Saturday, February 16, 2013

Super Surprise: Supply and Demand Economics Applies in Venezuela

The Venezuelan government has put price controls into place in the country, as a result of climbing prices. But the cause of the soaring prices is out of control money printing by the Venezuelan central bank.Venezuelan M2 money supply has grown by 57% over the last year!

With that much new money chasing goods, it is not surprising that price inflation is soaring.  You can't fix the problem by decreeing less money should be spent on goods, when there is a lot more money in the system chasing those goods. It simply results in shortages. If a government, say, decrees that Rolls Royce automobiles must be sold for $100, Rolls Royce dealers will be sold out of cars within 15 minutes, the showrooms will be empty and Rolls Royce won't be supplying any more cars to that market.

Decree that farm prices should be below market prices and farm products will disappear from shelves, with farmers less willing to supply more product. Long lines ensue as the method of rationing what food does come to market.

The Venezuelan price controls are causing such a food crisis in the country, now. Andy Gallacher reports from Caracas.


  1. Another perfect, needless, real world example of economic idiocy that will be misunderstood. I wonder who the scapegoat is this time around...

    1. The same as always: the producers, with the moochers using their numerically superior voting power to keep expropriating them.