Economy Of Shortages

Today's America: An Economy Of Shortages

Robert Genetski 

For the first time in over 40 years, the U.S. economy is dealing with widespread shortages.  Parts are unavailable for manufacturers when they need them.  Airlines abruptly cancel flights.  Railroads and trucks are cutting shipments.  Food shelves in some areas are depleted with some areas reporting a lack of meat supplies, milk, or other essential food items.

Shortages and empty shelves are characteristic of economies where governments control and allocate resources.  They are not characteristic of America’s free-market economy.  The only other times America has faced shortages were during World Wars or during the 1970s.

Government-imposed price controls were directly responsible for shortages in the early 1970s.  When businesses were unable to raise prices to sell their goods at a profit, they stopped producing, which created the shortages.  Once the price controls were removed, the shortages ended.

Also in the 1970s, government price controls on oil and gas led to severe shortages on both. By the end of the decade, there were long lines of cars waiting at gas stations and purchases were rationed to ten gallons of gas.  As soon as President Reagan removed price controls, the shortages of oil and gasoline ended and prices declined.

In free-market economies, shortages are rare because the market is remarkably efficient at raising prices of items that are in short supply.  Sharply higher prices for scarce items, limit their use to the most efficient uses of the items and encourages the use of substitute items.  Doing so enables the economy to adjust to potential shortages and shocks in the most efficient way possible.

In the current situation, the wide range of shortages highlights a serious problem.  As with prior shortages, this one is due to government policies.  While the federal government has not placed direct price controls on the economy, it has distorted markets in a number of indirect ways.

Despite a surge in employment in recent months, May employment data show the economy has fewer workers today than before the lockdown.

Some claim generous government benefits associated with the lockdown created the problem.  Enjoying what amounted to an extended vacation, many workers became used to not working.  Returning to work can be difficult after months of leisure.  It is even more difficult when the government offers incentives for not working.

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