The Oil Drum: Europe

On this third installment of the Contrarian Arguments series we’ll address the "Markets Will Solve It" claims.

A regular economist will tell you a fable like this:

If a shortage of potatoes occurs either by lack of supply or by growth on demand the market price will rise. This new higher price will signal to the farmers a need to produce more. Supply will rise, meeting demand, lowering the price and bringing the market back into balance.

Let’s see what’s wrong with this apparently correct logic.