When a government devalues its currency and then demands that merchants accept less than their products are worth under penalty of having their businesses confiscated, severe shortages and economic collapse are not far behind.
And that is what the foolish and dangerous Hugo Chavez has done in Venezuela.
Venezuelan President Hugo Chavez said that businesses have no reason to raise prices following the devaluation of the bolivar and that the government will seize any entity that boosts its prices.
Chavez said he’ll create an anti-speculation committee to monitor prices after private businesses said that prices would double and consumers rushed to buy household appliances and televisions. The government is the only authority able to dictate price increases, he said.
What a numbskull.
I realize that's a personal attack, but I cannot find a kinder way at the moment of responding to Chavez's extreme level of arrogant, unrepentant economic illiteracy.
Did you notice what this same sort of thing did to Zimbabwe?
Robert Mugabe tried similar heavy-handed tactics and rapidly turned Zimbabwe from a breadbasket of the world into a total basket case.
As I wrote on July 3, 2007 ("Zimbabwe Regime Tries to Override Laws of Supply and Demand"):
Things are going just swimmingly in Zimbabwe, where the very government responsible for runaway inflation is attempting to override the laws of supply and demand by mandating that all prices be slashed.
Yeah, that'll work. Let's check in and see how it's going so far, shall we?
Plain-clothes police sought to enforce Zimbabwe's new price controls by raiding shops yesterday as President Robert Mugabe's regime waged a desperate struggle against soaring inflation.
They roughed up shop owners and staff and arrested 20 businessmen. Shoppers swarmed over supermarket shelves in the capital, Harare, intent on grabbing "bargains".
Ministers claim that the inflation rate of 4,500 per cent - the highest in the world - is solely caused by greedy shopkeepers raising their prices for no good reason. Propaganda tries to portray businessmen as the true authors of the economic collapse - deflecting blame from Mr Mugabe.
But economists say that the prime cause of inflation is the government's huge budget deficit, which it deals with by printing more money. This immense borrowing requirement is, in turn, the result of the wider economic failure caused mainly by the seizure of white-owned farms.
Instead of dealing with the deficit, the regime has imposed draconian price controls. Last week, the authorities ordered shops to cut basic food prices by 50 per cent after retail prices had risen by 300 per cent in only seven days.
. . . . Shelves in supermarkets across Harare are swiftly emptying and police in full riot gear linger outside.
The new controls force supermarkets to sell food at below its cost from wholesalers. Unless the regime relents, there will be food shortages, empty shelves and, eventually, the closure of all shops.
"We won't be restocking. If need be, we might have to close shop rather than stick to government prices," said the manager of one store.
Doesn't anybody understand basic economics in Zimbabwe?
No, apparently nobody did understand basic economics in Zimbabwe. Not long after Zimbabwe foolishly came down hard on merchants for raising prices to keep up with devalued currency, the supermarket bread shelves looked like this:
Starvation was not far behind.
In October, after having imposed the price controls, Zimbabwe ran out of bread:
Zimbabwe's bakeries have shut and supermarkets have warned there will be no bread for the foreseeable future as the government admitted that wheat production had collapsed following the seizure of white-owned farms.
The agricultural ministry announcement that the wheat harvest is only about a third of what is required, and that imports are held up by lack of hard currency, came as a deadline passed today for the last white farmers to leave their land or face prosecution for trespass.
The maize harvest is expected to be equally dire and price controls to contain hyperinflation have emptied the stores of most other foodstuffs. The World Food Programme says at least 3 million people - one in four of the population - will need food aid in the coming months. It describes hunger in some parts of the country, which used to be a food exporter, as "acutely serious".
Now, skipping forward many weary and panic-stricken months, there was this:
Death is stalking Zimbabwe’s children, as a potentially catastrophic famine gathers momentum. Aid agencies say that half the population, about five million people, face starvation, two-thirds of children are out of school and water shortages have led to deadly cholera outbreaks.
The Times went on a 600-mile (965km)journey through the eastern province of Manicaland and discovered a country whose reserves of food are exhausted and where the diseases of hunger — kwashiorkor, marasmus and pellagra — are appearing to a degree never seen in the country before.
Emaciated children are dying in hospitals, many more are being turned away to die at home.
That was Zimbabwe's recent story.
But it's not just the story of the economic mistakes of an African nation. As I've warned before, it could be and will be the story of any nation that goes too far down the path of central control and collectivism. It could be America's story if she continues too much farther along the course Obama and Democrats in Congress have set. U.S. currency has been devalued at an alarming rate since Democrats took control of the House of Representatives in 2006 and the rest of Congress and the White House thereafter.
And so now the unfortunate Venezuelans will learn anew, and not for the first or last time in human history, that communism is forever doomed and that socialism is false hope. They will learn that in this cold, imperfect world, economic collectivism combined with central control is a sure path to misery, despair and death.
Barring an overthrow or a sharp reversal of course, there will be needless deaths in Venezuela, just as there were in Zimbabwe. God help them all.
Comments