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Wednesday, September 20. 2023
I'll expand this and point out "Anti-Gouging Laws" are a form of sanctions and not only make strenuous situations more difficult, but they also create their own markets (among people willing to pay, pay cash, and keep their mouth shut). Lots of government agencies will claim they 'work' and cite a few specific and unusual examples and claim "victory." Pyrrhic, at best. The same is true with governments discussing sanctions.
International sanctions rarely work because of the point made in the title - they create 'black' markets. Russia's oil has sanctions against it? So what. Some country that doesn't care about the West will buy it on the cheap, then resell to nations that support the sanctions but are happy to play intermediary, and eventually it gets back to the West one way or the other. Either as refined product, or by markets elsewhere that undermine the larger market and disrupt supplies.
The communist world had sanctions against many Western goods - but they were always available in communist nations. My father traveled to Russia with a suitcase carrying a few extra cases of Marlboros (he didn't smoke) and a few pairs of Levis. Always good to have the local currency (contraband) ready just in case. A friend who travelled to Argentina 8 years ago, where currency controls were in place, was directed to join a "currency club" where they got a "preferred rate of exchange". The official Argentine rate was so bad, many people set up these "clubs" where they'd exchange at a better rate, knowing they could get the currency out and exchange at better rates outside of Argentina.
There aren't many examples of sanctions working and doing what they're supposed to do. Usually sophisticated nations can find ways out of, or around, sanctions.
In the modern world, the claim was Russia's removal from the SWIFT payment system would cripple them. Someone forgot that the decentralized nature of the internet and cryptocurrencies made the hegemonic controls of a SWIFT system problematic. If you're going to cut someone out of the system - when might YOU be cut out of the system (for any variety of political reasons)? Russia isn't crushing it, economically, but the claims about how poorly it would be doing by now were clearly overblown and based on a poor understanding of modern economic interactions.
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Anti gouging laws and sanctions are nothing more than government interference in the supply/demand structure. Anti gouging law applied to product shortages insures chaos at best and no product at all for the worst outcome.
Sanctions ensure that parallel marketing systems will arise and likely bite the sanction party worse than those sanctioned. Those sanctioned will likely not rejoin your market.
Leave it to government to have little to no understanding of either concept.
Monopoly pricing is entirely different, but government tends to love its own inefficiently practiced monopolies.
I have a question about this: Russia's oil has sanctions against it? So what. Some country that doesn't care about the West will buy it on the cheap, then resell to nations that support the sanctions but are happy to play intermediary, and eventually it gets back to the West one way or the other.
First off, this is just a basic economics question and not really about Russia.
So, the point of the sanctions is to punish Russia (again, just as the example in discussion), not keep the oil out of Western markets. Granted, the Russians still sell it and it is not as punishing as if they couldn't sell it at all, but by forcing them to sell it more cheaply, it is still hurting their economy, isn't it?
Thomas Doubting: Granted, the Russians still sell it and it is not as punishing as if they couldn't sell it at all, but by forcing them to sell it more cheaply, it is still hurting their economy, isn't it?
It does. How much depends on how porous the sanction regime might be. In this case, if China buys Russian goods, reducing their purchases elsewhere, due to the size of China's economy, the regime would be quite porous. However, it will still cost the Russians, the Chinese will get a deal on price, while the West will pay more.
The effectiveness of the sanctions regime has to be balanced against the economic and political costs involved, which can be significant.
That is, very much, an "it depends" question. Selling it and getting something is better than not being able to sell it. But the funny thing is - we could never prevent them from selling it...so they'll ALWAYS have a market.
The other reality is their oil isn't as easily refined and tended to go at a discount anyway, it's what's known as "medium sour" and incurs higher costs for refining due to high sulfur content.
But the funny part of all this is that's just a small part of the discussion. Everyone focuses on the oil because of McCain's joke that Russia isn't a nation, but a gas station. Thing is Russia does TONS more - and the media tends to ignore the stuff they do which hasn't been sanctioned, and guess what? They take their ounce of flesh where they can.
Your basic construct is correct - if they only relied on oil and it was selling cheaper, then yes, they'd be up a creek regardless if they weren't selling it all (up a worse creek). But it's worth noting there are lots of ways to make up on your losses - and that's part of the currency game they are playing. Taking payment in crypto and/or gold means - the increased value of those currencies more than makes up for the discount on the oil. They also started accepting payment in rubles after the ruble collapsed...and this allowed it to revive...making up some of the loss.
It's one of the weird things about international exchange that it's probably better to take your own payment terms rather than the United States - but everyone just takes the US terms because it's easy, despite the costs it incurs.
Economics is funny, especially when politicians think they understand it. They don't Someone else around here doesn't either. But it's ok to let people share their misguided views.
Bulldog: Everyone focuses on the oil because of McCain's joke that Russia isn't a nation, but a gas station. Thing is Russia does TONS more
Russia certainly exports other goods, but petroleum products represent the largest sector.
Bulldog: Taking payment in crypto and/or gold means - the increased value of those currencies more than makes up for the discount on the oil.
Gold has not always been a good hedge against inflation, declining in value relative to the dollar from 1980 to 2000, rising until 2012, then fluctuating after that. Regardless, Russia could get that gain whether or not they were under sanctions, so sanctions still mean they make somewhat less than they might have done otherwise, with China pocketing the difference.
Bulldog: but everyone just takes the US terms because it's easy, despite the costs it incurs.
It's not a matter of mere convenience. Like all markets, people buy the dollar because of perceived value. The dollar represents a huge market backed by the stability of the United States. No other currency offers the same security. (Note: "Past performance is no guarantee of future results.")
As for the Russia sanctions, with China outside the sanctions regime, the sanctions are very porous. If China were to cut off trade, the sanctions would be much more effective. As it is, China is a large enough sponge to absorb Russia's exports of petroleum products. The result is a reduction in Chinese purchases elsewhere, so there is minimal effect on the market.
Mike Munger on price gouging is a hugely entertaining podcast
Price controls of any kind are doomed to failure, but we never stop trying.
The failure of sanctions just means we didn't sanction hard enough. A re-doubling of our efforts is sure to work. In fact, this explains all of our government's failure to fix problems - we need more government to fix the problems caused by too much government.
Yes, all true - MORE government means MORE government. Pure and simple.
There is someone who keeps popping up every now and then who loves government and loves talking about how wonderful it is. I'm sure he can enlighten us on how great it is.
The result of the US sanctions is that the Russian economy is growing slowly at about 2 to 3% per annum, and the US and EU economies are shrinking. Germany is in deep recession.
One way this shows up is in the reduction in exports from China, Japan, South Korea, the Asian Tigers. Neocons are chortling over this, but the cause is the collapse in consumer demand in the West, because of the recession in the West.
bob sykes: The result of the US sanctions is that the Russian economy is growing slowly at about 2 to 3% per annum, and the US and EU economies are shrinking.
In 2022, real GDP grew 2% in the U.S.; 3½% in the E.U., while real GDP fell in Russia by 2%.
Russia's economy is shrinking, but not as much as advertised or promised by the West. Our economy is growing, but probably not as much as we're being told (downward revisions keep popping up in a lot of government data...raising some questions as to its value when it's released).
Point is that Russia's economy hasn't been healthy for years and even if nothing had changed, I doubt things would be vastly different than they are right now. Sanctions haven't really changed anything as far as they are concerned. They are used to privation.
Try telling Europe they can't have the things they've grown accustomed to. That's going to get ugly, and it's going to happen very soon.