We'll See About That
Venezuela's government led by Marxist nutcase Hugo Chavez has implemented massive increases in government spending and money supply, and quite predictably this has caused price inflation to increase.
The government's respone to this has been to implement price controls and threaten companies that don't do as they're told with nationalization. When responding to the people that points out that this will lead to shortages, Karlin Granadillo, who leads the agency that are going to enforce the price controls, said that "the law of supply and demand is a lie".
Well, we'll see about that. I have a feeling that she will be disappointed.
The government's respone to this has been to implement price controls and threaten companies that don't do as they're told with nationalization. When responding to the people that points out that this will lead to shortages, Karlin Granadillo, who leads the agency that are going to enforce the price controls, said that "the law of supply and demand is a lie".
Well, we'll see about that. I have a feeling that she will be disappointed.
posted by stefankarlsson at 3:05 PM
4 Comments:
Stefan,
I just read one of your posts back in 2008 regarding Mike Shedlock and gold price in deflation and understand and agree with your point. I also tend to agree with Austrian economists as I gather you do as well, and am a big fan of Peter Schiff. However, Schiff was wrong about the dollar index continuing to fall (it has risen lately) and Peter Schiff thought interest rates (US treasuries) would be yielding much more now. He had a head to head last December with Gary Shilling where Shilling said rates would be below 2% and Schiff said above 5% right now, with Shilling proving victorious. Do these incorrect predictions of Schiff/Austrians undermine the credibility of their perspective, and if not, has that perspective been altered to accomodate the realities of lower interest rates and recent increasing dollar (i.e. it is the relative condition of the US that matters as much or more than the absolute condition at any one point in time)?
Thanks
Doug, if you (and others reading this) have general questions to me do e-mail me them, I prefer if you don't post them as off-topic comments. But I'll let it pass this time.
No, Schiff's prediction error does not refute the Austrian position. It only showed that he was over-confident about the rationality of bond investors and overlooked the extent to which the existence of a central bank willing to buy your debt enables deficit spending. Objectively, U.S Treasury securities are junk and shouldn't be bought by any rational person.
But for reasons that I explained in another recent post , the U.S. governments access to central bank financing combined with the self-fulfilling prophecy mechanism enables it to get away with unjustly low borrowing costs.
Stefan,
Would this sort of irrationality qualify for a "market failure" then?
Bardhyl, I can't see how this would qualify as a "market failure" since it was caused by government intervention.
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