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Politics : View from the Center and Left -- Ignore unavailable to you. Want to Upgrade?

To: Katelew who wrote (64478)	5/8/2008 2:44:30 PM
From: TimF	Read Replies (1) \| Respond to of 541824

Evidence??? Rice prices doubled since August and wheat prices went up 87% in two month. That isn't evidence. Rising prices, even rapidly rising prices, doesn't equate with "prices that are divorced from supply and demand" Although to be fair to you I would find it hard to think of something that could be evidence. Actually there's no shortage of oil or gasoline. Do you see gas lines? There is no shortage because the price has increased, putting downward pressure on demand, and upward pressure on price. Demand has grown for oil but not at the rate prices have risen. Since both the supply and demand for oil are relatively inelastic in the short run, large price changes can easily be needed (and have happened) to cope with changes in the supply and demand picture. Its not just something special about oil. For many goods or commodities cutting the supply in half (or doubling the demand without doubling the supply, will result in price increases that are not just beyond a doubling of the price but a massive doubling. In some case a few percentage points shift in supply or demand can double the price or half it. The demand feedback mechanism is broken because the world market is bifurcated. In many countries....Russia, China, Brazil, and throughout the ME, for ex., state-owned oil companies sell more cheaply to their own citizen consumers. Yes subsidies, and price ceilings are generally a bad thing, and they are bad in this specific case. They distort price signals, and encourage extra demand. These governments aren't losing money with this practice Yes they are. They could have sold the oil used to produce that subsidized gasoline, and made a lot of money doing so. they are just pricing their product closer to the real costs of production There is no reason why a good or service should be priced close to the cost of production when it is in high demand and there isn't a lot of available extra supply. A good or service isn't worth what it costs to produce it. Its worth what someone will pay for it. and are doing this for their own people. They aren't helping their own people by doing this. There is a cost to subsidies, and that cost has to be taken out of the economy in some way. while our businesses and consumers alone bear the brunt. A price signals the balance of supply and demand. Either you can let the price be set by the market, and get more expensive but available product, or you can force it down, encourage extra demand when we don't want more demand, and if your setting a price ceiling on supplies discourage supply, or if you providing subsidies impose the cost of that subsidy on someone other than the consumer. Even the EU, which in the same position, is spared some of the pain by virtue of having a stronger currency. There prices may not have increased as much in local currency terms, but they are much higher. So we are inflicting major pain primarily to ourselves only. We are not inflicting pain. The situation of the relative supply and demand for the product inflicts some pain. The most efficient way to deal with that situation is with market prices, trying to hide it through subsidies or price controls may shift the pain, or change the nature of the pain, but it doesn't make it less severe, and is likely to increase the total pain.

To: Katelew who wrote (64478)	5/8/2008 2:45:56 PM
From: Lane3	Read Replies (1) \| Respond to of 541824

No shortages of rice are being reported, so supply is OK. As for demand, it hasn't doubled, etc. in that short period. For one thing, the element being subject to supply and demand is not rice but contracts for rice delivery.