Monday, May 21, 2007

Quote of the Day: Price Controls in Venezuela

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 in Venezuela, he destroyed the price mechanism.

~Mary Anastasia O'Grady in Today's
Wall Street Journal

As predicted by simple economics, Venezuela now has serious and chronic shortages as a direct result of the Chávez price controls.

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.

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.

Bottom Line: If you took the microchip out of a computer, you would have a computer that didn't work. If you take market prices out of the economy, you have an economy that doesn't work. Exhibit A: Venezuela and Chavez economics.

Update: See today's
Washington Times editorial about another reason the Venezuelan economy is failing and headed for more trouble: the redistribution of Venezuela's land from large farms to cooperatives as part of Chavez's usual Marxist rhetoric of social equality and class struggle.


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