Alan Jacobs


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Arnold Kling:

If you use your economics, then no matter how complex the supply-chain problems might appear, they can be solved using the price system. The price system may or may not be able to call forth more supply, but it certainly can ration demand, and it can do so more efficiently than is being done at present. Everywhere the supply chain is “broken,” higher prices can ensure that scarce goods are allocated to the highest-priority uses.

Wherever you see buyers unable to find goods, you should ask why the rationing takes place by availability rather than by price. If the market were operating smoothly, the shelves would be fully stocked, but prices would be higher.

My hypothesis for why we observe price stickiness is that businesses fear consumer backlash. When the price is high, the consumer blames the business. If instead the product is not in the store, the consumer blames “the supply chain.” In fact, it should be the other way around—the business should be blamed for not raising prices to prevent a shortage, and the higher prices should in turn be blamed on higher costs in the supply chain.