Saturday, December 19, 2015

Russia Mismanaging Embargo

In a free market, during a disaster, say a flood which makes all municipal water unpotable, the price of bottled water will rise to say $100 a gallon.

This is good.

First, that price lasts about 15 minutes.  Second, every truck driver with a load of bottled water, will either turn his truck toward the disaster area or be ordered to do so by the owner of the water.  Within a day or two there will be so much water available the price will drop below the going rate before the disaster. Some truchers cleaned up, most lost money.  No one went thirsty.

This excellent result in a free market is deemed criminal in capitalism and socialism.

Russia did the right thing for the wrong reason.  It began embargoes on all sorts of highly subsidized food items in response to the embargoes placed on Russian goods for silly reasons cooked up in the West.  Of course prices would rise for a while, but those high prices would spur domestic production in Russia.  So what does Russian do?
As a result of the ban on food imports, agricultural production grew, but so did food prices (which the devalued ruble also affected). According to the Federal Customs Service, in 2014 the import of animal products in Russia decreased by 42 percent, milk products by 33 percent, and meat and its byproducts by 32 percent.
At the end of 2014, according to the Rosstat Federal Statistics Service, prices on food products in Russia increased by 16.7 percent. The general prosecutor’s office studied the reasons for the growth of food prices in the largest retail networks and accused several of them of manipulating the market. In Moscow alone, 418 administrative proceedings were launched.
As a result, the networks introduced a temporary 20 percent price freeze 
Arrgggghhh!  Prosecute those who are making change happen, and then destroy the incentive present on the form of very short term price rises.  Lock in a 20% rise, which will make sure there is no domestic production to replace the embargoed goods.  Next, smugglers will get busy.

Ungh....  just as we need in the USA, Russia should have strict separation of state and commerce.

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