Cartoonish Putinist Economics
A streetwise analyst does not expect the typical politician to profess a coherent economic theory. The summits reached by Vladimir Putin in this area would be a matter of analytical wonder if they did not also remind us of the lower peaks where our own political rulers stand–as well as of the poor level of general economic literacy. The readers of yesterday’s Financial Times got two good examples in a single story (“Vladimir Putin Threatens to Cut Oil Output After G7 Price Cap,” December 9, 2022).
Putin is quoted as saying:
If someone agrees at some point that the consumer determines the price, then the whole industry will collapse, because the consumer will always insist on a lower price.
Since the consumer always wants to pay the lowest possible price (“insists on a lower price”), one wonders why all industries don’t collapse.
Another pearl reported in the Financial Times story (paraphrasing and then quoting Putin):
If buyers do manage to get lower prices for oil, “prices will go down, investment will be reduced to zero, and in the end prices will go through the roof.”
This is what, in a previous EconLog post, I called the yo-yo economic model. A simple confusion between supply and quantity supplied, and between demand and quantity demanded, leads to this sort of reasoning: if demand decreases, prices will go down; if prices go down, demand will increase; if demand increases, prices with go up (“go through the roof”); and the cycle will repeat. “What goes up must go down.” The confusion is between a move along the demand or supply curve and a shift in the whole curve. (Incidentally, one advantage of a mathematical representation of supply and demand is that one sees that immediately.)
In defense of Mr. Putin in both cases, if we can call this a defense, he may have been speaking of the consumer or producer as a nation or country, for he cannot imagine anything else, even as an ideal, than a collective consumer and a collective producer. Run-of-the-mill protectionists fall in the same collectivist trap.