In April
there was a flurry of blog posts from economists on price controls and
inflation in Venezuela.
Read this article from the Times:
http://www.nytimes.com/2012/04/21/world/americas/venezuela-faces-shortages-in-grocery-staples.html?_r=1
and this post from Cafe Hayek:
http://cafehayek.com/2012/04/but-hes-our-leader-exploiting-our-economic-ignorance.html.
(If this doesn't open see below).
How does this relate to the theories from the chapter?
The concept of price floors can
be exemplified from this article in the way of coffee. The text defines a price floor as a legal
minimum on the price at which a good can be sold. If only a few years ago Venezuela was an
exporter of coffee and now finds itself importing the good, you would have to
stop and ask yourself, why? The article
goes on to explain that since government price controls have set the retail
price for coffee so low that it is below what it costs for farmers to grow it;
therefore, practically eliminating the incentive to do so.
The text states that when the
government imposes a price ceiling on a competitive market, a shortage of the
good arises, and sellers must ration the scarce good among the large number of potential
buyers. “Rationing mechanisms” are shown
by the article in the way of long lines and people not being able to buy the
most basic goods like toilet paper and cooking oil. These items in a free market are rationed in
relationship to their price which occurs through the process of
equilibrium. Venezuela, however operates
in a capitalist economy. The article demonstrates
this when it says that the government has taken private ownership of dairy and
coffee companies stating “it is in the national interest” to do so.
If a price control had been
imposed on bottled water for victims of Hurricane Katrina they would not have
been as expensive as they were.
According to my Google search, bottles of water were selling for roughly
$7 per bottle. Anyone who buys it at the
store or the gas station during non-disaster times probably pays around
$1. I can only imagine that there were
price gougers who charged even more due to the magnitude of Katrina. Under different circumstances I may have
considered this entrepreneurial, however taking into consideration the scale of
this catastrophe this is an example of people taking remarkable advantage of
others in the most dire of times. No one
is more in need of water than someone else during a time like that, therefore
it is certainly unfair to only sell it at such an inflated price to only those
who are either able and/or willing to purchase it. Speculators do nothing more than try to gain
a quick advantage from the anticipated increase in the demand of a good.