Tag Archives: Prices

The Many Ways Governments Create Monopolies, by Mike Holly

Almost all effective monopolies are created, blessed, and sustained by governments. From Mike Holly at mises.org:

Politicians tend to favor authoritarianism over capitalism and monopoly over competition. They have directly created monopolies (and oligopolies) in all major industrial sectors by imposing policies favoring preferred corporations and preferred special interests.

In 2017, University economists Jan De Loecker and Jan Eeckhout found monopolies behind nearly every economic problem. They have slowed economic growth and caused recessions, financial crises and depressions. These monopolies restrict the supply of goods and services so they can inflate prices and profits while also reducing quality. In addition, monopolies have decreased wages for non-monopolists by decreasing the competition for workers. This has led to wealth disparity, underemployment, unemployment and poverty

Monopolies have also led to many societal problems. Unlike truly competitive firms, institutions that enjoy monopoly power have more freedom to discriminate against outsiders, especially women and minorities. They block innovation, the key to long-term prosperity. Monopolies have led to imperialism and wars .

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Central Planning Failed in the USSR, but Central Banks Have Revived It, by Vitaliy Katsenelson

The fallacy that economies can be efficiently planned and guided by bureaucrats from above just won’t let go, even after such planning and guidance have repeatedly failed. From Vitaly Katsenelson at mises.org:

The Federal Reserve’s changing of the guard — the end of Janet Yellen’s tenure and the beginning of the Jerome Powell era — has me remembering what it was like to grow up in the former Soviet Union.

Back then, our local grocery store had two types of sugar: The cheap one was priced at 96 kopecks (Russian cents) a kilo and the expensive one at 104 kopecks. I vividly remember these prices because they didn’t change for a decade. The prices were not set by sugar supply and demand but were determined by a well-meaning bureaucrat (who may even have been an economist) a thousand miles away.

If all Russian housewives (and house-husbands) had decided to go on an apple-pie diet and started baking pies for breakfast, lunch, and dinner, sugar demand would have increased but the prices still would have been 96 and 104 kopecks. As a result, we would have had a shortage of sugar — a common occurrence in the Soviet era.

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The Great Fall Of China Started At Least 4 Years Ago, by Raúl Ilargi Meijer

From Raúl Ilargi Meijer at theautomaticearth.com:

Looking through a bunch of numbers and graphs dealing with China recently, it occurred to us that perhaps we, and most others with us, may need to recalibrate our focus on what to emphasize amongst everything we read and hear, if we’re looking to interpret what’s happening in and with the country’s economy.

It was only fair -perhaps even inevitable- that oil would be the first major commodity to dive off a cliff, because oil drives the entire global economy, both as a source of fuel -energy- and as raw material. Oil makes the world go round.

But still, the price of oil was merely a lagging indicator of underlying trends and events. Oil prices didn‘t start their plunge until sometime in 2014. On June 19, 2014, Brent was $115. Less than seven months later, on January 9, it was $50.

Severe as that was, China’s troubles started much earlier. Which lends credence to the idea that it was those troubles that brought down the price of oil in the first place, and people were slow to catch up. And it’s only now other commodities are plummeting that they, albeit very reluctantly, start to see a shimmer of ‘the light.’

Here are Brent oil prices (WTI follows the trend closely):

They happen to coincide quite strongly with the fall in Chinese imports, which perhaps makes it tempting to correlate the two one-on-one:

But this correlation doesn’t hold up. And that we can see when we look at a number everyone seems to largely overlook, at their own peril, producer prices:

About which Bloomberg had this to say:

China Deflation Pressures Persist As Producer Prices Fall 44th Month

China’s consumer inflation waned in October while factory-gate deflation extended a record streak of negative readings [..] The producer-price index fell 5.9%, its 44th straight monthly decline. [..] Overseas shipments dropped 6.9% in October in dollar terms while weaker demand for coal, iron and other commodities from declining heavy industries helped push imports down 18.8%, leaving a record trade surplus of $61.6 billion.

44 months is a long time. And March 2012 is a long time ago. Oil was about at its highest since right before the 2008 crisis took the bottom out. And if you look closer, you can see that producer prices started ‘losing it’ even earlier, around July 2011.

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