When Government Goes Wrong!
June 28th 2008 00:26
Why should we care if our politicians have passed Economics 101? Why should we care if governments meddle in the market place? In the first place they come up with idiotic rules and they cost us money.
The Merk Market Outlook gives us a textbook example of what happens when government gets involved in the market place. Mexico, out of love for its citizens or to pay off powerful interests, subsidizes gas for its citizens. They don't pay more than $2.50 per gallon. However, in California border towns, like San Diego, gasoline is close to $5.00 per gallon.
Merk describes how some in California are equipped with 100 gallon tanks, driving to Baja filling up for $250, driving back and selling the gas for $450. Thus, pocketing $200 for a few hours work.
Besides the utter irony of Americans crossing the border to Mexico to find economic opportunity, the real human behavior along the border is instructive regarding the basic economics of pricing. The behavior of US consumers and entrepreneurs is causing supply problems in Baja, California. Supplies of diesel are short and the lack of refinery capacity in Baja has, if you can believe this, Mexico importing refined gasoline from the US
[...]
Like many other emerging markets, Mexico will soon recognize the folly of its ways and understand that they are not only subsidizing the price of gasoline for their own citizens, but that of rich Americans. Moreover, the longer the price distortions continue to persist, the greater the cost for not only the government of Mexico, but for the citizens of the republic south of the border. In effect, the shortage of diesel and refined gasoline will continue to grow and the state will recognize that paying to import gasoline from the US and the subsidizing the consumption of it by US residents is a losing proposition.!
What's a government to do? Many in the situation would end the subsidy and the let the market work. Some will resort to force and pile on restrictions. Let's see what Mexico does. China tried this with steel and just raised prices almost 100%!
The Merk Market Outlook gives us a textbook example of what happens when government gets involved in the market place. Mexico, out of love for its citizens or to pay off powerful interests, subsidizes gas for its citizens. They don't pay more than $2.50 per gallon. However, in California border towns, like San Diego, gasoline is close to $5.00 per gallon.
Merk describes how some in California are equipped with 100 gallon tanks, driving to Baja filling up for $250, driving back and selling the gas for $450. Thus, pocketing $200 for a few hours work.
Besides the utter irony of Americans crossing the border to Mexico to find economic opportunity, the real human behavior along the border is instructive regarding the basic economics of pricing. The behavior of US consumers and entrepreneurs is causing supply problems in Baja, California. Supplies of diesel are short and the lack of refinery capacity in Baja has, if you can believe this, Mexico importing refined gasoline from the US
[...]
Like many other emerging markets, Mexico will soon recognize the folly of its ways and understand that they are not only subsidizing the price of gasoline for their own citizens, but that of rich Americans. Moreover, the longer the price distortions continue to persist, the greater the cost for not only the government of Mexico, but for the citizens of the republic south of the border. In effect, the shortage of diesel and refined gasoline will continue to grow and the state will recognize that paying to import gasoline from the US and the subsidizing the consumption of it by US residents is a losing proposition.!
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