The Lessons Learned from Zimbabwe (Update1)

Probably Zimbabwe will never be forgotten by economists for its world famous hyperinflation and arbitrary restrictions. The fallen from the strongest economy in Africa to the weakest in the world alert people the importance of good governance and recognition of several important things.

Property rights are one of the important things that the president, Mr. Robert Mugabe denies for a long time. From expelling the white farmers to taking control of those private diamond mines, property rights become nothing but something can be easily stolen or robbed. Why people will attend to those things which they might lose at any time? (Read the article from Time and Bloomberg.)

The setting of the price is another thing that perhaps Mr. Mugabe has never learned from anyone who has a little knowledge of economics. The determinant of price is the relation between supply and demand rather than anything else. Again, when you find some policemen came to your store and told you that you might be arrested unless you cut your price of your goods under a certain price, those policemen were probably executing the order of Mr. Mugabe. (Read the article on Economist.)

The story in Zimbabwe is miserable. Hyperinflation reaches 3,700% as officially estimated, which may be actually higher. Millions of Zimbabweans flee the country mainly to South Africa. Those who are still working finds the money they earn provide nearly zero purchasing power in the black-market, since the stores, supermarkets have already had nothing left. However, those who have access to limited greenbacks at the official rate of 250 Zimbabwe dollars to 1 US dollar can make a killing by earning 250,000 Zimbabwe dollars for just one greenback. (Read the article on Economist.)

Anyway, Zimbabwe used to be strong and is used to the extremely poor states. The case is so famous that my macroeconomics lecture always put forward the case for us to discuss. Maybe, if anything fails, there is always one thing that can assure you of immortality called great mistakes.