What should be the economy of fair war?

It is only in the intellectual and political environment of a free society that wartime price control can easily be justified. Two recent articles can illustrate conventional wisdom and its opposite. A story, by Financial times European economist commentator should give a speech to political leaders to complete “their main task in preparing the people for the impending inevitable difficult choices” in the Russian war against Ukraine (Martin Sandbu, “Western leaders must prepare the people for the war economy”). Financial times, May 1, 2022). It starts with “My fellow citizens” and includes:

Something like a wartime economy is being imposed on us – not our choice, but we should not shrink from it. For this, we have to put the common good first. We may need to ration some things.

This is the conventional way of fighting. We can say again: “My dear child: you must suffer. Prices and everything, including yourself, will be controlled. “

In the second article, Economist Last week, inspired by the Ukrainian government and advising a fresh approach (“Much of Ukraine is paralyzed at the petrol shortage,”) EconomistMay 23, 2022):

For the past three weeks the country has found itself in a severe fuel shortage … On May 19 the 550 km road from Lviv to Kyiv had only two working patrols. [gasoline and diesel] The station had a row hundreds of meters behind everyone. A

With the war effort and the priority given to agriculture, very little remains for anyone else.

The deficit has given birth to a shadow economy of the best Ukrainian traditions. A local equivalent of eBay, Entrepreneur Citizens offers an array of energy-related services. The Odessa 100 hryvnia ($ 3.38) will allow you to line up outside the petrol station for one hour.

A senior manager at a large private fuel company said price controls meant suppliers were told to sell petrol at a lower price than the cost. The goal was to keep energy efficient for a struggling nation, but it also removed any incentive to increase supply to the public and it also introduced a black market.

The unusual news is that the government has now stepped back and

Recognizes the need to suspend controls “temporarily” to allow retailers to control demand. Mrs. Sviridenko [the economy minister] It is predicted that the move will lead to a 40% price increase.

Ignoring “temporarily” they think there is an economy minister who understands economics! More commonly, markets are as efficient at allocating resources in wartime as they are in peacetime. Skilled in situations of scarcity, they need more in situations of scarcity. In a just war the government of an independent country would completely avoid price control (and thus avoid deficits). To supply fuel to the armed forces and the public service, the government has to bid on the market like everyone else – albeit with taxpayer money. And if it is thought that certain groups of consumers cannot afford fuel at market-clearing prices, then the effective way is to issue them. Business Ration coupons that any consumer can sell or supplement depending on the severity of his or her needs and indicated by the actual value of the asset’s value (and the opportunity cost of the tradable ration coupon).

I will, however, reprimand the magazine for its follow-up comments:

Inflation will have an immediate effect on consumption in a country where disposable income is drastically reduced. But the energy crisis cannot end.

It will not end CrisisOf course, that will appear High price; But it must end Lack (If bad-advice does not bring back stress controls). That is, it is assumed that “crisis”, “high value”, and “scarcity”, and perhaps other words in the dictionary are not all synonymous.

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