MEXICO'S OIL PRICES AND THE FOLLIES OF STATE CONTROLS

 Maria Fernanda Tapis Cortes posts (6  January 2017) on

Fair Observer (‘make sense of the world’) HERE

‘Solving Mexico’s Oil Crisis’

… It is only a temporal measure. From February onward, costs will change every day until they are released in each state. By the end of the year, prices will only be determined by that invisible hand Adam Smith talked about: the market. ….

…The Mexican government aims to compensate the gap from Pemex contributions with a gasoline tax and the new companies arriving in the country. Without a subsidy to pay, there will be about 400 billion extra pesos to invest in social programs.The question is whether this money will be correctly managed or if it will be lost on salary bonuses, debt payments and corruption that costs the country about 9% of its gross domestic product (GDP) every year… 

… There are many other problems related to these issues that will affect Mexicans in the short term. The president’s popularity hit rock bottom with several protests this week demanding prices to be brought down. There is a shortage of fuel in 13 states caused by the insufficient production, damaged ducts and panic shopping, and criminal groups reselling stolen gasoline on the black market at lower prices are gaining ground. …

COMMENT

Read the sorry tale. What a mess! And dragging the innocent Adam Smith into it with the modern myths of ‘an invisible hand’.

Markets operate by visible prices. 

There are no invisible hands, as understood and claimed by modern economists, such as Paul Samuelson (1948), who blamed Adam Smith (1723-1790).