Back to the 1960s from Perth to Washington

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I travel to Perth about once a month. I always enjoy the trip, particularly at this time of the year when the weather is a lot nicer in Perth than in Melbourne.  Of course, coming from Victoria, where retail trading hours have been deregulated for years, the trading hour restrictions in Perth, with the associated long queues at supermarkets, can be frustrating. However, it appears that the government is partially freeing up retail trading hours in Perth. See here. That will be a good thing for the residents of Perth, and for my blood pressure (OK – I hate queuing).

However, a recent newspaper article in the Australian gave me a “back to the 60s” moment. Apparently Western Australia still has the potato marketing board. You need a license to grow and sell potatoes in Western Australia and the board tells you how many you can grow. All potatoes must be sold ‘through’ the marketing board and prices for consumers are fixed by the board.

These sort of restrictions have been eliminated almost everywhere else in Australia. They are designed to prevent competition and keep potato prices high. They are wonderful if you are an existing potato farmer but make no sense for anyone else.  The cost of these restrictions to consumers and to other farmers who might like to grow potatoes well and truly outweigh any benefits.

But my real “back to the 60s” moment comes from Washington. Almost every country in the world has got rid of low currency paper notes. They have been replaced by coins. Think of the Euro, the Pound and our own Australian Dollar as examples. Using notes for low value currency is expensive. The notes circulate rapidly and do not last long. Printing new notes while collecting and destroying old notes is costly. Coins last a lot longer which reduces the government’s expenses.

In the US, dollar coins were introduced but the notes remained in circulation. The end result has been that the notes are pushing the coins out of the market. See here. Production of the dollar coins will stop in December.

This is  a simple failure of government. Customers do not see the cost associated with using notes rather than coins for small denominations. But the government sees these costs and the costs are borne by consumers in their role as taxpayers. So hopefully the cross-party Bills before Congress will resolve the issue – in favour of the coins.

Of course, this leaves an interesting race? Will WA eliminate its 1960s potato marketing board before Washington eliminates the dollar notes? Or will both the US and WA be left with their ‘sixties moments’?

 

4 Responses to "Back to the 1960s from Perth to Washington"
  1. The withdrawal of dollar notes could also help to move countries such as Cambodia away from dollarisation.

    Although, maybe they should also be moving away from small denomination notes – 100, 500, 1000, 2000 riel notes make up the small change in wallets here (4000 riel = US$1)

  2. Correct me if I am wrong, but the theory of the second best shows that unless everything else is already a free market, you can’t demonstrate in advance that removing a market restriction will lead to better outcomes. The buyers’ market for potatoes is a long way from being free – domestically, farmers confront a triopsony (Coles, Woolworths and McDonalds) all of whom have huge market power; internationally the agriculture market is famously heavily distorted. There is no reason to think that if the Potato marketing board was removed, Coles/Woolies/Maccas would not just force farmer incomes down and take the increased difference as rental income, rather than passing on the cheaper prices. Meanwhile, removing the various marketing boards and cooperatives would lead to significantly worse lives for farmers and their families.

  3. What about the US$2 note – yes it is still in circulation and is legal tender. And better yet isn’t it time to get rid of the $5 note and move to the optimal denominations which would be $1, $2, $4 etc if I recall the JPE paper by Sargent and Velde correctly!!
    Anyway, potatoes aren’t good for us at our age Stephen, I think that the marketing board are doing a good job in keeping potato prices high. 

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