Friday, February 8, 2008

Will they ever learn?


George Washington tried to reduce the cost of the food he purchased at Valley Forge by imposing price controls. Predictably the supply disappeared. Now, the WSJ reports similar efforts are underway in developing markets to combat high food prices caused by the demand for biofuels.

Economists warn that price controls encourage hoarding and can lead to supply shortfalls, fueling unrest. Faced with persistent food shortages, the government of Venezuela last week warned it could "expropriate" any food company necessary to ensure the nation's "food security and sovereignty."

Perhaps the biggest disadvantage of price controls, however, is that they short-circuit potential changes in behavior by producers and consumers that might damp the underlying causes of inflation

1 comment:

  1. Once price controls are in place, what can be done to remove them and limit the negative affects of that change?

    ReplyDelete