Diagramming the Effects of Price Controls on
Supply and Demand
I was interviewed today by one of Kurdistan’s leading papers. The topic was economic policy for prosperity. I presented to the reporters the Fraser Institute’s excellent new study on Economic Freedom of the Arab World and outlined three important ingredients of economic success: well defined and legally secure property rights; freedom to trade; and elimination of bureaucratic obstacles to entpreneurship and new business formation. The most extensive discussion concerned price controls, which some politicians have proposed as a solution to economic problems. (I explained and diagrammed for the reporters the effects of price controls; they don’t in fact lower the price paid, as they generally raise the full price, if you count the money handed over, the time spent waiting in line, black market premiums, and bribes. All are quite readily understood by Iraqis, who have experienced all of those additions to the controlled price.) To explain the role of prices I used the expression that was made popular, I believe, by Henry Hazlitt: prices must be free to tell the truth. A clear example is the long lines one sees at gasoline stations, which sell 20 liters at the state-mandated price of 1,000 dinars. At many street corners, however, you can find people selling jerry cans of gasoline at the rate of 11,000 dinars. A major problem with such free-lancers, of course, is that you cannot be sure that the gas won’t be adulterated with water or dirt. The reporters immediately then pointed out to me that prices from the free-lancers jumped after privately owned filling stations were forbidden to sell at above the controlled price and they were closed. Price controls didn’t in fact lower prices, they just shifted the way that they’re paid.
I was also on Kurdish television discussing the political economy of constitutionally limited representative government.
I should mention that the security situation in Kurdistan is so much better than in central Iraq, which dominates the news, that it is hard to describe the feeling of freedom one has on the streets. True, occasionally car bombers get through the very efficient security up here, but only rarely and with nothing like the carnage seen in Baghdad and central Iraq. There are checkpoints on all the major roads (and all cars coming on the road from Baghdad are searched) and everyone has a cell phone with which to call the special emergency police number. As a result, life is far more normal and much safer. Restaurants and cafes are open, shops welcome you, and there is an enormous amount of construction activity, as new buildings are popping up all over. As a foreigner, I have to be especially careful, but nowhere near as careful as one has to be in Baghdad. I hope that more American entrepreneurs invest here. They should not be frightened by the horrors created by the jihadis and Ba’athists in central Baghdad or by the fear being created by Iranian-backed militias in the south.
Go Tom! The freedom fighting man! We are all rooting for you back here in the war room!
Building are popping up all over the place: “settlements” on private land, pushing out Arabs and “inviting” Kurds in. Tom Palmer, I thought you were an advodate of private property.
From your Boston Globe newspaper:
http://www.boston.com/news/world/middleeast/articles/2005/10/30/iraq_us_officials_are_wary_as_kurds_move_back_to_kirkuk/
“Providing money, building materials, and even schematic drawings, Kurdish political parties have repatriated tens of thousands of Kurds into this tense northern oil city and its surrounding villages, operating outside the framework of Iraq’s newly ratified constitution and sparking sporadic violence between Kurdish settlers and the Arabs who are a minority here, according to US military officials and Iraqi political leaders.
“The rapidly expanding settlements, composed of two-bedroom cinderblock houses whose dimensions are prescribed by the Kurdish parties, are effectively reengineering the demography of northern Iraq, enabling the Kurds to add what ultimately may be hundreds of thousands of voters ahead of a planned 2007 referendum on the status of Kirkuk. The Kurds hope to make the city and its vast oil reserves part of an autonomous Kurdistan.”
Robin! You can’t fight in here! This is the war room!
…sorry folks, couldn’t resist.
Tom…are you aware of what you write?!
Of Kurdistan:
“very efficient security…
occasionally car bombers get through…
There are checkpoints on all the major roads…
all cars coming on the road … are searched…
it is hard to describe the feeling of freedom”
That sounds kinda 1984ish, Tom
Well, an interesting set of comments.
First, the anti-Kurdish racist who signs his or her comments “kurdiya” is not referring to Kurdistan proper, but to disputed regions such as Kirkuk, where Kurds were displaced by Arabs (they were murdered or driven from their land, which was then given to Arab settlers to ethnically cleanse and “Arabize” the territory under Saddam’s rule). There is now a fierce struggle over just those areas and those plots of land. That is not true of Erbil, Suleimani, and other areas. As to who should have this or that plot of land, that cannot be determined in a sweeping manner or a priori (Arabs good, Kurds bad, or vice versa). It’s called the application of justice and it’s complex, as most cases of the rectification of past injustices are. There are few uniqely victimized or victimizing groups (Arabs are also being victimized in individual cases, which is as unjust as victimizing Kurds). In fact, however, Arabs are voluntarily moving to the secure regions of Kurdistan (Erbil and Suleimani, for example) because they find more freedom, more security, and more opportunity. So, “kurdiya,” you should really get your stories straight before peddling racist lies. (And by the way, nice touch — “from your Boston Globe newspaper.” But really, posing as a middle easterner just doesn’t suit you. And to have precisely the same views as Justin Raimondo on Russia is, well, remarkable: http://www.tomgpalmer.com/archives/027195.php )
Ross, I’m well aware of what I’m writing. The reason that people have more freedom to walk down the streets or sit on park benches here is because of the security checkpoints, which keep out car bombers. The comparison is with Baghdad, where most people are afraid most of the time, not with Tucson. The Kurds are under constant attack from the Ba’athists and the jihadis, who have made quite clear their desire to exterminate them. (No, that is not an exaggeration. Read their attacks and the letters from Zarkawi.) I don’t consider it an example of freedom to be rent into pieces by car bombs that kill dozens or hundreds of people. If the police at the check points were checking to keep out people of one race or religion, or for literature that the government doesn’t like, or for some other reason, then that would indeed by 1984ish. But what they’re checking for and what they have been pretty good at keeping out is pretty simple: terrorists who are not a phantom or a fantasy, but a very frightening reality. And because of that efficient security, there are offices of opposition political parties, freely operating churches and mosques, liquor stores and bars, independent newspapers, university clubs, and other elements of a free society that are lacking in other parts of Iraq, either because the terrorists shut them down or because people are just too afraid of being caught in random bombings to go out and take part in them. If Sacramento were to become like Suleimani, I would not describe any feeling of freedom from walking down the street, but compared to Baghdad, the people who live in Suleimani exercise an enormous degree of freedom. And that’s worth noting.
Tom, with respect, there is a large difference, well known to you, between safety and freedom. The people of Baghdad, as well as the Kurds, have the freedom to walk the streets. But it is less safe to do so in Baghdad. (Will you next be telling us the libertarian concept of “freedom” is deficit, because those in Baghdad are not “free” to walk the streets, much as the socialists condemn the libertarian concept of freedom when they say the rich and poor alike have the freedom to sleep under a bridge?) Although I expect neither of us believe the TSA actually makes flying safer, if it DID make air travel safer it would still not be true that we now have more freedom when we fly. We can all be thankful Kurds are not being blown up while bemoaning the constant requirements for checkpoints and car searches. That’s not freedom, Tom, and you know that. Confusing safety and freedom is a mistake all to common among Americans, but not typically among libertarians deeply versed in philosophy.
I disagree with your formulation, Ross. The state is usually the major violator of rights, but it is not the only violator of rights. If a mugger beats me, he has violated my liberty. It makes no sense to say that I am just as free when he is beating me as I am when he is not. To be free is to be secure in the enjoyment of one’s rights. The terrorists kill people through coercion; they are not mere elements of nature. I think that you have neglected the difference between human acts and facts of nature or disabilities. Storms and earthquakes are dangerous, but they don’t violate rights. Terrorists are dangerous and they do violate rights.
The difference is the human agency that is a necessary condition of coercion. If you can’t go out (or choose not to go out) because you are afraid of storms, you have not suffered a loss of rights, but if you can’t go out (or choose not to go out) because you are afraid of being blown up by terrorists, you have suffered a loss of rights. And that means precisely a loss of your liberty, no differently than if you couldn’t go out (or chose not to go out) because you feared the agents of the state arresting you, beating you, or shooting you.
The increase in security that the Suleimanians enjoy relative to the Baghdadis is precisely an increase in their liberty, because their rights are less likely to be violated by the intentional acts of other humans. How much better it would be if the police didn’t have to search cars to keep out mass murderers, but a comparison is not always with perfection, but with degrees of imperfection. And the people of Kurdistan, in this respect, at least, are both more secure and freer than the people of Baghdad.
Ross, please drop me a note. I seem to have misplaced your email address!
One more thing: under your (Ross’s) formulation, you probably would choose to trade your freedom for your security (if it were a choice between letting a policeman look under your car or being blown to bits), meaning that freedom becomes another good to be traded off against others. It also seems to presuppose a generally Hobbesian view of freedom, whereas mine is Lockean, in which rights and freedom are intimately related.
It sounds like a good trip, Tom. Best of luck on your travels, and pressing the ideas in libertarian thought.
Always glad to see your posts.
Cheers!
Just Ken
kgregglv@cox.net
Great work on the presentation to the Kurdish press! Iv’e trying to drive the same points home today in the econ classes I’m teaching.
I can barely imagine an American reporter sitting still for the drawing of a demand-supply diagram; there may be hope yet for Iraq!
But when you return, **please** quickly get down to Louisiana, where New Orleans officials are proposing, and the state legislature considering, “temporary” rent controls as the solution to too little housing?
http://www.npr.org/templates/story/story.php?storyId=5030544
I’m killing a few minutes in the lounge at the Amman airport (at the lovely time of 2:25 am), waiting for my flight to Vienna and on to Moscow. Thanks for the nice comments (and the critical ones, too — and thanks to Ross for making me squint a bit and think through how to articlulate how I see the relationship between rights and freedom). I had met this reporter earlier on another trip to Iraq when she attended some workshops on economics I held; I gave her the diagram (showing how price controls set below the market price increase the real expenditure of resources to obtain the good, as the amount supplied at the lower price will be a quantity for which the demanders would pay a higher price) and she said she would try to have it put into a form that could be printed. Also, she and her colleague quite clearly understood how the price controls work, given their experience under Saddam and with the continuing price controls on gasoline. I don’t know and can’t predict how Iraq (or Kurdistan) will turn out, but there is some reason for hope.
I’d love to know if the diagram appeared in the newspaper. Imagine a press that actually prints real economic arguments!
If they make a habit of this I’ll start considering moving to Kurdistan.
Tom,
First, I congradulate you on your efforts to spread the message of liberty.
I have read an article by Amir Taheri, of Benador Associates, where he critizes the members of the Arab League for their lack of support to the Iraqi’s efforts to democratize. In fact, he claims that US arab allies, as well as the foes, are pretty much allowing sanctuary and support for the insurgents.
1. Do you have any knowledge if the claims are true?
2. It is my opinion that the Iraqis will have a difficult time in establishing a stable governmment if their neighbors are sabotaging the process. What can the US do to get cooperation from Iraq’s neighbors and Arab allies?
Keep up the good work.
Thanks
How is the morale among the people in Kurdish areas and in Baghdad? Do people look serious about taking a major step towards liberty or are they biding time until their tribal group gets it share of governmental power & favors?
Your comments on the difference between Kurdish areas and Baghdad are interesting. And I’ve heard some good reports on the Kurdish region. Aside from a few exceptions, however, I can’t get a clear picture from the usual media sources about the hopes, aspirations, and determination of the people. Shed anymore light? … Regards, and stay safe!
I’m sorry it’s taken a while to answer these queries.
I can’t say I can really answer the first question. There are public opinion polls available and they do show some marked differences among regions and ethnic groups. The Kurds tend to be much more strongly in favor of continued U.S. military presence than are other groups (not a big surprise). They also enjoy much more security from car bombers and the like than do the people in Baghdad or the areas surrounding it. But my experience of talking to people is too limited to say much more than that. I did find, however, among the students, faculty, journalists, and politicians I met that there is a strong commitment to trying to achieve liberal democracy. And there is also a very strong commitment to federalism alongside that, if for no other reason than that most Kurds are smart enough to know that they’re a minority of the country as a whole. (And that’s hardly a bad reason to be for federalism, after all.) Finally, there is a lot of new construction throughout Kurdistan and there seems to be a fairly high number of Kurds there who have returned from north America or Europe, so they seem to be optimistic about the future of their part of Iraq, at least.
Thanks, Tom, I’m glad to hear of the “strong commitment” to move towards a liberal order. I hope they can maintain that spirit.
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