Sunday, April 6

Venezuela's socialist, totalitarian government offers us some useful lessons

Leftists are always claiming that socialism is SOoo much better than free markets and capitalism.  So much more fair.

All right, Sparky, have at it:  Let's see how well socialism works when socialists have total power.  Because one would think the best test of a system is, how well does it work?

Take Venezuela:  Not long ago it had the highest per-capita income in South America, thanks to its huge oil production and resulting export income.  But today basic commodities such as toilet paper, rice, milk, meat-- and amazingly, even coffee (!)--are so scarce that people line up literally for hours to buy them.

What caused this catastrophic fall?  The main reason is that Venezuela is ruled by a 100% socialist government.  The previous president--Hugo Chavez--believed that the law of supply and demand was simply a fiction, used by companies to rob the poor and reap unfair profits.

Accordingly, three years ago he rammed a "progressive" law through the country's rubber-stamp legislature.  Rousingly named the "Law on Fair Costs and Prices," its stated purpose was to "ensure greater social justice."  It created a "National Superintendency of Fair Costs and Prices" with the authority to set supposedly "fair" prices at both wholesale and retail levels.

Companies charged with violating these price rules would be fined, or could even to have their goods confiscated by the government.

In a truly astonishing demonstration of bureaucratic frenzy, in just three years this agency issued more than 500,000 rules establishing the maximum legal price of virtually everything.

Chavez--a chest-thumping speaker who often gave three-hour speeches without pausing--knew price controls would be wildly popular with his core supporters from his experience setting the price of gasoline:  In Venezuela the production and refining of oil and the sale of gasoline are all controlled by the national oil company.  Since the government owned the company, Chavez issued an order that the company sell gasoline for just 6 cents per gallon, the lowest price in the world.

Executive orders--what a concept!

Unfortunately it cost the (government-run) company almost $2 a gallon to extract oil, refine it into gasoline and distribute it to stations.

It doesn't take a rocket scientist to see the problem:  With domestic consumption of 600,000 barrels of gasoline a day, the sale price ordered by Chavez was forcing the company to lose $20 billion a year.

Forced by the president's decree to lose roughly $20 billion a year on gasoline sales, the state oil company had little money for exploration, production and maintenance, and had to depend on government funding for these things.  Of course Chavez wasn't willing to be seen as giving billions to explore for oil while other commodities were disappearing, so the state oil company was essentially looted.

The effects were totally predictable:  as exploration and maintenance were cut back, oil production dropped dramatically.

You'd think this clear and distressing demonstration would have convinced the socialists that there was probably some small flaw in their theory, but of course it didn't:  Emperors--which by this time Chavez essentially was--are immune to feedback from bad results, since they can simply issue decrees (sometimes called "executive orders") and everyone will rush to obey.  Not having to answer to anyone, Chavez and his supporters began fighting an ever-escalating war on that "fictitious" law of supply and demand.

The insane destructiveness of those measures can be seen in the country's production of...well, everything.  But the shocker is coffee.

Venezuela was once the largest coffee producer in the world.  But for some mysterious reason--reasons are always mysterious to Leftists--with the selling price of coffee strictly controlled by the socialist government, fewer coffee growers were willing to bust their butts to maximize production, and by 2004 the country was forced to import coffee for the first time.  By 2012 imports of coffee had reached 43,000 metric tons a year.

Today the movement of coffee beans is attended with the care usually reserved for shipments of gold bullion.  Every move is carefully monitored by government bureaucrats.  Any significant transport of food items anywhere in Venezuela must be declared to them.  The truck, merchandise, driver, dates of delivery--everything must be declared ahead of time to make a delivery.

But mysteriously--there's that word again--even with bureaucrats micro-managing shipments and deliveries, production of everything has continued to fall.  So now the socialist government has declared that the reason the shelves are bare must be that people are "hoarding" scarce goods. 

Solution?  Control the amount of purchases directly.

(Is any of this starting to sound familiar?)

Thus the socialist government is rolling out a new system of ration cards.

Of course they don't call it that.  Instead it's being touted in all the Venezuelan papers (owned and run by the government, of course) as a grocery loyalty card.  For example, Britain's socialist newspaper The Guardian describes it like this:
Working-class shoppers – who sometimes [??] endure hours-long queues at the stores to buy cut-price groceries – are welcoming the plan.
“The rich people have things all hoarded away, and they pull the strings,” said Juan Rodriguez, who waited two hours to enter the government-run supermarket near downtown Caracas on Monday, then waited three hours more to check out….
Patrons will register with their fingerprints, and the new ID card will be linked to a computer system that monitors purchases.  It will sound an alarm when it detects suspicious purchasing patterns, barring people from buying the same goods every day. But [the Food Minister] said the cards would be voluntary, with incentives such as discounts and entry into raffles for homes and cars.
Oh yes, we totally promise that using these cards will be voluntary.

The notion of winning a car in the raffle may get a lot of support, because it's almost impossible for ordinary Venezuelans to buy one.  Toyota ended its operations in the country after the government denied it permission to remit payment to its parent (the manufacturer) for the handful of cars purchased last year.  Most Venezuelans wanting a car must buy second-hand.  Which made the value of used cars approach the official price of new ones. 

You probably won't be surprised to learn that the country's current president Nicolas Maduro signed an executive order regulating the price of used cars--ostensibly to combat inflation.
The legislation would allow the government to set car prices, ensure that used car prices don’t exceed new car costs and provide licenses to individuals to import a vehicle using an account in euros or dollars with a state bank, Maduro said in a national address.
When the market value of used cars is virtually the same as the official price of new ones, you'd think that would be a tiny clue that something is seriously wrong.  But not to determined socialists and Leftists.

Venezuelans are trying to compensate for shortages and rationing by buying food from street vendors.  But as might be expected, government bureaucrats moved quickly to close that loophole:
The government ordered Tuesday that sidewalk vendors may only sell basic foods if they respect price controls….Foods subject to the government resolution [order] are “rice, corn flour, wheat flour, pasta, beef, chicken, turkey, lamb, goat and pork.”
Also canned sardines, tuna and mackerel; powdered whole milk, cheese, eggs, soy milk, edible oils, margarine, legumes, sugar, mayonnaise, tomato sauce, ground coffee, coffee beans, and salt.
The [order] allows 30 days for sidewalk vendors to conform, and says that whoever infringes it will be penalized with the “confiscation of their goods.”
The real mystery here isn't the scarcity but the absence of common sense by the socialists.  Specifically: why haven’t they reached the obvious conclusion that forcing producers to sell essentially at their costs absolutely guarantees that supplies of everything so controlled will decrease?  It's almost like they're terminally stupid or something.

When something you do produces disastrous results, rational humans analyze the failure and change what they do. It's called a "feedback loop."  You would think the disastrous experience with price controls would lead rational people to stop doing it, but in fact the opposite is happening:  the socialists are doubling down on greater controls, greater distortions of economics.

What's preventing the feedback loop from working for Venezuela's socialist government? 

Stupidity is certainly a candidate, but I suggest the main factor is that they believe they'll be in power for the rest of their lives.  The socialists are like the Castro regime:  They rule absolutely, with no significant prospect of ever losing power.  If they never have to worry about being held accountable or being out of power, why change?  And since they totally control all broadcasting and newspapers, no word of the true scope of the disaster reaches most of the public--except for the personal experiences of the populace.

Obviously it's impossible for ordinary Venezuelans to avoid seeing the long lines and the bare shelves, or to be unaware of having to stand in line for hours to buy cooking oil or rice or toilet paper.  But the socialist government uses their control of newspapers and TV to keep repeating the government line that shortages are all the fault of greedy businessmen, or the CIA or their Colombian neighbors or some other form of foreign interference.

A devotion to government control of the economy isn't unique to Venezuela's leaders, of course:  U.S. Democrats and Obama rammed through a total takeover of health insurance, convinced that they knew better than ordinary people what those people needed.  Then by a series of presidential decrees Obama delayed the starting date of the law's most burdensome provisions until after the 2014 elections, hoping this would avoid costing Democrats control of the senate.

It's the same kind of magical thinking as Nicolas Maduro believing that fingerprinting Venezuelan supermarket buyers will put food on the shelves.

Of course Obama and the Democrats are far more educated and sophisticated than Venezuela's socialists, and with the help of the Democrat-covering media and an impeachment-proof senate they may yet retain power.  But what made the socialists in both nations think shutting off freedom of choice and ignoring the laws of supply and demand was a good idea in the first place?

One possible answer is that once someone buys into a paradigm, they can only choose from solutions that are within the paradigm space.  Venezuela's socialists keep pushing price controls because the notion of ending them isn't within the boundaries of their mental system. The only options any humans actually have are the ones they allow themselves to consider.

In the case of socialists--both in Venezuela and here at home--they're firmly wedded to price controls and won't consider any other option. To accept that price controls don't work--that in fact they make millions of ordinary people miserable--is to accept they and all their useless functionaries are either stupid or willfully stubborn.  In any case, that they're failures.

Similarly, U.S. Democratic leaders are psychologically unable to reject the government takeover they voted for--Obamacare--for exactly the same reason.

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