Face Mask and Price Control: Ukraine’s Government Fights off H1N1 Virus

Over the last two weeks, Ukraine's Prime Minister Tymoshenko provided a classic example about when price controls and government misinformation could go awry. The government spread panic among Ukrainians by announcing that the country had an outbreak of swine flu in the Western regions. It stated that soon enough the whole nation would be infected with the epidemic and deadly swine flu. In all major TV channels, prime minister told the nation that "the world sent the second greatest trial, after the global financial crisis, to Ukraine and that the nation was not ready to cope with the new disaster". Even Ukraine's president Yushchenko who usually avoids populist decisions wobbled under political pressure and asked for emergency financial and medical aid from the European Union and other countries. In another televised address to the nation, the prime minister announced a three-week recess in schools and universities. The government also banned any public gatherings during the same time period.

From UkraineWatch

Can you guess what happened next to a demand for all medical supplies that could somehow help to fight off the imminent virus? The demand for medicals supplies simply skyrocketed. Shelves of local pharmacies were emptied within two days. Ukrainians bought everything starting from face masks to herbal supplements to flu medications. The price of face masks went up three times across the country until it became impossible to find it in the stores. Some small-scale apparel producers quickly added a new production line to meet the surge in demand. Several boutique stores even tried to add chick to the dismal face masks by putting funky designs on them including a happy face. The government officials, that caused the panic in the market in the first place, responded with an old-school approach by imposing price controls on all necessary medical supplies and face masks. Ukraine's government even went further by threatening entrepreneurs with arrests if they try to make an extra buck on the "swine flu panic". The Leviathan of the Ukrainian government was unleashed. All imaginable regulatory agencies ranging from anti-trust agents to fire-control inspectors swamped local pharmacies and markets to enforce this crazy edict. Subsequently, many privately-owned pharmacies cut down their working hours and even shut down in order to avoid conflict with ravaging regulatory agencies. Even black-market entrepreneurs scaled down their operations to avoid any interaction with law enforcement. Could you guess what happened next? The anti-market behavior of the Ukrainian government proved the law of unintended consequences once again when all medical supplies vanished almost overnight.

Unfortunately, the story does not end there. When fidgety consumers faced the empty shelves in the pharmacies, they retreated to all kinds of substitute goods. Traditional Ukrainian medicine prescribes garlic, onion, and lemon to combat the cold. The demand for these goods rose and their prices doubled. In Kharkiv, the second largest city of Ukraine, the price of garlic skyrocketed from 5 hryvnia per bundle to 55 hryvnia (approximately, 7 USD). The government stepped in again. The government accused retailers of making windfall profits on the virus outbreak. However, a public outrage spurred by several public whistleblowers such as Ukraine's celebrity doctor Dr. Komarovksy made the government back away from another price control. The World Health Organization made an official statement saying that Ukraine did not have a very serious H1N1 outbreak. The government rushed to announce that its "quarantine measures" prevented the outbreak of swine flu. Indeed, everything seems to be back to normal though it is still hard to find lemons in the grocery stores. Many Ukrainians also wonder what they should do with the surplus of home medical supplies. Everyone seems to realize the government caused the panic in the markets in the first place by misinformation, and then they try to correct the markets by using anti-market policy instruments. And you know what happened.

Thus, after two decades of post-socialist development Ukraine's government seems to misunderstand its role in a market economy. Sequences of policy lapses like these represent the importance of understanding basic economics, the law of unintended consequences, and resisting populist pressures. Otherwise, the government hurts its own people instead of protecting them.

Misinforming a General Public Always Backfires

"The Daily Show" host Jon Stewart pointed out inconsistencies in alternating "Hannity Show" shots of a recent conservative rally on the steps of the Capitol Building in Washington, D.C. This has led to accusations of Fox News splicing video footage shot at a larger Glenn Beck rally held in Washington two months ago with video shot at last week's rally, thus falsifying footage to make the more recent protest appear bigger than it was. In other words, the Fox News got caught and made fun of. The lesson is learned once again – don't misinform general public. Speaking of which, so what's really going on with "the pandemic swine flu" in Ukraine? Btw, Ukraine's Ministry of Health prefers to call it the Californian flu.

Here is a video from the Daily Show.

Assorted Links

KyivPost has a very interesting article about who stands behind the major Ukrainian politicians in the upcoming presidential elections:

A lot of money gets raised, made and spent during elections. In Ukraine, with an election law that does not cap spending by candidates, major campaigns are expected to cost from $60-$70 million in the case of former Verkhovna Rada speaker Arseniy Yatseniuk and up to $100-$150 million or more for the two front-runners, ex-prime minister Victor Yanukovych and Yulia Tymoshenko, Ukraine's current premier.

Swine Flu Infects Ukraine’s Politics

It's been in the news since last week that Ukraine has an outbreak of swine flu aka H1N1. Russia, Poland and other neighboring countries overreacted by limiting entrance of Ukrainians across borders. Ukrainian politicians overreacted even more than their foreign peers. Whether the outbreak of swine flu had place, the whole governance system simply folded under exigent circumstances as a house of cards touched by a slight breeze. Politicians did everything what they should not do. Instead of protecting its citizens, the Ukrainian government spread panic and fear among the public.

From UkraineWatch

First, it is very interesting that the government was solely responsible for a panic among the public. The Ukrainian government misinformed citizens about H1N1 outbreak. The World Health Organization says that there was no outbreak of swine flu in Ukraine. The government spread a panic among population when Prime Minister Tymoshenko and the Health Minister announced that Ukraine's Ministry of Health registered a record number of people infected with swine flu somewhere in Western Ukraine. However, the World Health Organization has not confirmed an outbreak of swine flu in Ukraine yet! Moreover, a number of deaths from pneumonia that is a complication of seasonal flu was very far from a critical level. Since "the outbreak of H1N1 flu" (October 29, 2009) Ukraine that is a nation with 46 million people has lost 213 people from pneumonia. Only six cases of the H1N1 infection were confirmed. Several medical doctors have already criticized the Tymoshenko government for misinterpreting data and misinforming the public. The most adamant critic of the government incompetence is Dr. Komarovsky who went on several TV shows to calm down Ukrainians and dissolve a myth about the H1N1 outbreak. The government has already changed its position on the epidemic H1N1 situation by announcing that its preventive measures have already reduced the number of flue infections at least by a factor of four.

Second, instead of H1N1 outbreak, we witnessed, perhaps, a final break in the Orange coalition. When Ukraine's president Yushchenko rushed to ask for medical supplies from Europe in order to fight the nonexistent epidemic swine flu, Ukraine's prime minister Tymoshenko ridiculed him for relying on foreign aid instead of doing something himself. Mrs. Tymoshenko promised Ukrainians that she would provide masks for free at each mobile office of her party across country. President Yushchenko retaliated by filing a law suit to the Supreme Court against the Tymoshenko government for failing to report data on a spread of seasonal flu and holding public rallies during "the outbreak of H1N1 virus".

Third, Mrs. Tymoshenko blatantly used "a fight with swine flu" for the sake of her presidential campaign. She proclaimed a fight with swine flu "the second great trial given by the world to Ukraine after the world financial crisis". She made it clear that H1N1 "outbreak" is her number 1 priority in the ongoing presidential campaign. Mrs. Tymoshenko went to war with the swine flu with such zeal and vigor as Miguel de Cervantes' heroic knight Don Quixote who rode his horse to fight windmills. I guess the WHO officials were really touched by the brave heart of Mrs. Tymoshenko that they reconsidered the status of H1N1 in Ukraine to "assumed outbreak". WOW! Well, it's hard to blame the WHO for still being shy when only six person died with a confirmed H1N1 virus from 250,000 "assumed" infected in a country with 46 million people. I am not a doctor, but it doesn't even look to me as a potential outbreak.

Why and what happened to Ukraine's government? I don't really know. But "H1N1 outbreak" shows once again a "professionalism" of Ukrainian politicians. The "outbreak" also demonstrates that what government can do when it is a group of incompetent self-interested individuals delegated with executive and legislative power and driven by the electoral campaign. This kind of government can't do anything good!

Swine Flu Causes Outbreak of Political Stupidity in Ukraine

Dr. Yevhen Komarovsky, M.D., has an excellent OP-ED in Ukraine's leading English language newspaper Kyiv Post. Dr. Komarovksy not only refutes a myth about H1N1 outbreak in Ukraine but also ridicules a political incompetence of the Ukrainian government.

Here is an example of how efficient is a centralized system of governance in Ukraine:

"I recently talked to a nurse working in a public hospital. She received a call from a chief of medicine, who said: "Tomorrow you have to bring three face masks to your work." Her justified objection that they're difficult to come by was met by the boss' curt reply: "It's your problem. The night is long. There's enough time to sew them."

Celebrating 20 Years of the Fall of Berlin Wall

What was the major political event in the last two decades? The Fall of Berlin Wall! Today we celebrate twenty years since the fall of the Berlin Wall. Even though the Berlin Wall fell between Eastern and Western Germany, the whole world was affected. But the fight for freedom, democracy and free market is not over yet! We can still see hubris of the Berlin Wall further to the East as well as all over the world.

I usually like to make reference to the Economist to make my point clear. And I looked forward to this week's issue. But I am honestly disappointed with the Economist's dull celebration of the greatest political event in the world's modern history.

George Mason University's Professor Peter Boettke has much more interesting blog post on the Fall of the Berlin Wall (including very cool YouTube video):

"November 9th 1989 --- forgive me if I still get choked up about it 20 years later -- is a critical date in modern history whose significance should never be forgotten.  Those of us who believe strongly in the freedom of the individual and in the power of voluntary civil associations (including the profit motive of the market) to resolve social dilemmas instead of relying on the coercive power of the state have lost much of the ground we gained in the 1980s and 1990s during the time since 9/11, and especially this past year. But we still can rejoice in this shining example of the victory of the individual over the collective.  Freedom was celebrated that day by people who were oppressed by their government for far too long."

Btw, I highly recommend you reading another post by Richard Ebeling.

If you are interested in the political economy of the Soviet Perestroika and post-Soviet transition, I also recommend you reading these books by Dr. Peter Boettke: Calculation and Coordination and Why Perestroika Failed. These both books are always on my desk.

Eminent Domain: Russian Version

Moscow's city council shows little respect for private property rights in land. The authorities cater to interests of real estate developers by displacing villagers and destroying their private property without compensation. How do the government officials get away with this? They claim that since land titles were given by the Soviet government, hereby, they could not be acknowledged by the Russian law. I guess it's just another "rock thrown in a harbor" of the Russian system of private property rights.

Here are some quotes from today's NYT article by Michael Schwirtz:

"They gave us this land and told us to develop it," Ms. Gurlynina, now 78, said. "They said we could stay here forever." Then, early one morning last year, the bulldozers arrived. The municipal government had declared that the Soviet-era permits giving Ms. Gurlynina and her neighbors use of the land were invalid, and it had ruled that the 200 or so homes in Ms. Gurlynina's community, called Rechnik, as well as dozens of others in a neighboring community, had to be removed. Moreover, the city said, the residents would have to pay for the demolition themselves.

What is Gas War Good for?

EU-Reporter's Gary Cartwright warns us about another round of Russia-Ukraine gas war. While Ukrainian politics is gridlocked by former allies, President Yushchenko and Prime Minister Tymoshenko, Russia's Prime Minister Putin steps in to remind Europe that Russia's gas supplies can be again affected by the unstable political situation in Ukraine:

"Putin appears to be trying to draw the EU into its dispute, which one might see as manufactured in a committee room just off Red Square, claiming that Brussels is making the situation worse by refusing to subsidise Kiev. The Ukraine had asked the EU for a $4.2 billion loan to pump Russian gas into its underground storage tanks. "The EU has not given Ukraine any money," Putin told leaders of his United Russia party on Friday. "Ukraine has not received a single cent, not one hryvnia."

Is a Post-American Europe Real?

Economist's Charlemagne blog features a new paper by the European Council on Foreign Relations (ECFR) that weighs pros/cons of supposedly coming status quo change in the world politics:

The paper focuses on a clever and important thought, namely that America is well underway with its analysis on how to operate in a "post-American world", (ie, the much-discussed new world in which the brief post-Soviet era of unrivalled American hegemony has been challenged by the "rise of the others".)

The ECFR paper concludes: "Europeans might have more success if they worry a little less about what the US is up to and a little more about defining and asserting their own common interests in relation to Russia… They need to make it harder for the Russians to play on their divisions by presenting a more united front to Moscow, not just on issues such as energy but also on the wider economic relationship that is waiting to be developed to mutual benefit."

I recommend reading a section that contains concluding remarks. It starts on page 61. If that's the best what they could come up with, then … good luck with being "a post-American Europe". Btw, here is my op-ed at EU-Reporter about a post-American Ukraine.

Russia’s Gas and Ukraine’s Political Mess

Russia's Prime Minister Vladimir Putin typically rushed to accuse Ukraine of failing to make monthly payments for Russian gas. Mr. Putin even suggested EU to lend Ukraine at least $1 billion to help it pay for gas supplies.

BusinessWeek's Lynn Berry quotes Mr. Putin:

"Let the Europeans throw in a lousy billion," he said in televised remarks after talks with Danish Prime Minister Lars Lokke Rasmussen.

"Why have they gotten so stingy down there? Let them get something out of their pockets," he said, in typically colorful language. "They have money, too."

Lynn Berry also writes that Putin first raised the gas payment alarm last Friday, when he said that Ukrainian Prime Minister Yulia Tymoshenko had warned him that Ukraine's president, Viktor Yushchenko, was making it difficult to pay the gas bill. Once again Mr. Putin can't help himself to stay neutral when it comes to the Ukrainian politics. Btw, Mrs. Tymoshenko whose government runs the state-owned natural gas company NAFTOGAZ is responsible for Russian gas import and payment. President Yushchenko has nothing to do with this. However, the upcoming presidential elections create more benefits from any black PR. Did I mention that the Tymoshenko government bans to use black PR against prime minister?

Ukraine’s Practice of Unfair Trade Is All Time High

According to a new report from the Centre for Economic Policy Research, Ukraine imposed the most tariffs on commercial products among other countries. China that discriminated against 163 nations is second to Ukraine.