The so-called shortage of infant formula, which appeared in the United States earlier this year, is a strange phenomenon. It actually started with, or at least, the “deficit” of localized free baby formula for poor mothers under the Special Supplementary Nutrition Program for Women, Infants, Children (WIC). For the purpose of this program, about half of the baby formula produced in the United States is purchased by state governments with federal money.
Baby formula manufacturing is a very regulated industry. In early 2022, the Food and Drug Administration forced Abbott Laboratories (a producer of Similac) to close a factory in Michigan. Abbott is an influential American producer of children’s formulas, in part because it is the exclusive distributor chosen by most state governments. A germ was discovered in the factory, but not in the products. About 98% of all baby food consumed in the United States is domestically produced, thanks to 17.5% tariffs, not to mention regulatory requirements. A common consequence of industrial density control and protectionism. (View “Why the baby-formula market is a mess: less competition, more control” The Wall Street Journal, May 20, 2022; And “The Baby Formula Shortage Was Made in Washington,” The Wall Street JournalMay 19, 2022)).
At least until very recently, anyone could buy Baby Formula, including families who are eligible to receive it for free from WIC. Those who cannot get their WIC allocation can buy the formula in open market at market price. The The Wall Street Journal In some cases (“Baby-formula deficiencies leave families desperate, prompting WIC program restructuring”May 20) -for example:
Some low-income parents who rely on the Federal Women, Infants and Children’s program say the approved child formula deficit has left them paying hundreds of dollars to buy formula outside the program …
Michelle Richter, 35, received a WIC baby-formula voucher for her 9-month-old son. He stated that he did not find the source in the WIC-approved retailer A
As a result, Mrs. Richter said, she had to shop online for formula with her own money. In the past month, Mrs. Richter said she has ordered three Can Enfamil formulas from Amazon.com Inc. for about $ 150.
One can be sympathetic to this mother, even without knowing her specific situation. But we have seen in human history a tragedy worse than buying baby formula online for our own baby with our own money. Poor mothers can find baby formulas or smartphones or TV sets in the open market if they are among the highest bidders, that is, if they are willing to pay the market price (of course other things mentioned earlier). A free market is an uninterrupted and invisible auction. Impersonal marketers are more efficient than politicians and bureaucrats in the distribution of wealth. Mrs. Richter could buy in the market what the government was offering at zero price but was unavailable.
There is no mystery in these phenomena although some basic economic knowledge is required to understand them, even if mainly practical, knowledge of how things work in a world where the will of almost unlimited people is greater than the desire to create scarce resources.
In his book MorePhilip Kogan (a former columnist in it) Economist) Reminds us of the Russian official who questioned the British economist Paul Sibrite after the break-up of the Soviet Union:
Who is responsible for providing bread to the population of London?
Isn’t it interesting that no “food jar” (e.g. Peter Navarro was Donald Trump’s “tool jar” At the height of the epidemic), no government agency is needed to provide the 22,000 tons of food that Londoners consume on a variety of diets every day? It must be as complex as finding PPE (personal protective equipment) or baby formula, and food shortages in London (or Los Angeles or your city name) are just as catastrophic.
Like other dictators, one Venezuelan, Nicolas Maduro, often calls on the military to resolve deficits, which surprisingly never works. All that is needed is economic freedom and a legitimate price signal.
Joe Biden was not Nicolas Maduro, nor was Donald Trump. But tackling the “deficit” of children’s sources, Biden Trump did what he did when tackling the “scarcity” of PPE: he called for its allocation powers, including the Korean War Defense Production Act (DPA) and the Air Force’s order to fly civilian aircraft. Child formula from Europe. If Biden had controlled prices like Trump under the DPA, child formulas like PPE would have disappeared from everywhere.
At the time of writing, Baby Formula is available online at Amazon and Walmart.
The problem seems to have intensified in the last few days, but some propaganda may be involved: Politicians have a motivation to make people believe that without them babies will not be breastfed. One reason for mounting formula problems may be the possibility of DPA and price control, which warns in advance that deficits are coming – real deficits: nothing even on virtual shelves. With this possibility, consumers are more motivated to engage in panic purchases and hoarding. Economic studies by Rick Chakraborty and Gavin Roberts show that this is exactly what happened during the Covid period: Residents of 34 states experienced deficits in past emergencies, including stock prices, were employed in stockpiles, and were severely depleted during the COVID-19 epidemic. The effects of existing and surprising price-gaur controls, ” Consumer Policy Journal 44 )
Another related reason for the possible decline in the availability of baby formulas is that their prices have not apparently risen to their new market-clearing level, even within half of the market. At least that’s what Amazon’s price history looks like. Rising prices will reduce demand, including consumer stocks, and provide a real incentive for manufacturers to increase production, thereby eliminating temporary shortages. Observance of unchanged prices is partly deceptive, although producers, up to a point, can raise prices by stealing diversified products or reducing the cost of their packaging to meet an unsatisfactory demand. The Reckitt Benckiser Group (producer of Enfamil) seems to have done it “focusing on the size it says it provides the most clues.” (“Gerber Owner Nestle to Fly Extra Baby Formula US to US,” The Wall Street JournalMay 17, 2022.)
In our collectivist times, producers can be afraid to let consumers transparently raise prices. This fear is not unfounded: the Department of Health and Human Services has warned that Biden will “call on the Federal Trade Commission and the state attorney general to take strong action against the price increase.” Will it encourage producers to increase their output?