, fresh chicken - periodically are hard to find in supermarkets.

Fresh milk has become a luxury, and even baby formula is scarcer nowadays.
It's not a paradox. Paradoxes don't have explanations. This is Venezeula under Hugo Chavez. Price controls create shortages. Milk has become rare only because the price is artificially low.

It's interesting that the Gulf News is running this AP story. The story concludes,
The government's price controls are also "totally divorced" from reality - in some cases below production costs - making it unprofitable for suppliers to sell their products at official prices, said econ-omist Pedro Palma of consultants MetroEconomica.

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2 Comments:

Anonymous Anonymous said...

Yes, very interesting. John, would love to hear your analysis of the UAE Central Bank's monetary policy and their approach in controlling inflation.

4:16 PM  
Blogger nzm said...

And in further news, Muscati is reporting a dirham buy-up by Omanis speculating on the US dollar being dumped as the peg currency by their neighbour.

4:52 PM  

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