Gasoline Price Ceilings in Ukraine

King Banaian at SCSU Scholars is an expert on the Ukraine. Here is a sad excerpt from one of his recent postings:

Other problems are emerging after Tymoshenko chose to freeze gasoline prices, leading to spot shortages. (You really should read Scott Clark on the shortages.) Jed Sunden writes in the Kyiv Post:

The effects are already being felt. Ukrainians have been lining up for gas outside filling stations that – logically enough – are refusing to sell gasoline at the low prices the law demands. In Kyiv, it’s difficult to find gasoline at all. The government’s socialism has taken us right back to the scarcity days of the Brezhnev era. And observers could only hang their heads in despair when Fuel and Energy Minister Ivan Plachkov announced on May 13 that the Cabinet of Ministers would devise a special formula for calculating prices of petroleum products. A working group consisting of both government officials and representatives of Ukraine’s petroleum refineries was charged with coming up with this formula before the end of June.

Before the end of June? Not only is this an example of flagrant, Soviet-style interference in the economy, it also suggests that the authorities are in the price-fixing game for the long haul. But in a country that calls itself a market economy, there should be no government formula setting prices in the first place. Let supply and demand and market forces rule.

Students seem to understand the economics of price ceilings, but real world examples like this one help to bring the economic analysis alive. Maybe then they won't forget the economics when politicians start promising to intervene in markets to reduce prices.