Four Years of Price Controls

Many Americans have a very healthy level of skepticism for price controls in general. Apparently Hugo Chavez doesn’t and now his country is paying the price.

CARACAS – 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.”

Let me see, shortages, black markets, high prices in the black markets…yep standard results for price controls. Funny how the price controls are supposed to curb inflation and yet inflation has risen 78% in four years. That is a staggering rate of inflation that is comparable to the worst inflation we had in this country back in the late 1970’s early 1980’s.

That this actually ends up hurting the very people that it is intended to help is also quite usual. The rich can always find the items they want. They may not be happy paying higher prices, but they are rich and pay they will. The poor on the other hand do not have this flexibility and simply have to do with an alternative and inferior good or do without. Why some on the Left think he’s doing something good is beyond me.

Via Lynne Kiesling who finds these kinds of policies nauseating.

FILED UNDER: Economics and Business, Latin America, ,
Steve Verdon
About Steve Verdon
Steve has a B.A. in Economics from the University of California, Los Angeles and attended graduate school at The George Washington University, leaving school shortly before staring work on his dissertation when his first child was born. He works in the energy industry and prior to that worked at the Bureau of Labor Statistics in the Division of Price Index and Number Research. He joined the staff at OTB in November 2004.

Comments

  1. John Burgess says:

    But James! The Socialist Catechism says that we’re supposed to impose price controls!!

  2. Bithead says:

    (cough) HillaryCare(hack) same effect(sneeze)

  3. Tano says:

    Just so we can analyze their arguments, could you link to “some on the Left” who are supporting this?

  4. Harry Belafonte and Noam Chomsky have nice things to say about Hugo and his policies, as do The Progressive and The Nation. Then there’s his good Latin American leftist buddies: Fidel Castro, Evo Morales, Luiz Inácio Lula da Silva, Fernando Lugo, and Daniel Ortega. Oh, and Mahmoud Ahmadinejad as long as we can consider someone who goes around spouting revolutionary ideology a leftist.

    Before you object that they don’t support these price controls explicitly, let’s just note that this isn’t a new initiative on Hugo Chavez’s part, but part of an ever expanding program to put everything and everyone in Venezuela under his thumb, as his mentor did with Cuba. Gaze in wonder at the glories of a redistributionary justice detached from reality.

  5. Bryan says:

    HEY check out this new political website. It has tons of political message boards and soon will have news updates.

    http://www.electorials.com

  6. Nick says:

    The economics of price control, is at best, speculation upon speculation… This is not that price control can’t work, it just can’t work in a market driven system that we all subscribe to..

    Price controls will probably work in Mars… I’m pretty sure of it..

  7. ken says:

    Well the last time we had price controls in America was when conservatives imposed them. Still, I don’t remember a single item being in short supply because of it.

  8. Wow, Nixon was a conservative. I learn something new every day here on OTB.

  9. Dave Schuler says:

    Still, I don’t remember a single item being in short supply because of it.

    Your memory is faulty, ken. For example, the price controls on leather created a leather shortage and importing leather was prohibitively expensive for domestic shoe manufacturers. That was the beginning of a slide for the domestic shoe industry from which it’s never recovered.

  10. Steve Verdon says:

    Tano,

    Please try this website. Oh and if your Google-fu is weak, then try adding site:atrios.blgospot.com or other sites to your search.

    To add to Charles’ list, there is also the lovefest between Cindy Sheehan and Chavez. Don’t do the above search with

    “Hugo Chavez” site:dailykos.com

    You’ll get lots of hits with plenty of them being quite gushing in their praise of Chavez. My personal favorite being the one where the diarist wants Chavez to be the dictator of both Venezuala and Cuba.

    And for God’s sake Tano, don’t do a google search of Democratic Underground!

    Well the last time we had price controls in America was when conservatives imposed them. Still, I don’t remember a single item being in short supply because of it.

    Yes, during the electricity crisis of 2000/2001 in the West. Of course, those price controls were flexible (i.e. based on the least cost producer necessary to clear the market) and they were an attempt to restore some sembalance of reality to a seriously broken market (put in place by a Democratic governor, approved by the FERC under a Democratic President, and also voted on by the CA legislature an approved unanimously…so plenty of blame to go around there).

    As for the supply problems, the price controls fixed them in the case of electricity.

    Now if you look in Santa Monica you find some problems with housing, and if you are talking about gasoline you must be too young to remember the lines and rationing. I believe the rule was if your license plate had an even number for the last digit then you could get gas on days of the month that were even, otherwise you got gas on odd days of the month.

  11. jeff b says:

    We should get the market-distorting subsidy plank out of our eye before we start picking at the nit in Venezuela’s eye.

  12. Eneils Bailey says:

    That Nixon was the was conservative? Price Controls, Affirmative Action, the EPA, OSHA, and going to see those Commie Red Chinese. These programs either originated or were strengthened under his administration.
    This is what happens when someone adheres strictly to their own party’s ideology and projects that universally. It allows individuals to stuff the so-called opposition into a box and slap a label on it. Trying to convince everyone that the past and current opposition is what they have become.

  13. Rick DeMent says:

    Oil was under strict production controls in this country until it peaked in 1970. The Railroad Commission of Texas was the defacto cartel that regulated domestic oil production and was even the model for OPEC.

    Also whether or not Nixon was a conservative is beside the point, we had wage and price controls and no huge shortages of anything. It is a huge counter factual to Mr. Verdon’s narrative, and there are of course many others but who am I to get in the way of his quaint display of pure ideology? 🙂

  14. ken says:

    …if you are talking about gasoline you must be too young to remember the lines and rationing. I believe the rule was if your license plate had an even number for the last digit then you could get gas on days of the month that were even, otherwise you got gas on odd days of the month.

    This was a real live demonstration to many of us that the conservative canard that government imposed ’embargoes’ don’t work was stupid. As the targets of punishment meeted out by the OPEC countries we had plenty of time waiting in gas lines to ponder just how divorced from reality conservative/libertarian ideologies actually are.

  15. ken says:

    Wow, Nixon was a conservative. I learn something new every day here on OTB.

    yep, his wage and price control policy was aimed directly are organized labor.

    Because of his war policy a lot of the blue collar lunch bucket crowd supported Nixon and increasingly considered themselves ‘conservative’

    By taking away the unions ability to negotiate higher wages Nixon created divisiveness between union leadership and its membership. Conservative endorsed this strategy because it caused more harm to unions than it caused to corporate profits.

  16. Steven Plunk says:

    Rather than rehash Nixon’s presidency let’s watch Chavez enact these policies and see what happens?

    Fortunately we will see an experiment, unfortunately for Venezuelans they will live in the experiment.

    I’m placing my bets with Steve V.’s on this one.

  17. Steve Verdon says:

    We should get the market-distorting subsidy plank out of our eye before we start picking at the nit in Venezuela’s eye.

    Cute but there are some problems with this.

    1. I oppose subsidies that aren’t at least based on either a positive or negative externality (the latter requiring taxes).
    2. Price controls and subsidies, while both distortionary have different impacts in terms of both magnitude and who gets hurt.

    Rick,

    A cartel is not the same thing as price controls. When price controls were enacted during WWII there were shortages. During the oil crisis there were shortages.

    ken,

    This was a real live demonstration to many of us that the conservative canard that government imposed ‘embargoes’ don’t work was stupid. As the targets of punishment meeted out by the OPEC countries we had plenty of time waiting in gas lines to ponder just how divorced from reality conservative/libertarian ideologies actually are.

    I said nothing about the OPEC embargo. The problem wasn’t the embargo, but the price controls that were designed to try and curb the rise in prices and inflation in general. Allowing prices to fluctuate would have lead to no lines, no shortages, although prices would have been higher and people would have had more incentive to buy smaller fuel efficient (and environmentally friendly) cars.

    Oh, and this isn’t a conservative/libertarian thing either. More of a Microeconomics 1 thing.