“New measures controlling the way supermarkets operate may be on the way”

While Americans were celebrating their Declaration Independence yesterday—celebrating that ringing declaration of the rights to life, liberty and the pursuit of happiness--here in New Zealand we were instead being told by Minister Power-Lust what time we must be in bed, and by Newstalk ZB that “new measures controlling the way supermarkets operate may be on the way, after allegations they are ripping off consumers and producers.” [Hat tip Mark Hubbard]

Further evidence that if anything is the inspiration for today’s parliamentarians it is not Thomas Jefferson’s America, but Hugo Chavez’s Venezuela.

For Chavez offers the latest lesson that if you think the private owners of supermarkets are ripping you off, just wait until the supermarkets are controlled by the government.  Chavez himself took umbrage recently at the way supermarkets operate after allegations they were “ripping off” consumers and producers. He slapped price controls on food, he opened “cheap” state-run supermarkets—and the result of his officious meddling has been as predictable:

Mountains of rotting food found at a government warehouse, soaring prices and soldiers raiding wholesalers accused of hoarding…”

I say the result is predictable, and it is—for as George Reisman explains, the inevitable result of all price controls is always shortages, and the natural political outcome of all shortages is almost always to increase the controls, and eventually to send in the guns.  The first is the inevitable result of trying to buck the reality that is price signals; the second is the inevitable consequence of the first: price controls inevitably beget either collapse, or socialism (which amounts to the same thing).  George Reisman has the lesson:

The effect of the combination of inflation and price and wage controls is shortages, that is, a situation in which the quantities of goods people attempt to buy exceed the quantities available for sale.
    “Shortages, in turn, result in economic chaos. It's not only that consumers who show up in stores early in the day are in a position to buy up all the stocks of goods and leave customers who arrive later, with nothing — a situation to which governments typically respond by imposing rationing. Shortages result in chaos throughout the economic system. They introduce randomness in the distribution of supplies between geographical areas, in the allocation of a factor of production among its different products, in the allocation of labor and capital among the different branches of the economic system.
    “In the face of the combination of price controls and shortages, the effect of a decrease in the supply of an item is not, as it would be in a free market, to raise its price and increase its profitability, thereby operating to stop the decrease in supply, or reverse it if it has gone too far. Price control prohibits the rise in price and thus the increase in profitability. At the same time, the shortages caused by price controls prevent increases in supply from reducing price and profitability. When there is a shortage, the effect of an increase in supply is merely a reduction in the severity of the shortage. Only when the shortage is totally eliminated does an increase in supply necessitate a decrease in price and bring about a decrease in profitability.
    “As a result, the combination of price controls and shortages makes possible random movements of supply without any effect on price and profitability. In this situation, the production of the most trivial and unimportant goods, even pet rocks, can be expanded at the expense of the production of the most urgently needed and important goods, such as life-saving medicines, with no effect on the price or profitability of either good. Price controls would prevent the production of the medicines from becoming more profitable as their supply decreased, while a shortage even of pet rocks prevented their production from becoming less profitable as their supply increased.
    “As Ludwig Von Mises showed, to cope with such unintended effects of its price controls, the government must either abolish the price controls or add further measures, namely, precisely the control over what is produced, in what quantity, by what methods, and to whom it is distributed, which I referred to earlier. The combination of price controls with this further set of controls constitutes the de facto socialization of the economic system. For it means that the government then exercises all of the substantive powers of ownership…
    “Of course, socialism does not end the chaos caused by the destruction of the price system. It perpetuates it. And if it is introduced without the prior existence of price controls, its effect is to inaugurate that very chaos. This is because socialism is not actually a positive economic system. It is merely the negation of capitalism and its price system. As such, the essential nature of socialism is one and the same as the economic chaos resulting from the destruction of the price system by price and wage controls.”

May I politely suggest that the lesson provide by Professor Reisman, for which Mr Chavez provides the latest example, prompt those promoting “new measures” controlling the way NZ’s supermarkets operate to reconsider, and those considering their “new measures” to politely tell them to go to hell.