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The milk shortage

By Andrew Leigh - posted Friday, 18 May 2007

Once upon a time, there was a government that thought that milk was very important to human dignity. So they decided that milk should be very cheap, and ordered that it be sold for no more than 10 cents a litre. Some people commented that other countries sold it for several times as much, but the state and territory milk boards set their price anyway.

Then one day, the milking machines started to break down. No one expected it. The Treasurer said it was very unlikely - the kind of thing that only happened every thousand years. No-one knew when the milking machines would be fixed, and there was a lot less milk available than before.

But because milk was still very cheap, people wanted lots of it. So the government decided it would have to set some rules on proper use of milk. To solve the problem, they instituted Stage 1 milk restrictions, under which milk users were banned from using milk to feed to cats. To enforce the rules, they set up a hotline, where people could call to report their neighbours using milk the wrong way.


To the government’s surprise, this didn’t solve the problem. At 10 cents a litre, people still used a lot of milk. Stopping families feeding it to cats didn’t solve the fact that it was still very cheap. And lots of the milking machines were still broken.

So the government instituted Stage 2 milk restrictions, under which people were not allowed to put milk in their coffee. Because some voters loved milky coffee, they created an exception for Sunday afternoon coffee. But if you saw your neighbour drinking a latte on a weekday, you could call a special hotline, and they would be fined.

The government was sure that this would ensure that there was enough milk for anyone, but it turned out that it didn’t help. Some silly people called for the milk price to be increased, but the sensible politicians pointed out that this wouldn’t be right, because milk was a necessity of life, and poor people wouldn’t be able to afford it if it was more expensive. And besides, raising the milk price was politically impossible. The New South Wales Government knew that if they tried it, The Sydney Horror and the popular broadcaster Alan Laws would hound them from office.

So they introduced Stage 3 milk restrictions, under which households with even street numbers could have milk on their weeties on even days, and households with odd street numbers could have it on odd days. If it was not your day, then the only reasonable use of milk was to feed babies and old people who had lost their teeth. Announcing the plan, the ministers said they were sorry, but everyone had been surprised when the milking machines broke, and fixing them was proving very hard. In the meantime, the people would all have to make sacrifices together.

There were one or two people who pointed out that perhaps if the country charged more for milk, like other countries did, then there would be more of an incentive to fix the milking machines. But lots of people shouted that this was a very silly idea, because charging more than 10 cents a litre for milk was un-Australian.

One man came up with a very clever plan that gave everyone their own milk quota, which they could then sell to other people. It would only need a couple of hundred government officials to run it, and he promised it would achieve a result that was very like raising the milk price - without actually raising the milk price. But it was rather too complex for most people to understand.


So they kept on selling milk at 10 cents a litre, and instituted Stage 4 milk restrictions …

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First published on Andrew Leigh’s blog on May 15, 2007.

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About the Author

Andrew Leigh is the member for Fraser (ACT). Prior to his election in 2010, he was a professor in the Research School of Economics at the Australian National University, and has previously worked as associate to Justice Michael Kirby of the High Court of Australia, a lawyer for Clifford Chance (London), and a researcher for the Progressive Policy Institute (Washington DC). He holds a PhD from Harvard University and has published three books and over 50 journal articles. His books include Disconnected (2010), Battlers and Billionaires (2013) and The Economics of Just About Everything (2014).

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