I get that question all the time, so we might as well examine “shortages.” Shortages are not new. They always exist in war time, and during WWII cigarettes were in short supply. Know why? Because first of all, lots of them were being shipped overseas to soldiers, but the main reason was that cigarettes have glycerin in them to make them burn well, and that glycerin was used to make ammunition. Rubber was short too, as well as gasoline, for obvious reasons. They went to war, and there wasn’t much left for civilian consumption. Everything was in short supply during WWII, because the demands of the troops was incredible, and there was only so much to go around.
When the PT Cruiser came out, everyone thought they were so cute that they became scarce. The Chrysler factory was geared to produce only so many per week, and they were quickly gobbled up by anxious purchasers. Scarce in most places anyway, but some dealers had plenty, because they were charging thousands of dollars more than the sticker price showed. This cut out those who were willing to pay the sticker price, but allowed those who had lots of dough to get immediate delivery. The shortage of PT Cruisers ended within a few months, after demand was met by factory output.
It seems like every Christmas, there are shortages of certain toys, which have caught on. A few years ago, the “Tickle Me Elmo” doll was sought out by mothers, and few found them, because the factory (in China) figured they would only need so many, and it happened that it wasn’t enough. Some toy stores raised their prices to the sky, and those willing to pay through the nose got theirs. Further back, the Hula Hoop happened the same way.
Thirty years ago, something went awry with the coffee plantations, and coffee became scarce, with prices going almost straight up. People stopped drinking coffee by the millions, so high were the prices. Coffee went to a 2004 price of well over $15 per pound. In arid areas, water is scarce, and commands a high price as well as rationing by municipalities. Only two years ago, Denver was prohibiting lawn watering, due to a shortage of water, with reservoir levels at all time lows. When OPEC raised the price of crude to $40 per barrel back in the 70’s, people stood in line for hours to try to get gas for their cars. When a hurricane threatens in the Southeastern US, plywood, batteries, and emergency supplies get scarce, because normal inventories are exhausted. In rush hour time periods, freeway space is scarce in major cities, because the demand is so high, and the roadway can only handle so many sets of wheels. Shortages are an interesting phenomenon. By now, you must realize that there can be several reasons for shortages.
In the case of freeway congestion, the roadway is a fixed size, and has a fixed capacity. Size can be increased, but at high cost. Light rail may take some of the traffic off the roads, and municipalities can figure if it is cheaper to build roads or build light rail. Air pollution, noise and cost all have to be figured. Old fashioned trolley cars are now called “light rail,” and most cities wish they had never scrapped them, since they now are building new ones. I can’t think of a single large city that does not now have, is building, or considering light rail to alleviate shortages of freeway space.
In the case of wars, winning the war will solve those shortages. After the hurricane has passed, the shortage of plywood and batteries is automatically resolved by lack of demand. The toy shortage is relieved by Christmas passing. The PT Cruiser shortage was resolved by the orders being filled and demand slackening. The coffee problem was solved by diminished consumption as well as repair of the coffee plantations. Which brings us to the subject of the black market, or underground economy. This has much to do with shortages.
The “black market,” or underground economy, is actually a free market. These markets and economies furnish goods and services which government has decreed to be “illegal.” Prostitution is the world’s oldest profession. It is illegal in America, except for certain counties in Nevada. Hookers therefore, furnish services which are in demand, but which services have been made illegal. These services cost a lot more than they would if they were legal, because the providers of these services must take risks in furnishing them. During WWII, the black market furnished meat, gasoline, and other scarce things at outrageous prices. Drugs, such as cocaine and marijuana are illegal and expensive, because they are in demand, and the providers of such take risks in providing them. Governments have never had enough sense to realize that to eliminate illegal activities, it merely needs to cease making them illegal.
I am also asked about gold and silver being made illegal. If this ever happens, and I think the possibility is extremely remote, they will simply go on the black market, and sell for probably three times what they would sell for if they had been legal. We’ll all be rich as the Gurneys, if this ever happens!
The other shortages exist, because of government mandated price controls. If you wish to make apartment rentals scarce, institute rent controls. Rent control makes owning rental property a terrible investment, and always creates shortages of rentals. How can both happen at once? Easy! Shortages, because rents are cheap, and no one will move. Bad investment, because return on invested capital is frozen, so repairs are so costly, that the ultimate result of rent control, is abandoned properties. In the 1970’s, when gas lines were blocks long, there was plenty of oil in the world. But wise President Nixon decided that he would install price controls, and he did. The prices he decided to install, made selling, drilling, refining, and producing gasoline unprofitable, so they all simply ceased in most cases. The remaining producers, who could still make a small profit, supplied what limited gas there was, which wasn’t nearly enough. The result was long lines.
If government places price controls, or use limits on anything, no matter what it is, the certain result is a shortage, or law violations. When water was limited, people obviously didn’t want their expensive lawns or plantings to die, so they would water in the middle of the night. Sure enough, “water wardens” were hired, and summons were issued at 3AM for people trying to protect their investments. When government decided to stop making dimes, quarters, and halves out of 90% silver, the market took them out of circulation instantly, they were scarce, and today they sell for close to 5 times their face value. Is there a shortage of silver US silver coins? Of course not! Because the market has taken over, and they are priced at what the market says they are worth. Are antiques scarce? No, because if one is willing to pay whatever price the market says they will bring, there are plenty of antiques around.
I just bought a 1941 Plymouth Coupe, of which I have had several in my younger years, and have always wanted another to restore. It’s virtually all there, but of course will require many hundreds of hours of work to restore, and a lot of dollars. It will be worth it to me, and gobs of fun. If one liked another car when they were young, and one was found, they would pay a lot for it as I did just for old time’s sake. I paid $2800 for it, which is close to five times its new price in 1941 dollars. When it is finished, after I pay myself maybe $15 per hour and contract some out, I’ll have maybe $7,000 in it, and it’ll be worth twice that. The point is, there’s no shortage of any antique car, if someone wants it enough.
Is there a shortage of gold and silver? No, because price is always indicative of supply, be it 1941 Plymouths, or gold and silver.. As the price of anything goes up, some will refuse to buy, and others will jump on the bandwagon, causing them to go even higher. Will there be a “shortage?” No more than there is a shortage of original oils by Rembrandt, because the price is indicative of the supply and demand. If gold goes to $3,000 per ounce, which is possible, and even probable, and the dollar has gone down only 10%, I’d sell before the mad rush. If the dollar has become toast, keep it, as it is true money. If prices of gold and silver go to the sky, there still will not be a “shortage,” as the prices in markets, always takes care of short supplies. If government fixed prices on gold and silver or apartments, forbidding anyone to pay more than a certain price, there would be none for sale or rent, other than the black market, and on street corners. The price would be like other “illegal” items incredibly high. That won’t happen, but by all means, protect yourself!