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Argentina just set price controls on food Ė letís see what happens as a result

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Argentina just set price controls on food Ė letís see what happens as a result

Old 02-04-13, 04:02 PM
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Argentina just set price controls on food Ė letís see what happens as a result

Since I don't live in Argentina, the amateur economist in me is all giddy with delight because of this experiment - an experiment which goes completely contrary to everything that we know about economics.

Of course, if I actually lived in Argentina, I'd be pretty scared.

Anyway, prices are not just random numbers that get picked out of thin air. Instead, prices communicate information about supply and demand. So when the supply and/or demand situation changes, it makes perfect sense that the price would change accordingly.

Economic theory predicts that when the government sets the price of something lower than the supply/demand equilibrium, the demand will exceed the supply, which is the definition of a shortage.

The inflation thatís referred to in this article is caused by the government increasing the supply of money with nothing of real value to back it up. This makes the money worth less, and causes prices to rise. But thatís not a real price increase. So, as inflation devalues the currency, the governmentís price freeze will actually force food sellers to lower their (real) prices.

If it really is a ďtemporaryĒ measure for only two months, itís possible that inflation might not be severe enough for the price controls to result in a substantial drop in (real) food prices.

But I am skeptical about these price controls being ďtemporary.Ē My guess is that the price controls will last a lot longer than two months, and as time goes on, inflation will devalue the real value of the currency enough so that the (real) prices will fall significantly, which will cause shortages. And then the government will wrongly blame the shortages on the supermarkets and farmers, and instead of getting rid of the price controls, the government will take action against the supermarkets and farmers, which will cause the situation to get even worse.

Of course, I could be wrong about all of this.

Anyway, letís see what happens in Argentina as a result of these price controls.


http://www.bbc.co.uk/news/business-21331052

Argentina pegs supermarket price rises for two months

4 February 2013

The Argentine government has put a temporary price freeze on all products sold in the country's main supermarket chains to try to fight inflation.

A group representing two-thirds of Argentina's supermarkets agreed to keep prices steady until the first of April.

The move comes days after the International Monetary Fund (IMF) censured Argentina for issuing inaccurate economic data.

The government says inflation is below 11% but economists say it is double.

Analysts have accused Argentina specifically of understating the rate of inflation since 2007 in order to keep interest rate payments on its debt low, and to flatter the political regime.

Some economists think the annual inflation rate could rise as high as 30% this year.

The supermarket agreement covers every item in all of the nation's largest chains.

They include Walmart, Carrefour, Coto, Jumbo and Disco.

Argentina's commerce ministry has asked consumers to monitor prices in the chains.

It wants them to keep receipts and has set up a hotline for shoppers to call if they spot any price rises.


The IMF on Friday formally censured Argentina for putting out inaccurate data.

It says if Argentina does not improve the quality of the statistics before late September, it will be excluded from taking part in IMF decisions later this year.

Economy minister Hernan Lorenzino has moved to avert the IMF's actions by promising to bring in a new inflation measure starting in the last quarter of this year.
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Old 02-04-13, 05:01 PM
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Re: Argentina just set price controls on food Ė letís see what happens as a result

I know I give you a hard time and all, but this was a good read. I appreciate it and I liked your insight. This will be a good thing to track.
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Old 02-04-13, 05:58 PM
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Re: Argentina just set price controls on food Ė letís see what happens as a result

Originally Posted by Navinabob View Post
I know I give you a hard time and all, but this was a good read. I appreciate it and I liked your insight. This will be a good thing to track.
Thanks!
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Old 02-04-13, 08:19 PM
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Re: Argentina just set price controls on food Ė letís see what happens as a result

Originally Posted by grundle View Post
Of course, I could be wrong about all of this.
Good point.
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Old 02-04-13, 09:00 PM
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Re: Argentina just set price controls on food Ė letís see what happens as a result

I'd think a rather nasty black market would develop, increasing crime, funneling money to an even smaller amount of people, and even more Argentinians without necessities.

If anything, the government should have initiated a lottery of sorts, or subsidized key products which were out of control.
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Old 02-04-13, 09:42 PM
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Re: Argentina just set price controls on food Ė letís see what happens as a result

Is this anything like the wage/price freeze Nixon tried in '71?

(I knew it sounded so familiar that it had to have been done here in my lifetime. I'm only glad it was a republican. I'm too partisan to have posted if it was a democrat. )
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Old 02-04-13, 10:29 PM
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Re: Argentina just set price controls on food Ė letís see what happens as a result

Originally Posted by Navinabob View Post
I know I give you a hard time and all, but this was a good read. I appreciate it and I liked your insight. This will be a good thing to track.
He must have gotten tired of tracking Venezuela, because this thread is identical to another thread he started a while back.

Or maybe there's some grundle bot which recycles a specific list of topics and we're just back to this one.
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Old 02-04-13, 10:31 PM
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Re: Argentina just set price controls on food Ė letís see what happens as a result

As a good rule of thumb, if the IMF is against it, I'm usually for it.
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Old 02-04-13, 10:34 PM
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Re: Argentina just set price controls on food Ė letís see what happens as a result

Originally Posted by DVD Polizei View Post
I'd think a rather nasty black market would develop, increasing crime, funneling money to an even smaller amount of people, and even more Argentinians without necessities.

If anything, the government should have initiated a lottery of sorts, or subsidized key products which were out of control.
When you say "lottery," do you mean like in "The Hunger Games"?
That might just work.
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Old 02-05-13, 08:45 AM
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Re: Argentina just set price controls on food Ė letís see what happens as a result

The Argentine economy has always been a mess.
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Old 02-05-13, 12:11 PM
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Re: Argentina just set price controls on food Ė letís see what happens as a result

I remember a time in the mid-90's when it had the fastest growing emerging economy and was being heralded as the next big thing. Then they had a massive recession I think.
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Old 02-05-13, 01:29 PM
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Re: Argentina just set price controls on food Ė letís see what happens as a result

My sister lived there for 25 years and finally gave up and came back to America. It's a mess.
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Old 02-05-13, 03:32 PM
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Re: Argentina just set price controls on food Ė letís see what happens as a result

Originally Posted by Tracer Bullet View Post
Good point.
Thanks!

Originally Posted by adamblast View Post
Is this anything like the wage/price freeze Nixon tried in '71?

(I knew it sounded so familiar that it had to have been done here in my lifetime. I'm only glad it was a republican. I'm too partisan to have posted if it was a democrat. )
Yes.

Originally Posted by eXcentris View Post
He must have gotten tired of tracking Venezuela, because this thread is identical to another thread he started a while back.

Or maybe there's some grundle bot which recycles a specific list of topics and we're just back to this one.
No, I'm not tired of Venezuela.

This Argentina thing is brand new.
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