Thursday, May 18, 2006

The Politics of Fertilizer 3

You produce and sell Good A. For some reason, the price increases. You now have more incentive to produce more of this Good A. In producing Good A, you use Good B as one of the inputs. As your production increases, you demand more of Good B. That's a good news for those producing Good B. Because the demand for Good B increases, the producers of Good B naturally increase the price of Good B.

OK, that's a total simplification. Yet, that's very natural (if this is a T-Shirt, it will read: what part of it you don't understand?). We can add complication by issues like elasticity and all that. But let's just use common sense.

Apparently it is that common sense that is lacking from the government. It has been forcefully attempted to keep the price of rice higher than what it is normally be (which is a mistake by its own). Then it tries to suppress the price of the input, fertilizers. What is your reaction to this, if you were fertilizer producer? Hide your fertilizer, and try find a place where you can sell it well, because there are people who are willing to pay higher. (Minister Apriyanto will not be happy -- he will ask the police to get you).

This all is so predictable. The rice price is subsidized. If you can't afford to subsidized the inputs then you'll be in trouble. It goes on and on. And they never learn.


Ujang said...

Aco, let this be your own personal mission, your very own MDG: fight economics illiteracy!

By 2030, all high school graduates should be required to master the concepts of opportunity cost and market equilibrium.

By 2040, government officials and members of the parliament whose jobs are related to economic issues but have no grasp on basic economics literacy should be regarded as if they cannot read, write, and do simple arithmetic. And be relieved of their duties.

Aco said...

Need lots of help from people like you, Jang...