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Trouble in Paradise

Sometimes thTrouble in Paradisee government can make life better for everyone. This is the socialist dream. Most of the time the government fails, usually miserably, as with President Obama’s miserable attempt to manage the nation’s health care. So far his administration has been unable to manage a website. Socialist dreams always die hard, as the common folk – and the uncommon folk as well – are learning in Venezuela in the wake of the Hugo Chavez experiment in economic fantasy.

Venezuela’s so-called Bolivarian revolution, now presided over by Nicolas Maduro, the hand-picked successor to Mr. Chavez, has set out to maintain “fair” prices on everything in the markets. It’s all to protect the people. Basic goods such as butter and milk have all but disappeared, and when there’s a rumor that a market has a few rolls of toilet paper for sale, the riot police are dispatched to calm the mob. How can you have a paradise without toilet paper? But such is the legacy of the Hugo Chavez revolution.

President Maduro is trying to divert the attention of the people, stuck with toilets bereft even of old Sears and Roebuck catalogs, by declaring a national emergency over the price of television sets and other electronic goods. The Venezuelan army, armed with automatic weapons, seized the Daka chain of electronics stores as a demonstration of the government’s commitment to “fair” prices. Mr. Maduro then declared something of a Black Friday sale, giving the old advertising slogan of “Everything Must Go” an entirely new twist. He really meant it. Everything was free. “This is for the good of the nation,” the president said. “Leave nothing on the shelves, nothing in the warehouses . Let nothing remain in stock.” His instructions were followed to the last digit and final gigabyte. The “customers” ran into the stores and ran out with a cornucopia of electronics goods, big-screen television sets, tape recorders, laptops, printers and stuff, as many items as a man or woman (or child) could carry. Many ran back for seconds. Looting had never been so much fun.

In places with a free market, the customers can often get a “steal” on the day after Thanksgiving, and there will be large crowds leaving the stores with smiles on their faces and 50-inch flat-screen television sets overflowing their shopping carts. Shopkeepers will often sell an item, such as a toaster or a blender, at less than the cost to him. This “loss leader” is expected to entice customers into the store to buy a cart full of other items, and it usually does. Everybody wins. In the Chavez revolution, everybody loses. Once the “customers” clean out the stores, that’s all there is. This is simple Economics 101.

When the government declares a “fair” price below the market price and below the cost of producing an item, the incentive to produce the product vanishes. That’s why shortages are endemic in socialist satraps, whether with bread lines in the old Soviet Union, lines for anything and everything in Pyongyang, or the search for toilet paper in Caracas. Even a shortage of batteries to power the electronics is coming in Caracas as exporters, importers and shopkeepers cut their losses and cross Venezuela off their distribution lists.

“If you put the federal government in charge of the Sahara Desert,” the Nobel economist Milton Friedman once observed, “in five years’ time, there will be a shortage of sand.” With government setting prices for everything from television sets to toilet paper in Venezuela, the misery wrought by these clumsy interventions shouldn’t surprise anybody. It’s an old story, now in reruns.

November 12, 2013