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Venezuelan Price Controls Lead to Predictable Shortages

Venezuelan grocery stores have products shoppers don't want.

Yesterday, Bloomberg had an interesting article about food shortages in Venezuela. Contrary to popular perception, the Venezuelan shops are not empty. Bakeries, for example, offer "a wide variety of freshly-made breads," including, "a fat, dense loaf called the gallego, or a soft sobado." Conversely, "the canilla, a soft, buttery take on the baguette that's been the beloved bread of choice in this South American country for decades," is missing from the shelves. Why?

The canilla has disappeared because its price is set by the state. The price of the bread is "set at such a low level—1,500 bolivars versus the 4,500 to 7,500 a gallego commands—that bakers complain it doesn't come close to covering their costs. So they use new-found supplies of wheat in the country to bake every other kind of bread imaginable."

Say what you will about socialism, it always follows a predictable pattern. In an attempt to make something available to everyone, the socialists ensure that it is not available to anyone (except for the politically well-connected). As a child growing up behind the Iron Curtain, I recall constant shortages of basic foodstuffs. The price of meat, for instance, was kept artificially low due to political considerations. Low prices created an impression of affordability. On their trips abroad, communists would often boast that workers in the Soviet empire could buy and produce more meat than their Western counterparts. In reality, shops were often empty.

The deleterious consequences of price controls should not come as a surprise to anyone with a basic understanding of economics, including supply and demand, and the role that free markets play in allowing the price mechanism to function properly. Back in 1979, Robert Schuettinger of Oxford University and Eamonn Butler of the Adam Smith Institute wrote a brilliant series of essays entitled Forty Centuries of Wage and Price Controls: How Not to Fight Inflation.

The authors noted that price and wage controls go back, at the very least, 4,000 years to ancient Egypt. "For centuries the Egyptian government strived to maintain control of the grain crop, knowing that control of food is control of lives. Using the pretext of preventing famine, the government gradually regulated more and more of the granaries; regulation led to direction and finally to outright ownership; land became the property of the monarch and was rented from him by the agricultural class."

According to the French historian, Jean-Philippe Levy, "There was a whole army of inspectors [in Egypt]. There was nothing but inventories, censuses of men and animals … estimations of harvests to come... In villages, when farmers who were disgusted with all these vexations ran away, those who remained were responsible for absentees' production... [one of the first effects of harsh price controls on farm goods is the abandonment of farms and the consequent fall in the supplies of food]. The pressure [the inspectors] applied extended, in case of need, to cruelty and torture."

As Venezuelans can attest, the basic laws of economics have not changed since the time of Hammurabi. And, as they can also attest, neither have the means—cruelty and torture—by which governments attempt to make price controls work in real world.

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  • some guy||

    But, but, but Venezuela's price controls weren't real socialism. They've been imposed by dictators rather than by elite socialist economists who have actually crunched the numbers to figure out how much everything should cost to make sure producers earn a living wage and consumers have everything they need.

  • Eman||

    I like how Bernie's defense of himself is kind of the reverse of the "not real socialism" argument we all know and love. Hes sort of tacitly paying lip service(?) to the horrors that socialism wrought in the twentieth century, but its okay, cuz he isn't a real socialist.

  • timbo||

    Does Venezuela's socialism work as well as the FED's control of interest rates from the throne over all banks in the country?

  • Drave Robber||

    So they use new-found supplies of wheat in the country to bake every other kind of bread imaginable.

    Price controls drive innovation, or my nickname isn't Krugabe.

  • Qsl||

    Always bemused that the foremost critics of markets and the like nonetheless ape its structures but to worse affect. It's like holding elections with only one name on the ballot.

    It might not be a bad idea either to come up with an entirely new economic model or at least resign your socialist aspirations to the confines of markets. If your utopia is antithetical to markets while relying on markets, it should be cast out.

    Knowing that desperate countries do desperate things, this is hardly surprising, but does give a sense of unease of what Venezuela may turn into. Desperation is a poor guide in the operation of a country.

  • Citizen X - #6||

    If your utopia is antithetical to markets while relying on markets

    It is worth noting that a market exists whenever and wherever a person trades a thing they have for a thing they want/need more. It is a basic part of human interaction and the only alternative to it involves harm.

  • Qsl||

    Conciliatory measures offered up by libertarian(ish) folks are usually done with markets in mind. It is why you'll see support for UBI but not minimum wage. Land value taxes are supported, but income taxes are not. Eliminating barriers to entry: good, price controls: bad.

    It is worth noting that a market exists...

    Ah, but the organization of that market and its ancillary structures are key. While poor people often trade in units of time and labor, that is unworkable in broader contexts. Likewise, short of self-sufficient communism, you are going to be dealing with markets, so your designs had better work within that context instead of shoehorning your People's Collective on top of it.

  • Scarecrow Repair & Chippering||

    Always bemused that the foremost critics of markets and the like nonetheless ape its structures but to worse affect.

    I've noticed this too. They pass some regulation to fix some symptom, and of course the side effects make things worse. Instead of trying to understand the actual original problem or what went wrong, they pass new regulations to fix the new symptoms.

    Health care isa prime example. The original problem was WW II wage controls, which employers got around by offering benefits like health insurance. Seeing the reality in their own lop-sided fashion, the government winked and let the bennies be untaxable as income, instead of eliminating the wage controls. Next symptom was people with less health care because their employers didn't offer it, so they invented Medicaid and Medicare, plus a zillion regulations to make sure health insurance and health care fit their plans. And then came ObamaCare, to fix the symptom of people without health care. It included artificial markets with various regulations to emulate real markets. Never mind that real markets would be better and more efficient. And if they really did want to solve the problem of poor people without health insurance, just fund that directly. But that would eliminate all the fun of emulating markets.

  • I am the 0.000000013%||

    Excellent comment - thank you!

  • Eman||

    Seconded

  • Ken Shultz||

    "The problem in Venezuela is not that socialism has been poorly implemented. It's that socialism has been faithfully implemented."

    ----Donald Trump today at the UN

  • ChipToBeSquare||

    There was apparently some muttering immediately after that remark, as though the people in attendance couldn't believe someone would dare to criticize socialism. That this is a story at all is the real story

    Of course I really don't like Trump continually threatening to get us involved over there. Even if it's just more sanctions

  • Microaggressor||

    No doubt Trump knew it would ruffle feathers. All the reason it needed to be said, so good on him.

  • damikesc||

    They aren't used to a President not kissing their ass. A President willing to call them on their bullshit to their faces. For all of his alleged amazing oratory, nothing Obama said in office is anywhere near as memorable as that one line from Trump today.

    Trump isn't a great President by any means...but he is probably the best we've had this century. Which is damning with faint praise.

  • Deven||

    He called Kim "Rocket Man". lol

    The best thing about Trump is that he exposed the true extent of the corruption of Washington, and the real amount of power behind the entrenched bureaucracies. The worst thing is that he exposed how many people in our population will cheer on the corruption and unchecked power if it is being wielded against someone they dislike.

  • p3orion||

    Hey, a bull in a china shop breaks ugly vases too.

  • Rebel Scum||

    Nice.

  • Enjoy Every Sandwich||

    Heh, I'll bet the chattering class won't like that! heh heh heh

  • ||

    My favorite things Trump has done in office:
    1) Nominate Gorsuch
    2) Explained socialism to the UN

  • Uncle Jay||

    RE: Venezuelan Price Controls Lead to Predictable Shortages
    Venezuelan grocery stores have products shoppers don't want.

    Its not what the consumers want that is important.
    Its what the wise and judicious leaders of Venezuela give the little people is what that is important.
    After all, the ruling elitist filth in Venezuela know all the Marxist doctrines backwards and forwards, and therefore know what's best for their people.

  • RPGuy16||

    I think I'll try this on the weekend and see what all the fuss is about.

    http://kismetcooking.blogspot......le-of.html

  • p3orion||

    "As Venezuelans can attest, the basic laws of economics have not changed since the time of Hammurabi. And, as they can also attest, neither have the means—cruelty and torture—by which governments attempt to make price controls work in real world."

    Those in hurricane-threatened areas can also attest to that fact, as they faced the same shortages. The means --"emergency" laws against "price gouging"-- may be different, but the effect of government setting an artificially low price ceiling remains the same.

  • Fk_Censorship||

    I hate to be pedantic (ok, no, I don't), but:
    - Hammurabi wasn't Egyptian
    - Hammurabi was way more recent than the period in Egyptian history to which you are referring
    - there were no price controls per se behind the Iron Curtain, because the government owned the stores; they set the prices, the production, etc - and in the absence of competition, were not able to stay efficient; in Venezuela if I understand correctly, it's private businesses which are forced to accept price limits, which also leads to shortages but it's a different scenario
    Both pure socialism (as practiced in Eastern Europe or Cuba where the government owned everything) and Chavez style socialism-lite (where the government tells businesses what to do - the US will get there in no time, if trends continue) suck. Hammurabi and the pharaohs also sucked.

  • Hugo S. Cunningham||

    They can't find bread? Let them eat cake...

    (I understand that Marie Antoinette did not say the original.)

  • jennyhannb||

    "There was a whole army of inspectors [in Egypt]
    http://hotmailwiki.com/hotmail-login

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