There’s a lot of talk going around about setting price limits on groceries, gasoline and other products. It doesn’t take a lot of study in economics to understand this is destined to end with a big failure. The experts will say that it has never worked in any country it has been tried in. For the most part, I agree. However, it has happened in America, and it actually ended out well. How did that happen?
During the days of World War to, in order to best support the war effort, the government commissioned industry to focus on products to support the troops. Automobiles for civilians use came to an end. The auto manufacturers only produced tanks, trucks and vehicles for military use. Food production was made a priority for the troops and civilians had to make do with what they could get. To oversee this project, a government office called the OPA fixed prices on grocery and dry goods. They also limited the number of gallons of gasoline a person could buy for the week.
Naturally, if this was all that was done there would have been a shortage of products as people hoarded items for their own personal use. With limited products available, if merchants were left to follow the usual rules of supply and demand, inflation would’ve soared to the roof. To regulate this project, the government issued ration books. Between ceiling prices and ration books this system of limiting prices had built-in checks and balances. Well, except for the rise of the black market.
To minimize the effect of food shortage, everyone was encouraged to grow their own gardens. Not everyone could do this of course, but it lightened the demand in the grocery store. It still didn’t help with meat and dairy products as well as many dry goods and clothing products. America had gone from an era in the depression where products were plentiful, but money was not, to a time where everyone seemed to have money, but products were hard to find.
I’m sure the black market covered the full range of products. The main risk behind it was in black market meet. I’m sure you can imagine the health risk. The idea was that even if a person had enough money, and found the black-market supply there was more at stake than just breaking the law. Without the government inspection process, there was no way to assure the quality of the meat being purchased. It probably would not be a prime cut. It might not be good for human consumption. It might even be rancid, due to not being stored properly.
From some of the proposals that I been reading about lately, there have been no mention of ration books. Without that feature as a stabilizing balance simply setting prices will crash the food system as well as others.
When America was in its rationing days, it worked because of the national emergency and patriotic unity of Americans. Nobody liked it, but people tolerated it. The thing that made it a success was once the war was over, the OPA immediately ended the price-fixing. The need for ration books was gone. Industry could once again retool for the civilian market. Production and manufacturing industries never ceased production volume through the emergency, it was only a matter of redirecting whether products went.
In today’s economy, where’s the emergency? The last thing we need to do is give our politicians yet another “emergency power”.
If ceiling prices meant that grocers and other merchants had to limit sales or ration products, where are the producers sending their excess? Nowhere? If that’s the case, why should they continue to produce? If that’s the case, why should they retain, or even hire new workers? If that’s the case, it only produces more workers who don’t have money, to buy products that are not there.
How about checking to see what the breakdown is in the free market system? The wholesaler has been charging more because manufacturers and producers have raised prices. Not to mention it costs more for the truck driver to deliver merchandise to the wholesaler.
Products cost more at the register because it costs more for the merchant to buy them. It costs more for the merchant to buy them because the wholesaler charges more, and it costs more for the truck driver to deliver them. The chief increase for the truck driver is in higher fuel expense.
The wholesaler charges more, because manufacturers and producers have raised their prices. It also cost more for the truck driver to deliver them to the wholesaler. The chief increase for the truck driver is in higher fuel expense.
Producers and manufacturers have raised their prices because raw materials cost more. The raw materials cost more because the fuel to produce, refine, extract or grow them have increased. Not to mention, the truck driver who delivers those raw materials charges more. The chief increase for the truck driver as well as raw materials, is in higher fuel expense.
By now, a common theme should easily be identifiable. It’s not the end product, or even the process of producing products where the real expense lies. The chief increase for everybody is in higher fuel expense.
But wait! There’s more! Another common thing that everybody in this supply line uses is fuel to power their market, factory or farm. The chief increase for everybody is in higher fuel expense.
It doesn’t matter if we’re talking about electricity or the wide variety of petroleum products. Even electricity has to come from somewhere. The most common source is from coal or petroleum products.
I’m sure that a professional economist will be able to point out errors I may possibly have made. Please do. Email me and point them out. I would gladly love to know about it.
Until then, I’m going to claim that the problem with the economy isn’t the end product. The problem is that no one seems to be addressing our root problem of fuel independence.