Don’t Fight the Market: A Price Mechanism Masterclass - ep296

Show host Gene Tunny breaks down why price controls are one of the most consistently failed economic policies. Using vivid historical examples from the 1970s US, the Soviet Union’s command economy, and Venezuela’s toilet paper crisis, he illustrates how interfering with the price mechanism leads to shortages, inefficiency, and unintended consequences. 

Gene would love to hear your thoughts on this episode. You can email him via contact@economicsexplored.com.

Timestamps

• Introduction to the Podcast and Episode Theme (0:00)
• Price Controls and Their Economic Implications (2:47)
• President Nixon's Wage and Price Controls (8:53)
• The Soviet Union's Central Planning System (18:20)
• Economic Inefficiency in the Soviet Steel Industry (29:24)
• Venezuela's Toilet Paper Crisis (31:57)

Takeaways

1. Price controls disrupt vital economic signals, leading to misallocation of resources and market inefficiency.
2. Nixon’s wage and price freeze in the 1970s led to empty supermarket shelves, black markets, and farmers slaughtering livestock to cut their losses.
3. Soviet central planning failed due to the absence of price signals, leading to constant shortages—even of basic goods like meat and bread.
4. Venezuela’s price caps on essentials like toilet paper created massive shortages and forced the government to import millions of rolls.
5. The price mechanism acts as a societal dashboard, helping balance supply and demand more efficiently than central planning or rationing.

Links relevant to the conversation

Ben Bernanke’s book – 21st Century Monetary Policy

https://www.amazon.com.au/21st-Century-Monetary-Policy-Inflation/dp/1324020466

BBC News Article on Venezuela's Toilet Paper Crisis: "Venezuela aims to end toilet paper shortage"

https://www.bbc.com/news/business-22621833

Bread and Autocracy: Food, Politics, and Security in Putin’s Russia

https://www.amazon.com.au/Bread-Autocracy-Politics-Security-Putins/dp/019768436X

Stephen Kotkin – Armageddon Averted: The Soviet Collapse 1970–2000

https://www.amazon.com.au/Armageddon-Averted-Soviet-Collapse-1970-2000/dp/0195368630

Friedrich Hayek – “The Use of Knowledge in Society”

https://www.econlib.org/library/Essays/hykKnw.html

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