Surpluses and shortages are a basic fact of the world, creating problems for producers and consumers alike. However, one criticism of capitalism that has been making headlines lately is something that is being called an “artificial shortage”, which is really just a term that is supposed to drive an emotional response to a situation of a surplus of a product.
Critics have been sighting instances in housing, food, cars, and other products where there is a surplus of product, but companies fail to distribute these to the maximum amount of customers even though there are plenty of consumers who “need” this product.
In this way, many people have claimed that companies are generating an “artificial shortage” where it seems like there is not enough of something to go around when in reality there is a surplus and abundance.
In an examination of this concept, it is easy to draw a parallel and blame on to capitalism, but is that truly the cause of this market failure? Are companies really choosing to avoid selling their products or is there a reason beyond private control that they make this decision.
In theory, having a surplus of a product while still having consumers who would like to purchase the product would drive companies to reduce prices to match the supply and demand of a product. Therefore, to ensure to maximized profits, companies would either lower the overall pricing point, which would sell more products at a lower price or they would implement price discrimination, where companies charge individuals different prices based on the demand of an individual rather than the demand of a market.
Companies who do not do this are therefore losing money because they are not even able to cover the cost to manufacture the product, let alone the cost it would take to, in consequence, house an unsold product.
Many have pointed out, however, that this is exactly what is happening. Car manufacturers have been opting to pull unsold cars from the market and house them on a lot rather than sell them to people at a lower pricing point who may need the access to transportation.
It is easy to blame this on greed and capitalism, but logically it does not make sense for a company to choose to take a loss of money. The goal of a business is to always make money or reduce a deficit. So, if companies have chosen not to sell a surplus of a product at a lower pricing point, the question is: why?
Much of the time the reason for this is not capitalism, but instead government regulation-- therefore meaning it is more likely a socialistic policy that causes this issue. One product or industry criticized of “artificial shortages” is food, especially dairy products, which tend to be extremely expensive despite having an overwhelming surplus.
While it logically makes sense for a farmer to sell their milk at a lower pricing point to ensure access to more people and therefore waste less, they are unable to do so because the government artificially inflates the price of dairy products. Formerly, the Secretary of Agriculture orders the department to buy enough dairy product that demand of milk and dairy is artificially raised and therefore the price is as well.
The problem, however, is that this also raises the cost of all dairy products for the general citizen and makes it harder for lower and middle-class citizens to afford this food that could very well help them feed their families. Now, however, the government has a flatly lain regulation that is called a “price floor” meaning that the price of dairy cannot go below a set point.
The government does not even need to buy back the dairy, but instead much of it goes to waste on the shelf because a regulation keeps prices absurdly high, ensuring less access to poor people. This is not at the choice of the producer, but instead due to a government socialized regulation.
Another industry under criticism, and perhaps the one making the most headlines, is the car dealership. A false rumor has spread that car manufacturers are storing unsold cars on random lots to rot and die rather than selling them at a different price point.
However, this narrative is being sold to shock the masses but holds very little fact or merit. In an article on Jalopnick, Matt Hardigee writes: “this article lacks any reasoning for how or why., as in how are car companies finding the money to produce millions of unsold cars and why are they doing it? The answer is simple: They aren't.” It is illogical for a car company to choose to not sell cars at a lower pricing point or sale-- it's simply a loss for them. The truth is those large lots are distribution centers, places where cars go before they are sent to be sold.
While they may sometimes be stockpiled during a dip in the economy, this doesn’t mean they won’t ever be sold. Regardless, the car industry has very little incentive to succeed since there is a history of bailouts for General Motors. If there is a crash in the car market, what’s stopping the government from helping out? This previous socialistic policy is a possible and more logical cause of any excess supply in the car industry than a theory of capitalistic greed because under a capitalist mindset it would make no sense to overproduce and overpriced.
An additional industry that is heavily scrutinized is the housing industry. Claims are made that there are more empty homes than homeless people in America and while this holds true, it also creates a false feeling that the rich are purposely cheating the poor out of homes. When it comes down to it, as you can probably guess based on the previously examined industries, government regulations have paved the way for these problems.
One of the states that have been most harshly affected by this problem is California, where increasing homelessness rates are a major issue in LA and Silicone Valley. In California, though, the biggest problem is literally a lack of houses. The houses that are empty are extremely prices and not just because private companies like to sit with a vacant asset on their hands for a long time (That’s sarcasm, by the way. No company wants that risk long term with no pay-off.) According to Mercury News, “the state estimates that it needs to build 180,000 homes annually just to keep up with projected population growth and keep prices from escalating further out of control.”
In California, regulation capital of the country, it is a pricey expenditure to build houses anew. Environmental and zoning regulations paired with intense government oversight of construction ensures that building projects are long and pricey. Not to mention, California labor is not cheap-- especially in construction, making an overall project pricey. It turns out by deregulating housing and construction it would make the overall cost of housing more affordable for low-income individuals.
Until then, being a homeowner is still wildly out of reach for many citizens. If California, one of the most socialized states in our country is being hit hardest by this problem, then maybe a socialized solution is not the best route to go. Opening up private industry and using capitalistic policy can ensure cheaper housing opportunities for future generations.
The point, in the end, is that businesses want to capitalize on their profits… that’s the whole root of the word capitalism. However, oftentimes the media can twist headlines for shock value to increase an emotional response. It is easier for us to blame big businesses than question the motives of our highly regulatory government.
Next time you see news about “artificial shortages”, question first: why would a company want to hold on to a product and not make money? If the answer is that it is cheaper for them to do so: why? Most likely, it's due to a government regulation of some sort. It’s true: companies are out to get your money, but if you don’t have enough, they won’t have enough either. Capitalism isn’t the cause of your woes, its the government imposed regulations stemming from socialist policies.
