So How’s This Bolivarian Chavismo Working Out Then?

February 22, 2014 Updated: February 22, 2014

It has to be said that this Bolivarian Chavismo, socialism with a Venezuelan face, really isn’t working out all that well. A few months back we had the absolutely absurd story that people were using high tech gadetry like smartphone apps just to work out which shop had toilet paper in stock. Things are going downhill from there.

At least three airlines have grounded flights to and from Venezuela so far this year, in part because the nation’s government owed the carriers $3.3 billion in foreign exchange they need to pay operating costs.

Carmakers are also in trouble. Toyota Motor Corp. is halting production in Venezuela, while Ford Motor Co. is reducing output. A mere 722 vehicles were sold in a country of almost 29 million people last month. Trade group Cavenez reckons this amounts to an 87 percent drop in sales in one year. Ford’s chief financial officer, Robert Shanks, understated the problem when he told Bloomberg last week that “price controls and a very limited and uneven supply of foreign currency to support production, have affected output adversely.” So adversely that Chrysler, Ford and General Motors produced no vehicles in Venezuela last month.

Business isn’t much better for newspapers. In the last six months 12 papers have shut and more than a dozen might cease publication if the government doesn’t sell the newspapers enough foreign exchange to pay for imported paper. A greenback in the black market now goes for 84.2 bolivars, or 13 times the official rate. With the highest inflation on earth, rampant violence, declining oil output and a hobbled private sector, Venezuela seems instead to be on a sustainable path to economic ruin.

I’m not sure that anyone would have the chutzpah to claim that that is all a mark of success.

The basic problem was an old one that confronts socialists. Desiring to reduce inequality might be something that I’m not very concerned with but it’s a legitimate view to hold. Desiring to improve the position of the poor is one that I do agree with. But either of these things cannot be done by screwing with the market. For doing that is going to, inevitably, lead to the results above.

As I mentioned a couple of days back if you institute price controls then if you set them high, over the market clearing price, then you’ll get a surfeit of whatever it is that you’ve just controlled the price of. If you set it below that market clearing price then you’ll suffer a dearth. And if you set it at the market clearing price then why on earth are you bothering to control prices?

There is just no way out of this problem.

Unless, of course, you don’t screw with the market as your method of increasing the incomes of the poor or of reducing inequality. And the most obvious method of doing that is to tax and then redistribute that money to said poor. Obviously this can be overdone but it is indeed what every country currently does do and they all manage to keep airlines flying, toilet paper on the shelves and the exchange rate within sight of the official numbers.

That, according to what they said at least, they wanted to move Venezuela a little in the direction of Sweden’s icy social democracy isn’t something we should condemn them for. For being complete fools about how they went about doing so perhaps is.

Published by Adam Smith Institute

Views expressed in this article are the opinions of the author and do not necessarily reflect the views of The Epoch Times.

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