When one studies a reported “shortage,” one usually discovers that there is no shortage at all. This is to be expected in a free economy with no price controls and no widespread misguided altruism. Take the case of Dijon mustard (“real mustard,” as I tell my wife), which requires a special kind of brown mustard seeds. A French producer of the mustard, Luc Vandermaesen, is quoted in the Financial Times (“France’s Great Dijon Mustard Crisis,” July 12, 2022):
We didn’t think we would have such a shortage.
Except in this quote, the Financial Times does not use the word “shortage.” There is indeed no shortage. The price of the special seeds have doubled and the price of the mustard has increased by 10% or more but, at these prices, a buyer can find as much as he is willing to pay. Many other newspapers, less economically literate, fell (again!) in the trap of confusing shortage and high prices, including the New York Times, USA Today, et cetera. It’s like if they said “plethora” to describe a price decrease!
Reminder: a shortage in the economic sense is a situation where something is unavailable at any price on the (legal) market.
Temporary local shortages (if we want to call them “shortages”) can happen, usually signaled by longer delivery delays, but freedom to trade should rapidly arbitrage the disequilibrium. Looking at Amazon.fr (the French Amazon) yesterday, I found that many brands are indeed out of stock, but some are available for delivery in about two weeks. On Amazon.com, from which anybody in the world can order if one pays transportation and possibly local customs tariff, many brands of Dijon mustard are available now, but the price of well-known French brand Maille is more than 25% higher than two and a half months ago. (Note that “antitrust” threats and government bullying are often more intense in Europe, as a Wall Street Journal article on Amazon suggests this morning.)
Price adjustments, when they are not forbidden by government (and perhaps sometimes by misplaced altruism or commercial virtue-signaling), is why shortages don’t happen. More generally, so-called problems of the “supply chain,” the current buzzword, cannot be seriously analyzed without factoring in prices.
In the Summer issue of Regulation, my article “Dispelling Supply Chaim Myths” reviews the issue with many current examples and a dip in basic microeconomic theory (complete with graphs).
The most famous (real) shortage in recent history is probably the one that affected cars for ordinary individuals in the Soviet Union (apparatchiks had privileges). A peek at my article:
An oft‐cited example concerns the former Soviet Union and its Eastern European satellites, where not enough cars were produced given demand at the state‐determined prices. Like for most goods, the car shortage was endemic: it took about 10 years for an ordinary citizen to get the car he ordered, with a deposit that could reach 50%.
I note that on free markets,
supply chain problems are solved if consumers are ready to pay for solving them. Otherwise, if consumers are unwilling, there is no supply chain problem.
READER COMMENTS
Craig
Jul 15 2022 at 10:10am
I suspect inflation is always one step ahead. Inflation creeps i. And arms consumers with dollars creating the excess demand. The suppliers adapt and adapt with higher pricing and inflation takes another step. From the consumer’s point of view, it looks like a shortage because he has trouble finding the product post-inflation at the pre-inflation price. Rinse and repeat.
Pierre Lemieux
Jul 15 2022 at 11:02am
Craig: It is not really a matter of inflation, but of the reduced supply of brown mustard seeds from Canada and Ukraine (Canada is where most of the brown mustard is produced). If inflation (a rise in the general price level) is 9% and a particular price has increased by 25% (like Dijon Mustard on Amazon, if you calculate since early June), and if the inflation estimate is correct, we can conclude is that 16% of this particular price increase is due to a change in relative prices, that is, mustard costing more relatively to other goods and services.
Thomas Lee Hutcheson
Jul 15 2022 at 11:32am
Is insisting on the correct definition of “shortage” worth it? It’s a least plausible that an unanticipated hiccough in the production or transport of a item coupled with non-instantaneous price adjustments lead to temporary “shortages” and when the sudden price adjustment does reach the consumer someone is likely to call it a “shortage?” Who cares?
Would it not be better to get straight to the point of how price adjustments make the best of a bad situation and how certain “responses” can make things worse?
Pierre Lemieux
Jul 15 2022 at 4:15pm
Thomas: A precise vocabulary is useful. If somebody told you that there was a plethora of domestic appliances between 2008 and 2018, wouldn’t you correct the poor soul by asking, “You mean a reduction in prices?”
Jon Murphy
Jul 15 2022 at 5:40pm
I’m not sure one can do that without understanding what a shortage is. I mean, the solution to a shortage is higher prices. Without understanding what a shortage is, this price adjustment makes no sense.
Tom West
Jul 16 2022 at 6:10pm
I’m not certain about the utility of an article like this. By giving a commonly used term in English such as “shortage” (where I’d hazard most people use the term to mean something along the lines of “a decline in the availability of a product that is generally making life worse”) a new definition under economics (“unavailable at any price”), I think there’s a serious chance as coming across as entirely detached from the needs and wants of the people.
The first thing that came to my mind was someone sarcastically claiming “Of course there was no food shortage during the Irish Potato famine – just silly Irish who starved to death because they were unwilling to pay the price demanded for food.”
More fairly, if something has been priced out of consumption, it’s quite rational on a personal level to be better off if no-one can have it. If you can’t afford to drive to work, it’s your problem. If no-one can, there’s immense pressure for government to invest in public transportation or your employer to accommodate their employees.
Or alternatively it might be rational (on an individual basis) to want access to a product or service be rationed by time (which you might have) rather than by ability to pay (which you might not have).
Anyway, while tone-deafness doesn’t matter for some fields, it matters a great deal for fields such as economics that would seek to provide actual policy advice to society. The public is already reluctant to take non-intuitive advice from economists. Articles that so clearly stray from the lived experience of those who experience the harm caused by shortages (in the English, not economic sense) only further increases the suspicion that economists don’t understand ‘reality’ enough to be trusted to provide relevant advice to the populace.
And yes, I understand the truth of the article – I’m only saying that where public policy is desirable, failure to to deliver that truth in a fashion that people can appreciate is just as much a failure as failing to deliver the truth at all.
Jon Murphy
Jul 17 2022 at 5:43am
I disagree that the definition of “shortage” in economics really is unique to economics or divorced from common use. People use “shortage” in general to mean goods are hard to find. For example, during 2020 when toilet paper was hard to find, it was properly called a shortage.
Of course, sometimes people do confuse technical terms and use two things interchangeably when they shouldn’t. A common example is “irony” and “coincidence”. But such confusion doesn’t imply the scientific field is out of touch or imposing a new definition by insisting on correct use in technical discussions.
Pierre Lemieux
Jul 17 2022 at 11:22am
Jon (and Tom): Three other examples of technical terms preventing confusion: inflation v. relative prices; cost in the sense of opportunity cost v. accounting cost; preferences and constraints. In fact, most terms non only in science but in any rational discipline (say, logic or philosophy) have a meaning different from the common meaning. In some ways, learning is is to learn precise and analytically useful labels.
Comments are closed.