The single worst thing any government can do is try to control prices. The result of price controls, always and everywhere, is disaster. At PJ Media, Richard Fernandez sets forth the sad history of price controls in Venezuela under Chavez and Maduro. There is lots more, but here are some excerpts:
In September 2013 the Guardian wrestled with a mystery. “‘No one can explain why a rich country has no food.’ Toilet paper, rice and coffee have long been missing from stores, as Venezuelan president blames CIA plot for chronic shortages.”
Let’s pause on that for a moment: only a news outlet as chronically myopic as the Guardian could fail to understand how a rich country can have no food. The answer is: they have a socialist government that tries to control prices.
Writing in the Los Angeles Times [economist Brad] Schiller wrote: “two years before his death, Hugo Chavez tried to repeal the law of supply and demand … Chavez despised the law because he believed it robbed the poor and unjustly profited producers.”
In its place, he persuaded the Venezuelan legislature to enact the 2011 Law on Fair Costs and Prices, a price-setting mechanism to ensure greater social justice. A newly created National Superintendency of Fair Costs and Prices was empowered to establish fair prices at both the wholesale and retail levels. More than 500,000 price edicts have been issued. Companies that violate these price controls are subject to fines, seizures and expropriation.
Not that he had any good experience with price controls. Chavez had been draining the state-owned Venezuelan oil industry for years using the same methods of price controls. “The most flagrant subsidy is for gasoline. Venezuelans pay only 4 to 6 cents per gallon for gasoline, the cheapest in the world. But it costs Petroleos de Venezuela, the government-owned oil company, close to $2 a gallon to extract, refine and distribute it. With domestic consumption now running about 600,000 barrels a day, the financial loss on subsidized oil is roughly $20 billion a year.”
The result was the ruin of the Venezuelan oil industry and the flight of its petroleum engineers to Canada.
But experience never deters a socialist. Chavez continued his war on the law of supply and demand:
Venezuela was once the largest coffee producer in the world but in 2004 it imported coffee for the first time from Brazil. By 2012 Venezuela was importing 43,000 metric tons from abroad. Today the movement of coffee beans is attended with the care accorded to shipments of gold bullion, under the watchful eye of SADA. “With SADA, any significant transport of food items anywhere in Venezuela must be declared. The truck, the merchandise, the driver, the dates of delivery, everything must be recorded previously if you want to make a delivery.”
Despite the regime’s best efforts, somehow the wreckers and saboteurs that are always summoned into existence by a socialist government find a way to foil the planners. After a little more socialist governance, Venezuelans no longer had enough to eat. The Chavez/Maduro government decided the country needed more cowbell:
As the Guardian explains: “battling food shortages, the Venezuelan government is rolling out a new ID system that is either a grocery loyalty card with extra muscle or the most dramatic step yet towards rationing in Venezuela, depending on who is describing it.”
Registration begins at more than 100 government-run supermarkets across the country on Tuesday and working-class shoppers – who sometimes endure hours-long queues at the stores to buy cut-price groceries – are welcoming the plan.
“The rich people have things all hoarded away, and they pull the strings,” said Juan Rodriguez, who waited two hours to enter the government-run Abastos Bicentenario supermarket near downtown Caracas on Monday, then waited three hours more to check out….
Patrons will register with their fingerprints, and the new ID card will be linked to a computer system that monitors purchases. The food minister, Félix Osorio, said it will sound an alarm when it detects suspicious purchasing patterns, barring people from buying the same goods every day. But he also said the cards would be voluntary, with incentives such as discounts and entry into raffles for homes and cars.
Ah yes, cars. Automobiles are another triumph of socialist central planning:
The last car company in Venezuela, Toyota, closed shop this year after it was denied permission to remit payment for the handful of cars purchased this year. Ford wasn’t doing too good either — selling a total of two cars last month. Venezuelans looking for a car must buy second hand. And wouldn’t you know? Venezuela President Nicolas Maduro signed an edict to regulate the price of used cars “in the government’s latest measure to combat inflation.”
With grocery stores no longer functioning due to price controls, Venezuelans are increasingly buying food from street vendors. That’s a problem! The government has a solution: more price controls.
The Venezuelan government ordered Tuesday that sidewalk vendors may only sell basic foods if they respect price controls and guarantee the necessary conditions of “hygiene and healthfulness.” …
Foods subject to the government resolution are “rice, pre-cooked cornflour, wheat flour, pasta, beef, chicken, turkey, lamb, goat and pork.”
Also included are canned sardines, tuna and mackerel; powdered whole milk, pasteurized and sterilized with a long shelf life; cheese, eggs, soy milk, edible oils except olive oil; margarine, legumes, sugar, mayonnaise, tomato sauce, ground coffee, coffee beans, and salt.
The official resolution allows 30 days for sidewalk vendors to conform to the official measure, and says that whoever infringes it will be penalized with the “confiscation of their goods.”
It is fun, and entirely appropriate, to ridicule moronic leftist policies. But still, a nagging question remains: how can anyone be this dumb? If anything has been conclusively established by world history, it is that price controls are a horrible idea. And yet one government after another goes down the socialist path. Why? Fernandez attempts an answer:
The more interesting question is the absence of the demand for common sense. To wit: why doesn’t the Chavez government wise up? What keeps the feedback loop from working in Venzuelan politics? You would think that disastrous experience with price controls would lead to less of it and to an increased supply of common sense. But the contrary is happening: instead the greater the disaster the bigger the demand for more imbecility.
Fernandez draws an analogy to the Obama administration’s foreign policy, which I don’t find entirely persuasive. But this is his broader conclusion:
One possible answer is that once a ruling elite buys into a paradigm then all solutions have to be found within the paradigm space. It’s useless to argue ‘why doesn’t Venezuela leave the producers alone’ because that option is not on the table within the terms of their mental system. The only levers Venezuela actually has are the ones they allow themselves to consider. They have hired millions of bureaucrats to implement their price control system and that’s all they can do. To accept price controls are a failure is to accept they and all their useless functionaries are failures and to dismantle themselves.
That’s never going to happen while a single Venzuelan Boliver remains left to debase. Similarly the Obama administration’s foreign policy model cannot be fixed except within its own terms of reference. They know — like the Chavistas — that they’re always going to be re-elected, perhaps not only in spite of their failures but in some sense because of them.
In some bizarre way, stupidity often works. Not for the citizens who have to suffer its effects, but for governments.
If there were a homo economicus, if the rational actor of market theory really existed, then neither Obama nor Chavez would even be elected. Those who criticize president Obama’s lack of belief in American exceptionalism should look at the counterargument from his point of view. “If America is so exceptional then how come I am president?” The real problem with believing in the Law of Supply and Demand is accounting for the existence of an apparently endless market for stupidity.
Which in my view remains a mystery.