An interesting analisis of price controls to manage inflation would be incomplete without studying Argentina and its futile efforts, currently underway, to impact inflation thru price controls on over 1,300 food items. An utter failure, both on the inflation front and enforcement. As to the healthcare industry in the States, the lack of transparency between pricing and the insurance coverage , doctors and pharmacies is astounding in a sector which commands almost 19% of GDP.
The problem is over 1300 items which have price controls. Many economists now consider the possibility to gradually imposing price controls on a limited set of items. And this suits a country like US far more than a third world, frontier market or middle income economy.
I feel like I need to expose myself more to the inflation hawks' arguments, because "temporary and sectoral" seems so thuddingly obvious to me. As far as I can tell it's only a minority of pundits and academics worried about persistent inflation, the markets and policy makers seem to be ready to make minor adjustments and move on as supply issues are overcome.
Maybe we should try and avoid confounding the concept of price control economics, which seems to have a pejorative meaning for gammon economists like Krugman, with "subsidies" which is something which Krugman et al love. Mainly because in the former, the consumer pockets the difference (at least in the short-run) whereas in the latter the supplier is the one who is benefits.
Writing off price controls because they didn't work in the 1970's is bad economics and short-sighted. The 1970s was an entirely different time without the same globalist dynamics and with a much stronger labour organization, higher carbon intensity and different political compact.
We are now in a time when the main concern of the elite political class is to keep the masses happy with cheap stuff. If they can't do this then the whole thing is going to fall apart because there isn't much else in it for your average worker. I would expect this to become the focus of the next ten years. Let's hope that China plays along.
Subsidies don't necessarily incentivize production. We've been subsidizing house prices for many years and we don't seem to see any more houses being built. We've been subsidizing petrol prices for many more years and we don't see oil refiners necessarily producing more refined petroleum.
Subsidies just create economic incentives to produce at a different point on the supply and demand curve anticipating a lower input cost but at the same time also not factoring in the many factors which make the efficient market theory wrong (inelastic demand, inelastic supply, etc).
Price controls artificially suppress prices (thus increasing demand) without increasing supply. However you then have to take actions to increase supply such as subsidies and government policy. It's a two pronged argument which Adam doesn't really get into in this post, which is a disappointment.
I'm assuming you are talking about the U.S. if you are talking about subsidized home building, and we absolutely have seen massive amounts of home construction in this country, particularly compared to other rich countries - the only places this isn't true are areas where the local economy/government makes it especially difficult/unprofitable to build.
I don't really know what you mean by the point about oil, since that is also increasing over time - how much of that is due to subsidies is debatable.
No I don't really think the United States is a representative example of the rest of the world. It's big, resource rich, mainly empty and holds the keys to the worlds dominant currency, which limits the applicability of the lessons learned within it outside of it's own borders. I can't comment on US zoning laws or the specificities of how the US permits or doesn't home building and it's endless suburbs.
I was talking about the UK specifically but you could draw a parallel with most other developed countries which don't have the unique mix of factors the US has.
Of course no subsidy is enough to incentivize the production of more units if all the unbuilt land is protected and redevelopment of existing communities to a higher density is opposed by entrenched interests. Obviously, building a house on a densely populated island will always be harder than in Texas, but your governments have made homebuilding on a large scale practically illegal, so of course the subsidy has no effect.
That's based on the assumption that you have to incentivize private companies to do everything, which is a very US-based thought process and which becomes less and less plausible as time passes and as your population density increases.
Home building requires a democratic and thoughtful process of planning and financing in order to achieve housing which meets the needs of all the people who need it. I don't think it is a market concept at all, the market is simply a function of society and it's the obligation of a society to ensure that the people within it have places to live.
Or you can just build endless urban sprawl financed through a state backed mortgage system which bails out mortgage lenders and which incentivizes consumers to take on ever increasing debt through tax breaks and false price appreciation.
Funny how ideas that have systematically failed over time (and price controls have failed since the Roman Emperor Diocletian tried it) always find a "reason" to come back! The "inflation" being experienced at present is not that general as true inflations are supposed to be. This piece tries to put it in perspective: https://marcusnunes.substack.com/p/money-demand-the-oft-forgotten-link
Does anyone know of more geographically granular inflation data? A crude argument, perhaps, but I would imagine certain states/regions/countries with less reliance on fossil fuels would be experiencing proportionally lower levels of inflation, which Biden could then use as further justification for green-energy investment.
I wasn't saying no reliance on fossil fuels, but less reliance on fossil fuels such that it would potentially show lower inflation. Also, the data you provided is great (or at least from what I can tell from first glance). Thanks!
An interesting analisis of price controls to manage inflation would be incomplete without studying Argentina and its futile efforts, currently underway, to impact inflation thru price controls on over 1,300 food items. An utter failure, both on the inflation front and enforcement. As to the healthcare industry in the States, the lack of transparency between pricing and the insurance coverage , doctors and pharmacies is astounding in a sector which commands almost 19% of GDP.
The problem is over 1300 items which have price controls. Many economists now consider the possibility to gradually imposing price controls on a limited set of items. And this suits a country like US far more than a third world, frontier market or middle income economy.
I feel like I need to expose myself more to the inflation hawks' arguments, because "temporary and sectoral" seems so thuddingly obvious to me. As far as I can tell it's only a minority of pundits and academics worried about persistent inflation, the markets and policy makers seem to be ready to make minor adjustments and move on as supply issues are overcome.
Maybe we should try and avoid confounding the concept of price control economics, which seems to have a pejorative meaning for gammon economists like Krugman, with "subsidies" which is something which Krugman et al love. Mainly because in the former, the consumer pockets the difference (at least in the short-run) whereas in the latter the supplier is the one who is benefits.
Writing off price controls because they didn't work in the 1970's is bad economics and short-sighted. The 1970s was an entirely different time without the same globalist dynamics and with a much stronger labour organization, higher carbon intensity and different political compact.
We are now in a time when the main concern of the elite political class is to keep the masses happy with cheap stuff. If they can't do this then the whole thing is going to fall apart because there isn't much else in it for your average worker. I would expect this to become the focus of the next ten years. Let's hope that China plays along.
Subsidies incentivize production, i.e. "more cheap stuff." Price controls do not.
Subsidies don't necessarily incentivize production. We've been subsidizing house prices for many years and we don't seem to see any more houses being built. We've been subsidizing petrol prices for many more years and we don't see oil refiners necessarily producing more refined petroleum.
Subsidies just create economic incentives to produce at a different point on the supply and demand curve anticipating a lower input cost but at the same time also not factoring in the many factors which make the efficient market theory wrong (inelastic demand, inelastic supply, etc).
Price controls artificially suppress prices (thus increasing demand) without increasing supply. However you then have to take actions to increase supply such as subsidies and government policy. It's a two pronged argument which Adam doesn't really get into in this post, which is a disappointment.
I'm assuming you are talking about the U.S. if you are talking about subsidized home building, and we absolutely have seen massive amounts of home construction in this country, particularly compared to other rich countries - the only places this isn't true are areas where the local economy/government makes it especially difficult/unprofitable to build.
I don't really know what you mean by the point about oil, since that is also increasing over time - how much of that is due to subsidies is debatable.
No I don't really think the United States is a representative example of the rest of the world. It's big, resource rich, mainly empty and holds the keys to the worlds dominant currency, which limits the applicability of the lessons learned within it outside of it's own borders. I can't comment on US zoning laws or the specificities of how the US permits or doesn't home building and it's endless suburbs.
I was talking about the UK specifically but you could draw a parallel with most other developed countries which don't have the unique mix of factors the US has.
Of course no subsidy is enough to incentivize the production of more units if all the unbuilt land is protected and redevelopment of existing communities to a higher density is opposed by entrenched interests. Obviously, building a house on a densely populated island will always be harder than in Texas, but your governments have made homebuilding on a large scale practically illegal, so of course the subsidy has no effect.
That's based on the assumption that you have to incentivize private companies to do everything, which is a very US-based thought process and which becomes less and less plausible as time passes and as your population density increases.
Home building requires a democratic and thoughtful process of planning and financing in order to achieve housing which meets the needs of all the people who need it. I don't think it is a market concept at all, the market is simply a function of society and it's the obligation of a society to ensure that the people within it have places to live.
Or you can just build endless urban sprawl financed through a state backed mortgage system which bails out mortgage lenders and which incentivizes consumers to take on ever increasing debt through tax breaks and false price appreciation.
Funny how ideas that have systematically failed over time (and price controls have failed since the Roman Emperor Diocletian tried it) always find a "reason" to come back! The "inflation" being experienced at present is not that general as true inflations are supposed to be. This piece tries to put it in perspective: https://marcusnunes.substack.com/p/money-demand-the-oft-forgotten-link
Does anyone know of more geographically granular inflation data? A crude argument, perhaps, but I would imagine certain states/regions/countries with less reliance on fossil fuels would be experiencing proportionally lower levels of inflation, which Biden could then use as further justification for green-energy investment.
If there is a region of the US that doesn't heavily rely on fossil fuels, I haven't heard of it. Anyway, would this data work? https://www.bls.gov/regions/subjects/consumer-price-indexes.htm
I wasn't saying no reliance on fossil fuels, but less reliance on fossil fuels such that it would potentially show lower inflation. Also, the data you provided is great (or at least from what I can tell from first glance). Thanks!