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Message Subject Human survivability with supply chain disruptions and its effect on populations
Poster Handle Anonymous Coward
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Price controls in an economic crisis

If you read any history, you'll see that governments often enact price controls in an emergency. This method is used in weather related crises to prevent price-gouging, but usually hurts the locals. For example, during Hurricane Sandy, there was a lot of demand for supplies, but few trucks providing them. Why? The prices are artificially limited so merchants couldn't raise their prices in order to make more from the people who are suffering.

Now this has a positive side and a negative side. If a merchant can adjust prices even though the situation has changed, then sometimes if those changes exceed reasonable operating costs, then why bother to sell in a changed market? Let's say you have fuel at a gas station, but no way to operate the station with your available employees. There are some employes who will offer to come in, but since things are highly chaotic, they demand more hourly wages to compensate them. With limitations on price controls and a slim margin for profiting (gas sales have a very small profit, the profit is made by selling inflated goods in a convenience store, but no one is coming inside), the merchant realizes the risk outweighs the adjustment of wages versus how much volume can be sold.

Or there's not water, food, or generators, but in a nearby area, people could transport these goods to an affected region, but they require longer transportation chains than normal. In addition, the merchants coming in from outside incur lodging and food expenses as a result of coming to the area. They would raise their prices to compensate them, but the governor has imposed price-controls. See why supply chain disruptions lead to inflation or simply a lack of supplies?

Price-controls lead to a lack of supplies because at some point, the profit margin is artificially low versus much high risk. In a collapse or disaster, there's always a chance of being overrun and whatever goods or services you're offering might be stolen. In history, this means more security through weapons and beefy soldiers to guard the merchant. Since security is less of an issue during calm times, the new security requirements are an additional expense, or a vastly higher expense.

What do I mean by services? During wartime, it was not uncommon for doctors to be kidnapped to treat one side or the other's soldiers. In effect, the kidnappers imposed the ultimate price-control....slavery, albeit usually temporary. Far worse things could happen which I won't go into.

Governments in the USA have historically used price-controls to limit prices or even artificially raise prices during economic crises. During the Great Depression, there was plenty of food, but often it was at a fixed price that no one could afford, and hence some food actually was destroyed rather than be eaten while there was starvation going on. The thought was make the food be at a fixed price to protect the farmers, but then they couldn't sell their goods. Everyone suffered: supplier, wholesaler, retailer, and consumer.

Since merchants are limited on profit, then often what happens is black markets. Those products sell at very high prices because their operation has been declared criminal, and so they must have extraordinary security in undisclosed locations, or varying locations that shutdown quickly and restart up in a new location. This exaggerates operating costs and imposes high risk to sellers and buyers, and so prices are HIGH.

Because a government needs supplies as well as the People, and governments in times of crisis are crucially short of funds and not really generating taxes, then governments impose price-controls to reduce their operating costs.

Since governments have critical infrastructure (military, utilities, health, engineering, transportation, etc), then these workers must be paid, and the operations must flow. This uses up supplies (especially ones that are close and have lower transportation costs) and so they're diverted to those areas (at fixed prices) and uses up supplies and services too that other consumers would ordinarily use.

The goal of price-controls is to reduce inflation. In history, when a government went to war, they spent money they didn't have. The people knew that higher taxes had to be imposed to pay for it. While a lot of wealth might be seized through plunder and land transferred to the ruler, usually taxes were needed to offset the lost wealth in the short run. It was largely an excuse, but a war could also be lost and hence the wealth used for warfare would be unrecoverable. Or taxes would allow a double profit.

Merchants would realize that their currency would lose value and also the demand was very high, so they raised their prices to cope. This ends up with the government imposing price-controls. It's popular with the people, but terrible for the merchant, and so in the long-term it will stop the flow of supplies until such time that price-controls are banished.

In an economic collapse, the main issue is panic. There might indeed be reserve supplies, but since there's some chaos created by panic, then that restricts the flow of materials and people. For example, we have a strategic reserve of oil in the USA. It can be released based upon a decision from the commander in chief, but again because critical infrastructure support needs it, it probably will get diverted. Likewise we have food supplies in surplus, but they'll likely be used to feed these folks.

At some point in a crisis, a leader will have a televised message to the people and “urge calm”. There's been no change in the crisis, the leader is only using their charisma as a service to help restore trust. Think to FDR's message after the bank runs. He closed the banks and gave people time to think about withdrawing their funds. Expect something like that to happen again. Will the people listen in a dollar collapse? I doubt it.

Coming up: Bugging in during Winter, might be best done underground.
 
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