Argentina Is Fanning the Fire of Price Controls

The Argentina government will extend the regulated price program for 60 days. Meanwhile, the economy continues to be distorted

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Matías Kulfas, Minister of Productive Development, the official in charge of negotiations for these counterproductive programs (Twitter).

Spanish – Although it sounds repetitive and we have written this in dozens of articles, unfortunately, we have to reiterate the point. Especially since the names of these counterproductive programs refer to this conceptual error, which appears in the news articles right from the title. The “agreed prices,” “careful prices,” “maximum prices,” and all the sales amounts brokered by the state are not “prices.” They are administrative regulations, impositions on companies and businesses, or sectorial “agreements,” where one of the parties involved holds the whip of coercion.

Back when the Kirchner government presented the famous but unsuccessful “careful pricing” program, it was described as an “agreement” and not as a policy of maximum pricing since the government had not implemented the coercive “supply law.” Of course, a thief can also say that his victim voluntarily gave him the wallet, almost without the need to show the gun, because the consequences of disobeying the thug are clear.

The journalist José Benegas recognizes two distinct categories: “prices” and “sticks.” And an economy has one of these two things. Free prices are the only real “prices” in the economy. They are the communicating language that allows agents to coordinate the efficient allocation of resources. As Ludwig von Mises rightly anticipated, before the socialist disasters, a model without private property was synonymous with an economy without prices. That theoretical question, which seems merely technical and minor, was the Achilles’ heel of all communist experiments throughout history.

But we don’t have to reach full-blown socialism to fail economically. If some prices are manipulated, the economy will show a lack of coordination, both surplus, and deficit. If they are highly regulated, the crisis will be greater and inevitable. The less real prices there are, Mises would say, the more socialism there is, and the worse the economy will function. And Argentina these days is precisely increasing the indices of socialism in its system.

60 more days of “maximum prices”

The Minister of Productive Development, Matías Kulfas, a member of the Cabinet of the “Albertista” group, confirmed that the “maximum price” program, promoted by the government when the lockdown began, would continue for the next two months. At that time, the government claimed that this was not the time for speculation and that for a certain period, the selling price of several foods in the consumer basket would remain “frozen” at a maximum value. However, consistent with the extension of the quarantine, the eternal failure of the regulated price program would also extend.

It has already been announced that the only products that will be allowed to have slight “touch-ups” are those that were most affected by the dollar’s appreciation. All the rest should remain as they are. It should be noted that last month, inflation was 1.4%, with “maximum prices.”

A policy doomed to fail and the ghost of Rodrigazo

This program, which has failed whenever it has been implemented, both in Argentina, and the rest of the world. The only unknown aspect of this program is which of all the possible problems we will see first. The following are the only options:

  • Reduction in quantity and quality of the product to avoid changing the sales value.
  • Semi-empty supermarket aisles with the missing products instead of freely-determined prices
  • Companies that lose capital, demand less labor, or go bankrupt.
  • Shops, factories, and distributors fined and closed down for evading regulations.

So far, Argentina has been showing a mixture of all the factors mentioned: the quality and size of the products are no longer what they used to be, most of the regulated items are conspicuously absent when one looks for them on the aisle. The companies that could not shrink just close down, and there have already been fines and closures of companies that acknowledged not being able to comply with government regulations. Several wholesalers are already working with fewer products. They directly stopped renewing those that are regulated because they cannot afford them. None of this should come as a surprise to Argentines who are already combing out some grey hair.

Instead of maintaining and increasing distortions, Argentina should go in the opposite direction and start to open up the economy. If the bomb doesn’t go off now, the only thing that can happen is that it will go off some other time with an even bigger and deadlier detonation. Sadly, the phenomenon behind the much talked about “Rodrigazo” is not fully understood. Many Argentinians remember that from one day to the next, all the prices went up, and the value of the currency collapsed. If we go to Wikipedia, we do not find anything that challenges this superficial reading:

“Rodrigazo is the name given to a group of economic policies announced in Argentina on June 4, 1975, during the government of Isabel Perón. The crisis originated when the then Minister of Economy, Celestino Rodrigo (1915-1987), ordered an economic adjustment that doubled prices. To eliminate the distortion of relative prices, Rodrigo implemented a strong devaluation of 61% for the trade exchange and 50% for the financial exchange. The inflation rate reached 777% per year, and nominal prices rose by 183% at the end of the 1975 cycle. There were shortages of many essential commodities, including food, fuel, and other transport inputs.”

It would probably be clearer if I said: “Argentina kept a controlled and regulated economy for too long; the pressure cooker became unbearable, and Rodrigo uncovered it.” That would make things a little better. In the meantime, we continue to nurture the next collapse, which could come at any moment.

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