Shortage economy

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"Shortage economy" (Polish: gospodarka niedoboru, Hungarian: hiánygazdaság) is a term coined by Hungarian economist János Kornai, who used this term to criticize the old centrally-planned economies of the communist states of the Eastern Bloc.

In his monograph Economics of Shortage (1980), Kornai argued that the chronic shortages seen throughout Central and Eastern Europe in the late 1970s (and which continued during the 1980s) were not the consequences of planners' errors, but rather systemic flaws. A shortage of a certain item does not necessarily mean that the item is not being produced; rather, it means that the amount of the good demanded exceeds the amount supplied at a given price (see supply and demand). This may be caused by a government-enforced low price which encourages consumers to demand a higher amount than is supplied. However, Kornai concentrated on the role of reduced supply and argued that this was the underlying cause of Eastern European shortages during the 1980s.