I've seen references to this story for years, but had no idea as to the original source. Its about what happens when government gets into the price-setting business instead of allowing prices to fluctuate on their own. This story happens to be about fur. .
"When Alice eats or drinks something in Wonderland, she either begins to shrink or becomes enormous, and she can't get back to her normal size. In actual fact Goskomtsen (the Soviet price-setting bureau) finds itself in a similar situation. It systematically either underestimates or overestimates the atual cost of a product and cannot "hit the nail on the head". At best, it is able only to correct the most obvious price disproportions several years after they appear.
In 1982, for example, to stimulate production of goods made of inexpensive fur, purchasing prices on moleskin were raised from 20 to 50 kopecks per pelt. State purchases increased, and now all the distribution centers are filled with these pelts. Industry is unable to use them all, and they often rot in warehouses before they can be processed. The Ministry of Light Industry has already requested Goskomtsen twice to lower purchasing prices, but the "question has not been decided" yet. and this is not surprising. Its members are too busy to decide. They have no time: besides setting prices on these pelts, they have to keep track of another 24 million prices. And how can they possibly know how much to lower the price today so they won't have to raise it tomorrow?"
Well, they could stay out of it altogether, and let vendors try to sell fur for as much as possible, and let customers try to purchase it for as little as possible, and the Invisible Hand will determine at what price the transaction will take place.
On a related note, here's what has happened when California's government put a .05 cent bounty on aluminum cans. The idea was to conserve, be green, and save the earth. Instead, people are flocking to California with their aluminum.
Thomas Sowell says it over and over and over, and we still don't get it. Programs and policies should be judged and evaluated in terms of the incentives they create, not their stated goals and objectives.