Socialism in Action: Venezuela Suffers From Severe Inflation, Massive Shortages.

Venezuela, under the revolutionary and visionary leadership of socialist Nicolas Maduro, is suffering from some of the worst inflation in the Americas. In 2013 alone, the black market value of a Venezuelan Bolivar against a US Dollar declined by a staggering 73%. Price controls on food and basic consumer goods have created drastic shortages as items are bought out of stock as soon as they hit the shelves.

As Bloomberg reports:

Venezuelan taxi driver Jose Sotomayor drives four hours through army checkpoints every week from the city of Maracaibo to buy rice in Colombia for his family at 10 times the government-set price back home.

“You can’t get anything in the shops here, I don’t even bother going to them for basics anymore,” Sotomayor, 39, said in a phone interview. “All of our food is taken to Colombia, it’s like a locust plague.”

Sotomayor hasn’t seen rice for sale in the shops of Venezuela’s second-largest city since July, as smugglers snap up the staple for a maximum of 7.2 bolivars ($1.14) per kilogram, just $0.11 at the black market exchange rate. 

A basic rundown of what is happening: the Venezuelan Government supports a massive social spending institution. They have a veritable menagerie of welfare programs and subsidies to different groups and members within society. They also maintain a strong foreign aid agenda, giving money to regional allies whenever possible. In all actuality, this paradigm is unaffordable. Venezuela, with some of the largest oil reserves in the world, has increasingly dipped into the vaults of the state-owned oil company, and has also turned towards the Venezuelan Central Bank for help. The Central Bank can only help in one way, of course: inflation. That is exactly what is happening.

Furthermore, the Chavez/Maduro regime has long enforced strict price controls on basic consumer goods. As inflation kicks in and money itself becomes overtly plentiful, prices will typically rise with demand and prevent shortages; but due to the Venzuelan price controls, prices are not increasing.  Citizens have wallets busting with Bolivars; therefore, people rush to the stores to spend their money on the artificially devalued goods. This produces the massive shortages that they are suffering from currently.

As you can see, enacting price controls in a period of severe inflation helps only one specific group of people: those at the front of the line.

It’s not just Venezuelans who take advantage of the artificially low prices:

 Dozens of people take shifts to line up outside supermarkets in Maracaibo, a city of 2.1 million people located 800 kilometers (500 miles) west of the capital, waiting for the next delivery of regulated goods. The new stock is bought up as soon as it hits the shelves, leaving shops barren of products such as meat, grains and toilet paper.

The goods are then loaded onto trucks and taken to Colombia. Many of these professional shoppers are native Guajira Indians dressed in bright floral-print dresses who have double nationality and are exempt from border controls.

The modern plight of Venezuela aptly illustrates the Economic Calculation Problem of Socialism, which I have written about here. The Free Market is too complex for any individual or committee to control with any measure of success. The market is an intricate latticework; each actor in the economy is connected in certain ways, and each decision made by one actor in the economy always affects someone else. When the Government attempts to pull strings in some manner, they may achieve the desired result; but pulling that single string always pulls many other unseen strings. For instance, the Venezuela Government puts price controls on food in a period of inflation; because food is suddenly underpriced, consumers rush to purchase and hoard food in the fear of the eventual shortage. Because consumers spend this money on hoarding food, they are not spending it on other things that they might have, such as a new TV, or a new car. Now the sellers of these other items are suffering, because they are losing sales to panic-buying of staple goods. They may suffer ill consequences as a result, and this disrupts their lives as consumers. Methodologically speaking, we can follow this process across different individuals throughout the economy.

No committee or individual in government can possibly calculate an entire economy this way. Neither can a supercomputer. It is not a question of computing power; it is a question of being able to collect and interpret information. No planner can ever have sufficient information about all the implications of economic intervention to make a decision that will not harm some sector of economic actors in some way. Planners can never fully understand what will happen throughout the economy when they pull a single string. They can never possibly predict the multitude of ways in which individuals in the market will react to any given method of economic intervention. The only that way that Socialist planners can have somewhat reliable expectations on how economic actors will react is through violent coercion: “Don’t raise your prices in response to inflation, or we’ll arrest you.” Of course, this is how all Socialist states eventually come to operate, if not totally so at first: on the basis on widespread violence and terror.

Government planners may be able to achieve some desired effect by pulling a single economic string, but they will always pull other economic strings without knowing it, and this will almost always produce negative impacts; those strings were not already being pulled for good reasons.

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