Price fixing doesn't work Part XVII

Thailand is finding out, in a most painful manner, what happens to those who try to fix prices:

Thailand, once the world’s biggest exporter, is short of funds to help growers under Prime Minister Yingluck Shinawatra’s 2011 program to buy the crop at above-market rates. After the government built record stockpiles big enough to meet about a third of global import demand, exports and prices have dropped, farmers aren’t being paid, and the program is the target of anti-corruption probes. Political unrest may contribute to slower growth in Southeast Asia’s second-largest economy.

In order to curry favour with the rice farmers who compose a substantial part of the electorate prices were fixed and fixed high. The inevitable thus happens, magically more is produced than anyone wants to consume and here at least it is looking like the government will go bust over it. "Produced" is of course a flexible word: there are long running reports of rice being smuggled over the Burmese border to take advantage of those high Thai prices.

This really should not be a surprise to anyone. For prices are information, they're information about how many people want to consume how much of what and similarly about who is willing to produce. Changing the prices will change those desires and thus kick the system out of sync.

And it really is always the same: Thai rice, the world's supply of tin back in the 70s, the EU food mountains and wine lakes, Red Ed's idea to subsidise wind and solar power prices. If you set the price high then there will be a glut on the market that someone, somewhere, is going to have to buy at those high prices in order to maintain those high prices. That is, as we all know, the poor bloody taxpayer. If you set the price too low as with Venezuelan toilet paper or Red Ed's idea to freeze power prices then the good in question becomes in dearth. More people want to consume it than there is supply for them to consume.

And if, of course, you manage to set prices where supply does indeed meet demand then why the heck are you wasting your time setting prices? The market will achieve that for you without your lifting a finger.

The error really does come from failing to realise that prices are not something for us to manipulate, they're information that we need to process.