For at least four thousand years (see the blog post by Tom DiLorenzo), political leaders in monarchies and democracies alike have instituted price ceilings. The results have always been the same: chronic shortages. Anyone who has read my posts here, especially my recent posts, have found me lamenting both the pharmaceutical shortages in the US and the many, assorted shortages in Venezuela. Shortages come, not from the greed of merchants and other business people, but from government officials who delude themselves and their followers into believing they are better suited to set prices than those greedy forces of supply and demand. They do this as if the political leaders are not greedy, themselves—but their greed to rule over others’ lives is perhaps the worst form of greed. Well, this time, I turn my attention away from Venezuela and to Venezuela’s Marxist role model, Cuba.
Cuba, like Venezuela, is plagued by shortages of many goods and services. Sometimes shortages occur in one area, but not in others, in one item, but not in others. The reason for this is that prices are set by the government in Cuba, and not by market forces. Markets create incentives for self-correction of shortages and surpluses. Shortages lead businesses to raise prices which both give them an incentive to produce more and for buyers to cut back. Surpluses lead to price cutting, reductions in production and increases in purchasing. Bureaucracies do not provide such self-correcting incentives.
Well, what has caught the attention of the press is not the food shortages, or the shortages of corrugated roofing metal while having a surplus of nails, or even shortages of medical gauze, but a shortage of condoms. Juan O. Tamaya, reports on the condom shortage here (read it!) in the Cuba section of the Miama Herald. When the prices of items are held below the price that the market would predict, what economists call “equilibrium prices,” shortages will appear to raise havoc. This particular shortage could lead to shortages a little down the line, perhaps in several months as unplanned pregnancies and STDs begin to increase.
While smuggling is not the cause of the problem, you can be sure that having separate markets, with prices held low for Cubans and higher prices for foreigners, encourages “arbitrage” or buying large quantities at the low price to resell at the higher price. Tamaya reports “Celaya wrote earlier this month in her blog Sin Evasion (“Without Evasion”) that the chronic shortages on the island seemed to be more frequent and affecting more products, including some that are usually widely available at steep, hard-currency prices.” (Read more here: http://www.miamiherald.com/2014/04/16/4063871/condom-shortage-hits-cuba.html#storylink=cpy). I noted the same type of problem that worsens shortages in this recent Bastiat’s Bastions post on Venezuela.
I am sure you have heard the maxim that “people who do not study history are bound to repeat it.” Price controls and chronic shortages occur when people fail to study economics and economic history.