Shortages are (again) quietly creeping into our lives

There are phenomena that quietly, through small doors, creep into our everyday lives. One such phenomenon is shortages. Currently, the most notable shortage in Croatia is of many types of medicines. A week ago, a warning broke into the public that there is also a shortage of firewood. Customers are warning of a shortage of euro cent coins in stores. Besides shortages of goods, shortages of services are becoming increasingly frequent and pronounced. Employers in tourism are panicked due to the shortage of seasonal workers. It is estimated that there will be a shortage of thirty thousand employees. Furthermore, when it comes to services, there is an increasingly pronounced shortage of medical services in public health. The shortage of craftsmen, such as tilers, has been ongoing for a while…

And news of shortages is also coming from more developed economies. In the United Kingdom, due to a shortage of fruits and vegetables, the purchase of these items in stores is limited to only three packages per customer. The shortage of medicines is affecting even the German healthcare system.

We who have spent half our lives in socialism, and now half in capitalism, thought we had rid ourselves of shortages with the old system. Yet, here they are again in the new system! It turns out that shortages are not linked to socialist market-planning or planned-market systems. It is more likely that shortages are the younger sister of lady inflation.

Shortages have not gone extinct

If we define a shortage as ‘an imbalance caused by the temporary absence of goods or services‘, then it can be simply said that a shortage can be the result of increased demand, reduced supply, or a combination of these two situations. A third cause of shortages can be attempts by executive authorities to regulate (freeze) prices. State regulation is usually a sign of the ruling party’s nervousness due to quantitative, and then inevitably price disturbances in the supply and demand for some goods or services.

—

—

It is not at all unusual that we are surprised by the emergence of shortages. For at least twenty years, there have been none at the global and national levels. So it is taken for granted that shortages have been eradicated. Just as some diseases are thought to be eradicated, only to return to everyone’s surprise. There have been no shortages of goods and services for two decades due to two reasons: globalization and monetary policies. Globalization has enabled cost-effective production in less developed countries of the world. Production, and then also the payment-capable demand, has been driven by extreme monetary policies in the West. Consumers have become accustomed to choosing among dozens of brands at any moment and in any place. And this in conditions without inflation. The capitalist machine seemed to function perfectly and forever.

Unfortunately, the variant ‘and they lived happily ever after’ exists only in fairy tales. Deglobalization, ignited by the conflict between the USA and China, exacerbated by the corona pandemic, and subsequently by Russian aggression against Ukraine, has activated the payment of the price for years of excessive money printing. Inflation has awakened. Politicians around the world are panicking about the impact of inflation on voter sentiment, which is why in the first years of rising prices they always resort to controlling them. Which, sooner or later, is the cause of shortages.

As governments try to simultaneously reduce price growth and avoid recession, this unfeasible attempt will end in an extended period of disinflation. This will then exert prolonged pressure on frozen prices, such as electricity or gas. When the dam breaks, even more producers of goods or service providers will find themselves in a situation where they cannot pass on rising costs to consumers, who, despite indexing, always lose a large part of their real purchasing power in the end. Thus, supply will be reduced, which will, in the short or medium term, cause new shortages.

Demographic shortages

A special story is the shortages of services, from medical to tiling, which are the result of demographic trends and a chronic shortage/competition for personnel among countries. They are also the consequence of excessive price jumps and delays in service delivery.

It would be expected that the invisible hand of the market would eventually resolve the causes of shortages. However, the assumption is that the invisible hand operates in a free market. In a world where globalization is splitting into West and East, the efficiency of the invisible hand has significantly decreased. Thus, the solution would be in rational forms of state corrections. Which, unfortunately, in the current circumstances of escalating conflicts on multiple levels, are hard to expect. Therefore, we will have to learn to live with shortages again.