Quote:
Originally Posted by bolo121
Sir Shek, the problem is not that free market can provide, but rather the price at which it provides. In a free market the price of essentials would adjust to meet demand. This would price out all of India's urban poor at once. Nothing inflames a mob more than seeing the upper middle class and rich with full bellies while they starve. The government of India simply cannot accept such a risk so they have to control prices.
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I am not smart about specifics, but I can tell you that price controls are not the answer. They mute the signal that price sends to suppliers (you can get a higher price, grow more!) and so it distorts the market. The trick is to figure out the best policy response in the short-term to allow the market to adjust in the long-term. If price controls will be the response, then I will not respond to future expected shortages because I, as the supplier, won't benefit from additional production that might alleviate the shortage.
Which leaves us back to the short-term. Let the price rise. Use subsidies to assist the poor in purchasing rice. The government appears helpful and price can send the signal to grow more in the future (or as pointed out earlier, it's cheaper for the government to fix the storage/distribution system than to hand out additional subsidies in the future). Price is a motivator to solve problems. Get rid of the price problem, and you may find yourself doomed to suffer the same problem again in the future.