Thursday, October 25, 2007

Putin: Free Markets Overrated Anyway

Russian President Vladimir Putin has "convinced" food producers and retailers to "voluntarily" fix prices of certain staple foods.

The Kremlin blames the rapid food price inflation on rising global costs (correct), higher wages (an incorrect but common mistake), and greed/speculation (asinine use of evil Kapitalist bogeyman).

Of course the Telegraph couldn't be bothered to find out the real reason for food price inflation and just settled for this:

It is energy that has driven the Russian economy, which continues to grow at rates far outstripping western rivals, and with oil prices just below record levels of $90 a barrel a slowdown is unlikely.

But the inflation crisis, economists argue, shows how one-dimensional and vulnerable the Russian economy really is.

"The fact that in this situation the government could come up with no measures except for administrative interference shows how weak the economy really is," said Pavel Trunin, an economist at the Gaidar Institute in Moscow. "It shows that the economy is dependent on oil prices."

What does the dependence on oil have to do with either food inflation or general inflation? If food prices are inflating faster than the rest of the economy that is due to good old supply and demand. If there is high overall inflation that is a monetary problem and has nothing to do with dependence on the oil industry. Either way price controls are not going to solve any problems.

No comments: