Monday, November 11, 2013

Price Controls in Venezuela

Nicolás Maduro says he wants to decree price controls on a wide variety of goods. He claims this will counteract the parasitic class, and presumably is also aimed at lowering inflation. This comes after the government's seizure of an electronics chain to provide more early Christmas presents to the Venezuelan people.

The underlying purpose of this would seem very familiar to corporatist parties across Latin American history--Mexico's PRI comes to mind. When you get close to an election, shower people with gifts (the PRI liked appliances too) and deal with the consequences later. The stakes of the election are high enough that whatever the consequences might be, they are worth it. Use the treasury for your political benefit.

One (of quite a few) differences between the PRI era and Venezuela today is that Maduro's technique of expanded seizure and/or nationalization would exacerbate shortages. If (and this "if" is essential) you show true commitment to it, then fewer and fewer companies will produce anything. If they have already produced something and would be required to sell it at a loss, then they will either hoard it or sell it on the black market.

The bottom line is that autarky is not pretty. As always, caveats apply. Companies ignored Hugo Chávez for years, knowing his nationalization bark was worse than his bite. The government facilitated incredibly profit in Venezuela even as it railed against it. Maybe this will be the same with Maduro. The question is where to find the tipping point.


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