A Circus But No Bread
Mary Anastasia O'Grady has written an interesting analysis of the Venezuelan mess in the WSJ today, and she quotes Mises on prices:
Here's how Chávez economics "works." As petro-dollars pour into state coffers, the government takes them to the central bank to get new bolivars printed, which are then pumped into the economy through government spending. Mr. Chávez has also been regularly increasing wages. The result is a consumption boom. Under free prices, too many bolivars chasing too few goods would produce inflation that would show up at the supermarket checkout counter. But price controls make that impossible. Instead, serious shortages are emerging.Free prices are to an economy what microchips are to a computer. They carry information. As Austrian economist Ludwig von Mises explained in his legendary treatise 60 years ago, it is free prices that ensure that supply will meet demand. When Mr. Chávez imposed price controls, he destroyed the price mechanism.
And so it is that the Venezuelan egg is now a delicacy, the chicken an endangered species, toilet paper a luxury and meat an extravagance. White cheese, milk, tuna, sardines, sugar, corn oil, sunflower oil, carbonated drinks, beans, flour and rice are also in short supply.
The reason is simple: Producers have no incentive to bring goods to market if they are forced to sell them at unprofitable prices. Ranchers hold back their animals from slaughter, fisherman don't cast their nets, food processors don't invest in equipment and farmers don't plant. Those who do produce find it makes more sense to take their goods across the border to Colombia or to seek out unregulated (black) markets.
I do wonder about the use of the term "incentive." The makes it sound as if no one should do anything unless he can make money. It is more precise to state that market signals are instructing producers that it would be economically irrational to bring products to the market.
Comments (10)
olmedo
Venezuela, or Chavez, are a mystery to me.
while they are drowning in dollar reserves , that come from their booming oil and minerals revenues(venezuela is one of the largest aluminum and iron producers) the country is on a strict "diet".
imports have been falling (due to chavez protectionist policies) and as Venezuelans produce little else together with price controls, therefore you see scarcities all over.
their trade surplus is so large that they can pay their foreign debt in an eye blink.
chavez, is the only "miser populist" I have known.
olmedo
Published: May 21, 2007 9:41 AM
Person
Weekend before last I went to a posh nightclub in Dallas and met a girl from Venezuela. I asked her "if [she's] worried about everything that's going on right now [in Venzuela]". She said, "No ... not really". I would have asked more but ... come on, it was a club.
Raise your hand if you're still recovering from the influx of knowledge gained from this post.
Published: May 21, 2007 9:46 AM
jl
The mention of soft drinks being in short supply brings to mind the invasion of the bottling plants a few years ago by Chavez's goons. I think his message was that he was distributing prosperity to the people...
Published: May 21, 2007 10:08 AM
Brent
Chavez looks like he's well along on his way to creating a lifetime dictatorship.
Published: May 21, 2007 10:40 AM
Daniel M. Ryan
"Anastasia/ Screamed in vain."
- "Sympathy For The Devil," The Rolling Stones
Published: May 21, 2007 1:02 PM
Paul Marks
Sadly many people in the United States also believe in price controls.
For example, that insurance should be at a "fair" price or that all people should pay the same insurance rates (regardless of circumstances).
That the only "just price" is a free price - i.e. the price that buyer and seller agree for a good or service, is a concept that many people still have not understood.
Of course for thousands of years various despots have been imposing price controls. Indeed F.A. Hayek suggested that such collectivist thinking goes back to the evolution of humans in hunter gatherer packs.
To create or long maintain a great society (i.e. society beyond the pack) humans have to get beyond notions of everything belonging to the group and there being such things as "fair shares" or "fair prices". But the pack instinct is still there, and this makes civilization vulnerable.
Rulers like Chavez do not create evil by some sort of magic spell - they appeal to the base pack animal instincts that are already in humans.
It is a sort of secular version of original sin.
However, the very fact that humans all humans did not stay in savage packs proves that we are capable of getting beyond this inner darkness.
Published: May 21, 2007 1:16 PM
JIMB
Incentives is such a watered down viewpoint - It's a matter of survival, i.e. if a producer sells in this environment, they can literally die from shortages.
Published: May 21, 2007 3:51 PM
Boss
Insane ideas are not limited to Venezuela.
Steve Hargreaves has this one on cnn.com today...
My big fat American gas tax
Should Americans consider a big price hike in an attempt to reduce demand and transfer money from Big Oil to the general public?
http://money.cnn.com/2007/05/21/news/international/europe_gas/index.htm?postversion=2007052113
I suggested he read Henry Hazlitt.
Published: May 21, 2007 3:55 PM
Tyler Martineau
Check out this gem I found.
http://daniel-venezuela.blogspot.com/2007/05/food-shortages-in-venezuela.html
Price controls in action I suppose
Published: May 21, 2007 9:07 PM
N. Joseph Potts
Ignorance is a renewable resource.
So is indifference to the welfare of the populace vis a vis one's own power and career.
But something about Chavez makes me at least suppose it might be ignorance.
Published: May 21, 2007 9:16 PM