Archive for price controls

Cognitive Dissonance on Minimum Wages and Maximum Rents

OLYMPUS DIGITAL CAMERAGary Galles writes in today’s Mises Daily:

Both the minimum wage and rent control, despite the fact that the first forces prices up and the second forces prices down, reduce the quantity of the good in question exchanged. That makes them counterproductive “solutions” to the problems faced by those who are unable to sell enough of their labor services or unable to purchase enough housing services. But the rhetoric employed disguises the fact that they make the central problem worse rather than better.

For the low-skilled, minimum wage advocates frame the issue as “If you could earn more per hour, you would be better off.” But that sneaks in the false assumption that wanting to work more at higher wages means you will be able to work more, when those wages are imposed by government.

Venezuela’s Ongoing Economic Crisis

download (1)A few months ago, Carmen Dorobăţ and I wrote an article discussing Venezuela’s rapidly deteriorating economic situation. Since then, conditions in Venezuela have worsened, and in the last week political unrest has escalated quickly, with large protests of the Maduro government taking place in Caracas and elsewhere around the country. Maduro and his supporters have responded by violently cracking down on the protests and censoring media outlets covering the events.

The protests do not appear to be guided by a specific ideological movement or set of political goals, but are instead a more general reaction to the country’s economic turmoil. As one protester explained, “I’m here because I’m tired of the crime, of the shortages, tired of having to stand on line to buy anything. I’m tired of the politicians of both sides.” In the last few years, Venezuela has become a classic and tragic case of Mises’ argument that systematic government intervention leads to socialism. The country has had a pseudo-socialist government for some time, but the logic of economic planning has gradually eroded what few economic freedoms there once were. In particular, the current system of price controls (which Maduro has expanded) has caused shortages of sugar, toilet paper, and many other essential goods. It is always easier and more tempting for government to increase control than relinquish it, and the increasing economic disorder resulting from the initial shortages has only resulted in more price controls, just as Mises predicted.

Venezuela’s monetary policy has also played an important role in this process. Its rate of inflation has been rising rapidly, and is now 56% per year. Mises emphasized that price controls are governments’ natural response to inflationary price increases. When faced with the choice of stopping the printing press or expanding price controls, governments tend to choose the latter. As is often the case, bad monetary policy is driving the broader increase in socialist policies.

Price controls and inflationary policy are both recipes for social disintegration, which is what the protests in Venezuela seem to be struggling against. It’s not clear to what extent Maduro’s government is actually threatened by these events, but we can only hope that the protests will help set Venezuela on the path to peace and economic and social freedom.

Myths and Lessons of the Argentine Currency Crisis

BJoseph Salerno writes in today’s Mises Daily:

First, the sharp decline in the value of the peso does not represent the onset of a so-called “currency crisis” but rather the very means of resolving a crisis already long underway. For the “devaluation” of the peso by the Argentine monetary authorities refers to nothing more than the removal of price controls that have maintained the price of the U.S. dollar in terms of the peso below the market equilibrium price and thereby generated a permanent excess demand for dollars in Argentina. In other words, the devaluation is simply the admission that the peso had already been robbed of a significant part of its value by inflation. This had been concealed by the fact that at the controlled price of dollars, prices of foreign imports were artificially low in terms of pesos while Argentine exports were rendered more expensive and less competitive in foreign markets.

Why Are Obamacare Exchange Policies So Bad?

6608Hunter Lewis writes in today’s Mises Daily:

Insurance companies respond to this dilemma in the only way they think they can. They squeeze the doctors fees and gamble that enough of them will go along to take care of the policy holders. Will this gamble pay off? It is doubtful.

Many doctors, doctor networks, and hospitals are already refusing to go along, so the policy holder will be stuck with insurance that is useless because no doctor will take it. Expect to see hospital emergency rooms flooded with even more patients under Obamacare, and expect to see the waits get even longer.

Older and sicker insurance customers may think they like the idea of price controls that work in their favor. But will they like insurance companies taking every available legal means to discourage their buying a policy or staying on that policy? Would you want to be covered by a company that does not want your business?

With Medicaid enrollees swelled by Obamacare, and much private insurance turned into what John Goodman calls “Medicaid Lite,” what will happen to medicine? The most likely result will be large numbers of doctors taking early retirement and fewer talented young people entering the field. The supply of medicine will shrink while the demand, fueled by government subsidies, increases.