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Price Breaks Gone Wild

July 11th, 2007 · by Tim Minahan · 1 Comment · LCCS and trade, sourcing

If yesterday’s post on rising metals prices struck close to home. Then the Zimbabwean government’s solution to skyrocketing inflation is for you.

Earlier this month, Zimbabwean officials ordered that prices of many goods be cut in half in an attempt to combat the country’s 3,700% inflation rate. (No, that’s not a typo.)

Business owners that fail to comply with the new price controls will be tossed in the poky. Not surprisingly, many businesses say the government-mandated prices are below cost.

BBC News reports that “a total of 1,328 Zimbabwean businessmen and women have been arrested and fined” for breaking the government-ordered price controls within the past two weeks. The British news agency also said the new regs have prompted many of the South African country’s businesses to close shop.

Not surprisingly, the goverment mandates have led to panic buying and stockouts. It’s also bolstered black market trades.

Special hat tip goes to Jeff Nolan over at the Venture Chronicles, who compares Zimbabwe’s new monetary policy to Venezuela’s plan to combat inflation. Says Nolan: “It’s not as creative as Chavez’ inflation plan, which centered on taking 3 zeros off the currency (in other words, a $1,000 bolivar bill would now be a $1…I’m not making this up).”

Both episodes serve as a warning against knee-jerk reactionary monetary and trade policies. (Such as the White House response to the China trade gap.) As evidenced in Zimbabwe (and with the White House’s protectionist policy), most attempts to control commerce by government regulation backfire.

And, quite frankly, the logic of Zimbabwe officials reminds me of one of my childhood favorite Shel Silverstein poems, ironically entitled Smart:

“My dad gave me one dollar bill
‘Cause I’m his smartest son,
And I swapped it for two shiny quarters
‘Cause two is more than one!…

…And then I went and showed my dad,
And he got red in the cheeks
And closed his eyes and shook his head–
Too proud of me to speak!”

I’m certain Alan Greenspan is rolling over in his grave. Wait, what do you mean he’s not dead? Are you sure?

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1 response so far ↓

  • 1 Charles Dominick, SPSM // Jul 12, 2007 at 9:01 am

    Yes, Zimbabwe’s government just keeps demonstrating its cluelessness don’t they?

    Much of their inflationary problems have stemmed from the government taking over all of the farms from long-time farmers and running them themselves or using their choice of people to run them. This caused basic food staples to get progressively and dramatically more expensive which had a ripple effect throughout the economy.

    One purchasing manager that I’ve corresponded with there said that he had to pay 12 million Zimbabwe dollars to send his two kids through school last year!

    Related blog post: http://tinyurl.com/3cfvm7

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