In a sense, there is a shortage of everything, for everything is more expensive than we would like. To consume anything, one must forego more of something else than he would prefer. The producer or the shopkeeper regrets that what he sells does not fetch higher profits but he could argue that this is because his inputs are also too expensive: there is a shortage of them too.
This concept of shortage, however, is very misleading because it confuses two things that are useful to distinguish: a high price on the one hand and, on the other hand, the impossibility of obtaining something at the market price—that is, at a mutually agreed price with a seller. If people insist on using “shortage” in the sense of “too expensive,” we would need another word to label the phenomenon whereby a good is difficult to obtain because a capped price does not incite producers (including middlemen) to supply as much as buyers want at that price. In other words, we would need a word to describe what economists call a shortage.
I’ll stick to the economic usage of the word “shortage.” I suggest that it’s the others who should find a new word for a situation where many people want more of something but are not willing, or perhaps able, to pay enough to get it. For the new word, I propose the neologism “smurfage.” I borrow the word-crafting technique from the Smurfs, who used their group-identity label to fuddle any or most words, following their French precursors, the Schtroumpfs.
I was reminded of the fuzzy notion of shortage—as a mix of shortage and smurfage—when I read an article of Canadian political columnist John Ivison (“Liberals About to Find Out Why Open-ended Deficit Spending Is So Dangerous,” National Post, March 4, 2020). Speaking about the covid-19 epidemic, Ivison writes:
Sharp declines in production in China and elsewhere, as workers stay home, are likely to result in supply bottlenecks and shortages.
A few lines before, he said:
The coming slowdown may look more like the oil supply slump of the 1970s, with its line-ups in stores and gas stations, than the demand side recessions of the more recent past.
The Canadian columnist may have watched too much American TV. After the oil shock of 1973, Canadians did not experience line-ups at gas stations for a simple reason: contrary to the US government, Canadian governments did not cap gasoline prices, which shot up according to (reduced) supply and (unchanged) demand, thereby avoiding a shortage. In Canada, the smurfage, inseparable from the human condition, simply became worse in the case of gasoline. What happened in the United States was a shortage, because prices were prevented by law to adjust.
In brief, except for a very temporary one, a shortage happens when the government tries to prevent a smurfage. Smurfage is an inescapable feature of the human condition; a shortage is a consequence of a government or other coercive intervention.
If the covid-19 disruption gets serious, even without federal interventions, the same thing (that is, shortages, not mere smurfages) is likely to happen in the two-thirds of American states with so-called “price gouging laws” (see my post “Emergency Shortages in Altruistic California,” October 14, 2019). In fact, it may already be happening with some products whose producers fear they won’t be allowed extra profits if they make extra efforts to bring more on the market. At least in California, the declaration of a state of emergency on Wednesday (followed by two other states yesterday), has set in motion the “anti-gouging” prohibitions of the Penal Code.
As for the “line-ups in stores” that Ivison refers to, I, for one, don’t remember that, neither in Canada nor in the United States. Did I miss an elephant? Or did the Canadian columnist watch too many TV documentaries about the Soviet Union and Venezuela?
READER COMMENTS
Thaomas
Mar 6 2020 at 9:39am
Price changes and degree’s of rationing are both ways to deal with supply shocks. For a very wide range of situations, maximum price flexibility and no “shortage” is the best response. But there are arguably circumstances in which the income distribution effects of price changes outweigh the efficiency gains.
Pierre Lemieux
Mar 6 2020 at 10:26am
“Outweigh” in the mind of whom. Time perhaps to recall de Jasay:
Mark Brady
Mar 6 2020 at 9:18pm
Thaomas writes, “But there are arguably circumstances in which the income distribution effects of price changes outweigh the efficiency gains.” And in response, Pierre invokes Anthony de Jasay. No surprise there.
But let’s return to Thaomas. When an economist writes that the (negative) income distribution effects of price changes may outweigh the (positive) efficiency gains, he likely has in mind the idea that free markets lead to Pareto improvements whereby the gains outweigh the losses as measured by the sum of consumer and producer surpluses (which reflect willingness and ability to demand and supply) but that the actual transfers to make everyone better off, or at least no worse off, do not take place. Thus not invoking price controls may result in the impoverishment of some while enriching others. And it may be the case that on a plausible assumption about how diminishing marginal utility differs between rich and poor people, the gains of the producers are in fact a lot less than the losses of the consumers. That, I suggest, is what Thaomas has in mind. But perhaps Thaomas would like to jump in.
Jon Murphy
Mar 6 2020 at 9:44pm
If they don’t take place, they’re not Pareto. If they don’t take place, it is because it is in the estimation of the principles concerned that they are made worse off. These transactions are not costless.
Jon Murphy
Mar 7 2020 at 5:15pm
That should say “principals.” I meant to write “principal actors.”
Jon Murphy
Mar 7 2020 at 12:04am
The larger point of Pierre’s, and de Jasay’s, that strikes at the very heart of Thomas’ comment is that who is the one analyzing the situation matters. Costs and benefits are subjective, not objective. Whether or not income distribution effects outweigh efficiency gains depends entirely on the analyst, not some objectively measurable standard.
Thus, it is really no different to say “Policy X’s distributional gains outweigh the efficiency gains of Not-X” and “Policy X favors group A and the expense of Group B.”
Pierre Lemieux
Mar 7 2020 at 1:13am
I agree, Mark. I would add that Samuelson proved that virtual Pareto optimality is no Pareto optimality at all. So, in my opinion, cost-benefit analysis is not the solution or, in slightly different terms, a social welfare function doesn’t exist. If there is a non-anarchist solution to de Jasay, it is perhaps in Buchanan. Or is it in Hayek?
By the way, did you (and the other commenters) see the interesting story in today’s Reason Magazine at https://reason.com/2020/03/06/to-avoid-charges-of-price-gouging-ebay-bans-sale-of-coronavirus-supplies/ ?
Fazal Majid
Mar 6 2020 at 9:43am
You are forgetting the other possible government responses, rationing and requisition, e.g. of masks for medical personnel
Pierre Lemieux
Mar 6 2020 at 10:21am
Rationing is a way for government to organize or hide the waiting lines generated by the shortage it has created.
Jonathan Monroe
Mar 11 2020 at 8:20am
The perfectly cromulent word “dearth” already exists to describe a price increase with negative real-world consequences. The etymology makes the original meaning clear (“dearth” means “dearness”, i.e. things being unusually expensive). The question of whether any given dearth was caused by money-supply effects or by supply shocks was being argued over by political economists as early as the 1540s Mid-Tudor Crisis. Obviously the emotional connotations of “dearth” in modern English suggest an actual decrease in quantity supplied and associated deprivation – which is exactly what is needed here.
Given the colloquial use of “smurf” to mean evasion of rules against large transactions by breaking them up into multiple smaller transactions, “smurfage” suggests a real shortage associated with dishonest evasion of laws or norms against bulk-buying.
Pierre Lemieux
Mar 14 2020 at 8:26pm
Interesting points, @Jonathan. I learned something. I wonder, though, if “smurf”, in the related sense given by the Urban Dictionary, doesn’t apply well to the state in the present case.
Another problem (less serious), this one regarding your first point. Many Trump supporters might follow their leader by thinking that “dearth” is just something that the do-nothing Democrats and the fake-news media throw at him.
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