Joys of the Communist Economic Model

I get some of my heartiest laughs watching Communists trying to manage economies. It now looks like China is going the wishful thinking route on dealing with their inflation problem.

China steps in to curb inflation

China's cabinet says it will temporarily intervene in the market to curb rampant food and fuel price rises.

Retailers and producers will face heavy fines if they increase the price of basic necessities, the government says.

Food prices climbed more than 18% in November, while the price of pork jumped by more than 50%.

*Sigh*

Okay, here's the drill:

Inflation is too many units of currency chasing too few goods; in other words, not enough supply for the demand. So price then escalates to push some demand out of the market and bring things back into equilibrium.

So what you have here is a demand/supply problem, not a "price" problem.

Thinking you can fix this problem by making price increases illegal is just as silly as thinking you can get rid of a fever by making thermometer readings of higher than 98.6 illegal.

What will happen here is supply will drop to near nothing as nobody will want to get fined, and a black market will flourish out the back door.

Go look at Zimbabwe if you don't believe me. Unfortunately, all that will happen here is the Chinese grocery store shelves will soon be barren and prices will skyrocket.

The way to fix this problem is allow price to drive the market, the higher prices will encourage more production, so supply will expand and price will then moderate.

We need to send a copy of Adam Smith's Wealth of Nations to China.