Wednesday, April 15, 2015

When government interventions backfire, harming those people they’re supposed to help, the state responds like a dog chasing its own tail with even more interventionist “solutions” to the problems it created itself

BBC reporter Daniel Pardo … of the Latin America-centric BBC Mundo, spent four hours [in Caracas] waiting in long lines, searching in vain for milk, coffee, cooking oil, shampoo, corn flour, detergent, dishwashing soap, and toilet paper
notes Benny Huang.
Of these items, he located only three on the bare shelves of Venezuela’s capital and largest city.
Venezuela is the laboratory in which the now deceased Hugo Chavez conducted his grand socialist experiment, which his successor, Nicolas Maduro, has seamlessly continued. Supporters of the Chavez brand of petro-socialism characterize it as a popular revolution that has allowed regular folks to reclaim their economy from the hated rich.

In short, they’re stickin’ it to the man.

In the new Venezuela there shall be no more price gouging, no more exploitation, no more…toilet paper? Among the items left unpurchased on Daniel Pardo’s list was toilet paper, a scarce commodity in a country that doesn’t exactly lack trees. Scrounging for TP has become something of a national pastime in Venezuela. President Maduro predictably blamed “unscrupulous traders,” not the policies of his government, for the shortage. In September of 2013, Venezuelan troops actually seized a toilet paper factory in order to better oversee production and distribution. A shortage nonetheless

Such is life in the Bolivarian Republic of Venezuela. “We’re queuing here to get a number so we can queue again and buy the product,” explained Daniel Pardo.
 … “Critics say that the cause of shortages is price controls, which make reselling too profitable and producing, well, the worst business ever,” said Pardo.

The critics, in this case, are right. Government price controls and other strong arm tactics make people think twice about making or selling anything.

The government claims that it’s only setting prices that are “fair,” though the people who actually produce the stuff disagree. If no one will make the products at the tiny profit margins that the government permits, that’s a pretty good indicator that the price is not really fair at all. In most cases, the government bureaucrats who determine the “fair” price don’t really understand all of the costs—capital, material, and labor—that go into making the product. They simply see the producer as a robber baron who must be brought to heel.

Therein lies the problem. In true demagogic fashion, Maduro rose to power using class warfare rhetoric, most of which he probably even believes. Maduro is no son of landed gentry but a former bus driver who didn’t finish high school. He identifies with the “little guy,” and it is for his sake that Maduro’s government is constantly interceding in every aspect of production and distribution. The Chavez/Maduro message (“soak the rich”) resonates with people who perceive themselves as victims but unfortunately it doesn’t make good economic policy. The more the government tightens the controls, the more people try to circumvent them, or else they decide not to be part of the productive class anymore, in which case they stop producing and wait for the state to redistribute to them someone else’s stuff. The same pattern is apparent anywhere economic policy-makers care more about the fair distribution of wealth than about its creation. When government interventions backfire, harming those people they’re supposed to help, the state responds like a dog chasing its own tail with even more interventionist “solutions” to the problems it created.
 … Yet the socialist government accepts no responsibility. Again, Maduro suspects that a conspiracy is afoot among shopkeepers and probably Yanquis. As Pardo explains: “But the government says that scarcity is part of an economic war, which hides, smuggles, and hordes products to destabilize the country.”

Oh, I’m sure there’s plenty of hiding, smuggling, and hording taking place in Venezuela, but it isn’t a counterrevolutionary conspiracy. It’s basic economics. Furthermore, the governmental explanation confuses cause and effect. Hording in particular is the result of scarcity. When Venezuelans see an opportunity to buy toilet paper, for example, they buy it in bulk out of fear that it might soon become unavailable. Smuggling and hiding are also effects, not causes, of Venezuela’s economic troubles.