Tuesday, April 24, 2012

The Evil of Price Controls

By William Neuman

CARACAS, Venezuela — By 6:30 a.m., a full hour and a half before the store would open, about two dozen people were already in line. They waited patiently, not for the latest iPhone, but for something far more basic: groceries.

“Whatever I can get,” said Katherine Huga, 23, a mother of two, describing her shopping list. She gave a shrug of resignation. “You buy what they have.”

Venezuela is one of the world’s top oil producers at a time of soaring energy prices, yet shortages of staples like milk, meat and toilet paper are a chronic part of life here, often turning grocery shopping into a hit or miss proposition.

Some residents arrange their calendars around the once-a-week deliveries made to government-subsidized stores like this one, lining up before dawn to buy a single frozen chicken before the stock runs out. Or a couple of bags of flour. Or a bottle of cooking oil.

The shortages affect both the poor and the well-off, in surprising ways. A supermarket in the upscale La Castellana neighborhood recently had plenty of chicken and cheese — even quail eggs — but not a single roll of toilet paper. Only a few bags of coffee remained on a bottom shelf.

Asked where a shopper could get milk on a day when that, too, was out of stock, a manager said with sarcasm, “At Chávez’s house.”

At the heart of the debate is President Hugo Chávez’s socialist-inspired government, which imposes strict price controls that are intended to make a range of foods and other goods more affordable for the poor. They are often the very products that are the hardest to find.

“Venezuela is too rich a country to have this,” Nery Reyes, 55, a restaurant worker, said outside a government-subsidized store in the working-class Santa Rosalía neighborhood. “I’m wasting my day here standing in line to buy one chicken and some rice.”

Venezuela was long one of the most prosperous countries in the region, with sophisticated manufacturing, vibrant agriculture and strong businesses, making it hard for many residents to accept such widespread scarcities. But amid the prosperity, the gap between rich and poor was extreme, a problem that Mr. Chávez and his ministers say they are trying to eliminate.

They blame unfettered capitalism for the country’s economic ills and argue that controls are needed to keep prices in check in a country where inflation rose to 27.6 percent last year, one of the highest rates in the world. They say companies cause shortages on purpose, holding products off the market to push up prices. This month, the government required price cuts on fruit juice, toothpaste, disposable diapers and more than a dozen other products.

“We are not asking them to lose money, just that they make money in a rational way, that they don’t rob the people,” Mr. Chávez said recently.

But many economists call it a classic case of a government causing a problem rather than solving it. Prices are set so low, they say, that companies and producers cannot make a profit. So farmers grow less food, manufacturers cut back production and retailers stock less inventory. Moreover, some of the shortages are in industries, like dairy and coffee, where the government has seized private companies and is now running them, saying it is in the national interest.

Read the rest here.


  1. Not very controversial for a libertarian website.

    A pertinent question I have often had for those(neo-cons and socialist warmongers) who buy the lie that we invaded iraq to secure US oil supplies is this:

    Why did the US not instead invade Venezeuala? they would be a much cheaper country to attack with much easier lines of supply and they have a lot of oil to oand we rely on their oil more than Iraq's and Chavez is not that great a guy either. The truth is that oil production in Iraq went down after the invasion...just as the US backed Saudi regime had been telling Sadam to do in the years leading up to the invasion.

    1. I agree. I'm totally against the Iraq war now but for many years I could be considered a neo-con and probably one reason I stayed there was because most of the arguments against he war seemed rooted in this notion that it was a war about getting the oil in Iraq and there was just nothing valid I saw to backup that assertion.

      That said, until I seriously started questioning the state I didn't come around to a more anti-war perspective.

    2. The US and CIA knew that Sadam was a homicidal maniac BEFORE they put him in power. It was a job requirement. Who else would be willing to kill millions of Iranians and Iraqis in a long bloody war?

      The US establishment only turned against Sadam when he stopped taking out loans from the western banks and using the loans to buy weapons(from us companies)...Sadam said he wanted to pay off Iraq's debt and he had increased oil production to do it(breaking the US and House of Saud supported OPEC production limits)...oil prices were "too low" according to Cheney and many others. The Economist magazine had covers and articles talking about the terrible consequences of the "oil glut".

  2. Central economic planning doesn't work? Who knew? Evidently, not Hugo Chavez. Commies are not exactly the brightest bulbs on the tree.

  3. Yep.The socialist "Pie in the Sky" hits the ground faster than their guardian angels can fly!