Cuba Is Trying Price Controls To Deal With Food Shortages

Cuba Is Trying Price Controls To Deal With Food Shortages
Tim Worstall , CONTRIBUTOR
I have opinions about economics, finance and public policy.
Opinions expressed by Forbes Contributors are their own.

So, it may be that Fidel Castro is now justly and righteously dead,
given the pain and grief he imposed upon Cubans, but it appears that
economic knowledge in the government is still just as sketchy as ever.
The influx of tourists into Cuba is putting yet more strain upon the
indigenous food supplies. And given that Cuba produces little that the
outside world wants to purchase, there's not much foreign currency to
then buy food from off the island.

There are a number of useful solutions to this problem. Using some of
the dollars the tourists are spending to buy food from off the island
being one of them. But what is not a sensible solution is to impose
price controls upon food. And it's not just that it's a not sensible
solution, it's not a sensible solution, actually and in fact precisely
the opposite of what is needed. This is not some great mystery here,
this is not some recondite corner of only the most advanced economic
textbooks. This is something that is there right on page 1 of all the
introductory courses, that famed diagram of the supply and demand curves.

But still that's what they're doing:

President Raúl Castro has acknowledged the surge in agricultural prices
and moved to cap them. In a speech in April, he said the government
would look into the causes of the soaring costs and crack down on
middlemen for price gouging, with limits on what people could charge for
certain fruits and vegetables.

"We cannot sit with our hands crossed before the unscrupulous manner of
middlemen who only think of earning more," he told party members,
according to local news reports.

But the government price ceilings seem to have done little to provide
good, affordable produce for Cubans.

Well of course price ceilings won't do any good. They're exactly the
wrong thing to be doing.

Think of our little chart, those supply and demand curves. The demand
curve slopes down and to the right. The supply curve up and to the
right. What does this tell us about what to do when there is a shortage?
Yup, if there is a shortage of something then we want the price to rise.
Because that stimulates more people into supplying that good that we've
a shortage of.

What do we want to happen then there's a food shortage? We want food
prices to rise. What is Cuba doing in the face of a food shortage?
Preventing prices from rising. That is, in the face of a food shortage
the Cuban government is banning the one single action which will solve
the food shortage.

Source: Cuba Is Trying Price Controls To Deal With Food Shortages -
http://www.forbes.com/sites/timworstall/2016/12/08/facepalm-cuba-is-trying-price-controls-to-deal-with-food-shortages/#32fe477535a9