We have a weird, but illustrative, series of events leading up to the planned closing in 2019 of 45 Party City locations, largely based on a worldwide shortage of helium.
In this case, that translates into the loss of work for perhaps a few hundred full and part-time employees.
According to Party City, the helium shortage hurt sales of latex (rubber) and mylar (metallic) balloons, which is one of the most significant profit categories for the chain. Many people stop in and buy a balloon or two and have them filled with helium (a separate purchase) for birthdays, anniversaries, graduations, etc., and end up buying more items since they are there.
It seems like a small thing for us, the customers, but, according to Party City, balloons have a particularly high profit margin and drive enough secondary sales to make it one of the most important profit sectors. That said, Party City CEO James Harrison said that the decision to close these stores was “completely unrelated to the global helium issue” and is rather an issue of overall profitability.
While perhaps technically true, Party City also commented that overall sales would have risen over the past year if not for the low balloon sales, which certainly seems to prove a lack of helium for balloons has a direct and significant impact on profitability, but whatever.
Why the Helium Shortage?
We have to look many years back to before World War I to find the origin of the helium shortage. Airplanes were in their infancy and lighter-than-air vehicles like blimps were being looked at and seemed promising. Helium, the second-lightest element, doesn’t burn, which is a huge advantage over the highly flammable hydrogen, which is the lightest element; thus, helium became of national security strategic value.
As a result, the United States created the Federal Helium Reserve in 1925 and began to deal in and stockpile helium.
By the 1950s, helium was being used in a much larger number of ways in science, weather balloons, and even the space race, so demand evolved. To fix it, Congress passed the Helium Act Amendments of 1960, which created incentives for natural gas producers to sell their supply of helium to the U.S. reserve, which was still active since the 1925 Helium Act. As a result, the United States stockpiled the majority of the world’s helium.
As things continued to evolve, it was decided that the U.S. government shouldn’t be in the helium business, so to fix that problem, Congress passed the Helium Privatization Act of 1996. This act was intended to get the government out of the helium business after more than 70 years of buying, storing, and refining helium, and directed that the helium be sold to recoup the government’s investment.
Critics pointed out that the formula-based sales price was significantly lower than the fair market price, thus ensuring that it wasn’t profitable for the private sector to invest in the development of helium sources. So, to fix that issue, in 2013 Congress passed the Helium Stewardship Act (HSA), which amended the Helium Privatization Act of 1996 and required the helium—and all related property and equipment—be sold by 2021 at auction to obtain fair market value and put helium back into the private sector.
As is so often the case with government initiatives, the 1996 and the 2013 laws produced conflicting results and unintended consequences.
For one, the auction process allowed a few big companies to control the process by bidding the prices so high they drove all the smaller companies out. After decades of a government-run helium market, we see that the market has been distorted by years of price controls, artificially low prices at times, and artificially high prices at times. We now face a helium shortage, and 75 percent of the world’s helium comes from only three sources.
Central Planning Woes
This is a textbook example of the problems of central planning much like you find in a socialist-run economy. The government identifies a policy that has unintended consequences, and each time they “fix” the problem, it gets worse, rather than letting private-sector market forces find equilibrium naturally.
Having myself worked for the federal government for 25 years, it’s something I have seen in action many times, although the swamp is hard to explain.
It’s hard to believe there are people who think socialism is a viable economic model when it fails under almost any circumstance.
Let it be a lesson to those who are out of a job at Party City and anyone paying attention: Government interference in the private sector is a high-risk, low-gain venture and must be minimized.
Brad Johnson is a retired CIA senior operations officer and a former chief of station. He is president of Americans for Intelligence Reform.
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Author: Brad Johnson