Planned economies outwit the planners

Published on Tuesday, 4 February 2014 20:42 - Written by

To our nation’s south (a goodly ways) there are several perfect examples of what planned economies become over time. Even as President Barack Obama defends his administration’s micromanagement of our economy’s largest sectors (energy, health care, banking), we can see where this is all leading — in Cuba, Argentina and Venezuela.

Venezuela is currently suffering from acute shortages in everything from food to toilet paper.

“On aisle seven, among the diapers and fabric softener, the socialist dreams of the late Venezuelan president Hugo Chávez looked as ragged as the toilet paper display,” the Washington Post reports. “Employees at the Excelsior Gama supermarket had set out a load of extra-soft six-roll packs so large that it nearly blocked the aisle. To stock the shelves with it would have been pointless. Soon, word spread that the long-awaited rolls had arrived, and despite a government-imposed limit of one package per person, the checkout lines stretched all the way to the decimated dairy case in the back of the store.”

These shortages would be laughable if they weren’t so tragic.

“The arrival of basic staples such as cooking oil, chicken, flour or milk brings Venezuelans running to supermarkets and touches off surreal mob scenes, even as the government imposes price caps and rationing to prevent hoarding,” the Post notes.

But here’s where the Post misses the point.

Venezuela’s real problem, economists say, is that a shortage of U.S. dollars is squeezing the ability of the government and the private sector to import,” it contends.

What economists are those? Probably Venezuelan. Because the rest of the world has long ago figured out that planned economies don’t work. And not just economists — Russian President Vladimir Putin warned the United States in 2010 not to make the same mistake his country did. He warned against “excessive intervention in economic activity and blind faith in the state’s omnipotence.”

Here’s how. The government sets prices, according to what it thinks those prices should be. In other words, the planners plan for how things ought to be. Because they don’t base those prices on real market forces, the market stubbornly refuses to go along with the plans.

In Venezuela, for example, the government set the price for toilet paper below what it costs to produce and distribute the product. Toilet paper manufacturers simply couldn’t afford to make toilet paper at a loss, so they stopped production. Infuriated, the Venezuelan government sent in troops to seize factories. But marketplace forces refused to yield even to armed force. So Venezuelans have no toilet paper.

Of course, socialists everywhere blame greedy producers and the imperialists Americans, but the Washington Post should see beyond such claims — toilet paper isn’t difficult to manufacture, and Venezuela has plenty of trees of its own. What imports does Venezuela lack, keeping it from manufacturing bathroom tissues?

The same can be said of all those other products. Venezuela has some of the richest soil in the world, yet it can’t grow enough food to feed itself.

The problem is the planners. We should learn from their mistakes.