Editorial: Venezuela shows that price controls don't work

Published on Monday, 20 March 2017 09:53 - Written by

The glorious workers’ revolution marches on in Venezuela, but it’s no longer fueled by brownies. That’s right, the socialist government is now arresting bakers for making brownies (and croissants) in the latest skirmish in its war on economics.

“Venezuela this week arrested four bakers making illegal brownies and other pastries as President Nicolas Maduro’s socialist government threatens to take over bakeries in Caracas as part of a new bread war,” the Telegraph reports. “Maduro has sent inspectors and soldiers into more than 700 bakeries around the capital this week to enforce a rule that 90 percent of wheat must be destined to loaves rather than more expensive pastries and cakes.”

You read that right - soldiers.

“It was the latest move by the government to combat shortages and long lines for basic products that have characterized Venezuela’s economic crisis over the last three years,” the Telegraph explains. “The ruling Socialist Party says pro-opposition businessmen are sabotaging the OPEC nation's economy by hoarding products and hiking prices. Critics say the government is to blame for persisting with failed polices of price and currency controls.”

What’s really happening here? It’s not complicated. The socialist government has made a wreck of the economy by setting price controls - among other failed policies.

“There is a reason we have a price system and it's not just so that we stick random numbers on things for the benefit of the capitalist plutocrats and their lackey dog running slaves like me,” writes Tim Worstall in Forbes magazine. “It’s because market economies work and non-market economies do not work.”

It’s simple. Market economies allow for prices to basically set themselves. When the government institutes price controls - and sets prices lower than what it costs to produce something - then no one is going to produce it.

“Prices are not just those random numbers… but the vital information of who wants what and who is prepared to supply what,” Worstall writes. “What is actually happening here is that the Venezuelan authorities have decided to fix the price of both wheat and bread… The result of this is that no one, capitalist or not, is willing to produce wheat in Venezuela. So all must be imported on the government dime. They then provide it, once milled into flour, to bakeries at what Maduro and his fellow incompetents think that wheat should cost.”

In this case, the Venezuela government has set the price of bread too low, but it initially forgot to set the price for brownies. Naturally, bakers produced what would allow them to make a little bit of money (to help feed their own families), until the government realized its oversight and cracked down with soldiers and arrests.

This would be a sad sideshow to the world’s economic saga, if it wasn’t for the fact that the Democratic Party is pushing many of these same policies. Are drug prices too high? Price controls! Are insurance companies not willing to enter into markets where they’d lose money? Force them!

It hasn’t worked in Venezuela. It won’t work here.