Saturday, February 13, 2016

Dispatches from Venezuela: Price controls destroy wealth, and lives

In Venezuela, stories of economic meltdown, as the socialist policies of President Maduro have had there predictable effects:

 CARACAS, Venezuela—In a hospital in the far west of this beleaguered country, the economic crisis took a grim toll in the past week: Six infants died because there wasn’t enough medicine or functioning respirators.

 Here in the capital, the crisis has turned ordinary life into an ordeal for nearly everyone. Chronic power outages have prompted the government to begin rationing electricity, darkening shopping malls. Homes and apartments regularly suffer water shortages.

....

The National Assembly, now controlled by the opposition, declared a food emergency on Thursday—an attempt to spur the government of President Nicol├ís Maduro to, among other things, ease price controls that have created shortages of everything from medicine to meat.

 “The people are being left without the ability to feed themselves,” said lawmaker Omar Barboza.

3 comments:

  1. As the post eludes to, when considering the ethos of business, most people outside of Venezuela can simply shake their head. If the one lesson of business has to do with moving assets from a lower valued use to a higher valued use, than the price restrictions and policies of President Maduro have had a predictable effect.

    Lets take food for example. The post mentions food shortage which have prompted emergency action by the government. There is clearly a large market for food in Venezuela, so how could there be a shortage of food in a country whose natural resources of oil should make it a bastion of wealth and stabillity?

    The government has placed price restrictions of a variety of foods. because of these price restrictions, importers, farmers and food manufacturers have no incentive to import, farm or create food because the profit they would make, if any, has been severely limited. Most have just exited the market, leaving shortages in their wake. This is another example of how devastating government intervention has been in Venezuela.

    http://www.huffingtonpost.com/2015/05/17/venezuela-shortages-explained_n_7298426.html

    ReplyDelete
  2. The issues facing Venezuela is a perfect example of economic problems that have been plaguing most “developing countries” throughout the world. It comes to no surprise that Nicolas Madura, the president of Venezuela for first time 17 years has used the economic state of the country to rule by decree. What does this mean? It will allow President Madura to override any attempt by the legislature to liberalize the strictly socialist Venezuelan Economy (Martel, 2016).

    The main problem with the economy in Venezuela is their inflation and declining economy. Although no one truly knows how President Madura will use his power to improve the economy I think one of the best ways for Venezuela to improve their economic woes is by being a little bit more liberal with who they sell their oil to. It’s also important to note that the new elected Vice President of Economics, Luis Salas, stated that “inflation does not exist in real life” – Would you agree with that statement? Mr. Salas argues that inflation is used as a tool of political struggle to pressure governments, impose interests, or simply to conspire to make the population desperate, demoralized and hateful” but I think that’s a topic for another time.


    F. M. (2016, January 18). Venezuela: 'Economic Emergency' Allows Rule by Decree. Retrieved February 17, 2016, from http://www.breitbart.com/national-security/2016/01/18/venezuela-declares-economic-emergency/

    ReplyDelete
  3. Dr. Froeb,

    Students of economics learn early on that, in the eyes of most economists, artificial price controls during normal circumstances aren’t considered good economic policy. An entire course could probably be taught on the perceived pros and cons of New York City’s rent controls.

    Bloomberg View columnist Justin Fox, a former editorial director of the Harvard Business Review, wrote How Hugo Chavez Trashed Latin America's Richest Economy which outlined how Venezuela’s economy - far from efficient before the rise of the late Hugo Chavez and his hand-picked successor - turned on its head in no small part because of “disastrous” macroeconomic management.
    John Otis authored a NPR report The Nightmare Of Grocery Shopping In Venezuela which demonstrates what we already know about price controls and how they have led to a thriving black market.

    If people weren’t suffering from this terrible stewardship, it would be comical. Perhaps populist detractors can take another look at the benefits of an invisible hand over an iron fist?

    ReplyDelete