Why most Government Interventions fail?

Monthly Market Commentary: October 1, 2021

In 2020, the South African government in its ultimate wisdom decided to outlaw the sale of tobacco in order to curb the spread of the coronavirus. I am not sure what the ban on smoking or for that matter on drinking had to do with the coronavirus but this was what the SA government decided at the time.

Smokers quickly found other ways to source the products, fuelling the black market. According to Bloomberg, “A University of Cape Town study found that 90% of smokers were able to purchase cigarettes during lockdown – usually at elevated prices.”

Nowadays, more than a year after the five-month prohibition was lifted, the illicit industry is still maintaining its majority grip on the sector with a more than 50% of the market compared with a 37% share in 2019.

Here you have now the perfect example of what government interventions do. They annoy most people, and at the same time they increase the costs of products and services.

I have another wonderful example about how government interventions work. According to a Dow Jones Newswire story, “High cost and scarcity of daycare is contributing to labor shortage.” An analysis by the Cleveland Fed argued that, “ending enhanced unemployment benefits hasn't helped businesses solve their hiring woes, and the lack of affordable child care is holding employees back from rejoining the workforce.”

What happened is this: a) The government orders lockdowns and school closures. b) Toddlers must therefore stay at home. c) One parent, usually the mother, must also stay at home. d) Supply of labor diminishes and creates labor shortages. e) In the meantime, 30% of daycare facilities close permanently because of the government's authoritarian central planners. f) cost for the surviving facilities soar (47%) leading to higher daycare costs for parents. g) Many mothers find it more economical to stay at home rather than to send their children to costly daycare facilities, thus, reducing the supply of labor. h) Labor costs begin to move up more rapidly and price increases accelerate.

Across the U.S., “more than 4 million Americans did not work during Sept.1 through Sept. 13 so they could look after children while some daycares and schools remained closed, according to data from the U.S. Census Bureau's Household Pulse Survey.”

As Groucho Marx said: “Politics is the art of looking for trouble, finding it everywhere, diagnosing it incorrectly, and applying the wrong remedies.”

Groucho Marx would be extremely pleased with Team Biden’s “Politics.” Financial Asset Markets are beginning to dislike them!

With kind regards
Yours sincerely
Marc Faber

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