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The Ghastly Economic Mess In Venezuela And How To Avoid It
[Forbes] As times go on the stories about how far and how fast the economy of Venezuela has fallen apart become ever more dramatic. They now actually have the Army, seriously, the armed forces, guarding food supplies. And the police are handing out toilet paper. We can just about imagine such things happening in the wake of some massive natural disaster, the levee breaks, the hurricane comes ashore, but not as day after day activity as something normal for the nation. But there has been no natural disaster in Venezuela, this is just the result of some years of idiot socialism. What makes it all so tragic is that there was and is another way to achieve the stated aim: making the poor better off. And when we consider what we might want to do to make the poor better off wed better pay attention to this, admittedly extreme, example.Heres the news report: Shoppers thronged grocery stores across Caracas today as deepening shortages led the government to put Venezuelas food distribution under military protection. Long lines, some stretching for blocks, formed outside grocery stores in the South American countrys capital as residents search for scarce basic items such as detergent and chicken. Police inside a Luvebras supermarket in eastern Caracas intervened to help staff distribute toilet paper and other products. Sure, Venezuelas an oil exporter, sure the price of oil has fallen. But this isnt what happens in a commodity producer when the exports fall in price. This is what happens when you let the half-wits take charge of economic policy for a nation. Actually, in Venezuela, calling them half-wits is probably a mite too polite. Theres absolutely nothing wrong at all with the intention of making the poor better off. Indeed, I share that aim: thats why Im this capitalist free marketeer type, as its the only socio-economic system weve ever had that has made the poor substantially better off for any period of time. However, corruption finds a dozen alibis for its evil deeds... there are good ways and bad ways of going about doing this and if we want to succeed in our aim, in the US, of making the poor better off then wed do well to pay attention. The short answer is dont screw with the market. The slightly longer answer is that yes, prices are indeed what people get charged for something. But the information is flowing two ways here, its also flowing back to the producers and telling them what to produce in what volumes. Venezuela decided to fix prices: that does, in the very short term, aid people who cannot afford to buy things. But it entirely shafts that ability of market pricing to inform producers. Who wants what? We dunno if weve not got prices to tell us. So, the medium term effect of price fixing, of fixing prices low, is that there are shortages. Think about the very mechanism of the market for a moment. By definition the market clearing price is the one which balances all the people who want to buy whatever with all the people who want to supply it. Now we fix the price. If we fix it lower than that market clearing price then more people will want to buy it than supply it. The result is shortages, as sure as eggs is the eggs not on the Venezuelan shelves. If we fix the price above the market clearing price then more people want to supply than want to buy. As the European Union ...the successor to the Holy Roman Empire, only without the Hapsburgs and the nifty uniforms and the dancing... found out when they did this to food prices and we ended up with wine lakes and butter mountains. We could, of course, fix prices at the market clearing price but whats the point of that? And even then how can we calculate that price without using the market itself to do so (and Hayek said we couldnt do it without using the market)? So, price fixing is simply a bad idea. Posted by: Fred 2015-01-13 |
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