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Blog

    Price Controls Are Accelerating Venezuela's Collapse

    02/16/2007

    Hugo Chavez and his socialist "Bolivarian Rebolution" are destroying Venezuela. The latest report in the New York Times describes the predictable result of price controls: widespread food shortages. More troubling is the dictator's response: instead of allowing markets to set prices and getting the supply chain back in action, Chavez is announcing a chilling crackdown on the nation's business classes and a dramatic devaluation of the currency. The Times' Simon Romero writes:

    Faced with an accelerating inflation rate and shortages of basic foods like beef, chicken and milk, President Hugo Chávez has threatened to jail grocery store owners and nationalize their businesses if they violate the country’s expanding price controls.

    Food producers and economists say the measures announced late Thursday night, which include removing three zeroes from the denomination of Venezuela’s currency, are likely to backfire and generate even more acute shortages and higher prices for consumers. Inflation climbed to an annual rate of 18.4 percent a year in January, the highest in Latin America and far above the official target of 10 to 12 percent.

    Mr. Chávez, whose leftist populism remains highly popular among Venezuela’s poor and working classes, seemed unfazed by criticism of his policies. Appearing live on national television, he called for the creation of “committees of social control,” essentially groups of his political supporters whose purpose would be to report on farmers, ranchers, supermarket owners and street vendors who circumvent the state’s effort to control food prices.

    The excellent story examines the predicament facing businesses across the nation, quoting a butcher shop owner as saying, '“If I don’t sell at the regulated price they’ll fine me, and if I don’t sell meat I’ll be out of business.”

    The unfolding tragedy of Venezuela holds lessons for the U.S., where some politicians are calling for price controls on pharmaceutical drugs, energy, and insurance premiums, and where many products, such as sugar, cotton, and milk, are already subject to government price-setting or manipulation (although in the U.S. the price is usually rigged too high at the expense of consumers, which results in production surpluses -- the opposite of the situation in Venezuela). Price controls are supremely ignorant policy measures that fail time and again, and are the tool of tyrants like Hugo Chavez.