We discussed price ceilings in Econ 202 (Micro Principles) today. I mentioned that Hugo Chavez’s price controls in Venezuela are leading to food shortages. Here’s an article that describes what’s going on.
Meat cuts vanished from Venezuelan supermarkets this week, leaving only unsavory bits like chicken feet, while costly artificial sweeteners have increasingly replaced sugar, and many staples sell far above government-fixed prices.
President Hugo Chávez’s administration blames the food supply problems on speculators, but industry officials say government price controls that strangle profits are responsible.
Such shortages have sporadically appeared with items from milk to coffee since early 2003, when Chávez began regulating prices for 400 basic products as a way to counter inflation and protect the poor.
Yet inflation has soared to an accumulated 78 percent in the last four years in an economy awash in petrodollars, and food prices have increased particularly swiftly, creating a widening discrepancy between official prices and the true cost of getting goods to market in Venezuela.
‘’Shortages have increased significantly as well as violations of price controls,’’ Central Bank director Domingo Maza Zavala told Unión Radio on Thursday. ``The difference between real market prices and controlled prices is very high.’’
It’s an excellent example of someone trying to fight the invisible hand and the invisible hand fighting back.
http://marketpower.typepad.com/market_power/2007/02/price_controls_.html
Interesting info! Goes into the reason for food shortages in a socialist system, though it could have explored production problems a bit more. I’m not an economist, so correct me if this is wrong, but here’s my take. If you legislate that people cannot afford to produce—much less actually make $ producing—production ceases, or virtually so. Then the *real* shortages set in.
& btw, with Hugo gone, things in Venezuela have only gotten worse. It’s telling that, per the article I linked, the Venezuelan gov won’t allow peaceful protests—not even of the absence of crucial food items. Perhaps that is a big part of the appeal of socialism? That along with ‘income redistribution’ you also get as much power over a citizenry as you want.
For example, a group of peaceful women, banging on empty pots to signify the lack of basic food, are countered with armed guards. Anybody enamored of control is going to fall head over heels for that type of government. Says something really bad about human nature, doesn’t it?