The Market For Common Sense

In September 2013 the Guardian wrestled with a mystery. “‘No one can explain why a rich country has no food’ Toilet paper, rice and coffee have long been missing from stores, as Venezuelan president blames CIA plot for chronic shortages.”


Actually, an economist named Brad Schiller tried to explain it in March of the same year. He said the shortages were the result of Hugo Chavez’s war against the Law of Supply and Demand. Writing in the Los Angeles Times Schiller wrote: “two years before his death, Hugo Chavez tried to repeal the law of supply and demand … Chavez despised the law because he believed it robbed the poor and unjustly profited producers.”

In its place, he persuaded the Venezuelan legislature to enact the 2011 Law on Fair Costs and Prices, a price-setting mechanism to ensure greater social justice. A newly created National Superintendency of Fair Costs and Prices was empowered to establish fair prices at both the wholesale and retail levels. More than 500,000 price edicts have been issued. Companies that violate these price controls are subject to fines, seizures and expropriation.

Not that he had any good experience with price controls. Chavez had been draining the state-owned Venezuelan oil industry for years using the same methods of price controls. “The most flagrant subsidy is for gasoline. Venezuelans pay only 4 to 6 cents per gallon for gasoline, the cheapest in the world. But it costs Petroleos de Venezuela, the government-owned oil company, close to $2 a gallon to extract, refine and distribute it. With domestic consumption now running about 600,000 barrels a day, the financial loss on subsidized oil is roughly $20 billion a year.”

The result was the ruin of the Venezuelan oil industry and the flight of its petroleum engineers to Canada. But undaunted by this sad experience the Chavistas waged an ever more relentless war on Supply and Demand everywhere they could find it.


The sheer destructiveness of these measures can be told in the story of coffee. Venezuela was once the largest coffee producer in the world but in 2004 it imported coffee for the first time from Brazil. By 2012 Venezuela was importing 43,000 metric tons from abroad. Today the movement of coffee beans is attended with the care accorded to shipments of gold bullion, under the watchful eye of SADA. “With SADA, any significant transport of food items anywhere in Venezuela must be declared. The truck, the merchandise, the driver, the dates of delivery, everything must be recorded previously if you want to make a delivery.”

With this fund of experience under their belts, the Chavista government is now convinced that the key to controlling prices lies in regulating consumption even more closely. As the Guardian explains: “battling food shortages, the Venezuelan government is rolling out a new ID system that is either a grocery loyalty card with extra muscle or the most dramatic step yet towards rationing in Venezuela, depending on who is describing it.”

Registration begins at more than 100 government-run supermarkets across the country on Tuesday and working-class shoppers – who sometimes endure hours-long queues at the stores to buy cut-price groceries – are welcoming the plan.

“The rich people have things all hoarded away, and they pull the strings,” said Juan Rodriguez, who waited two hours to enter the government-run Abastos Bicentenario supermarket near downtown Caracas on Monday, then waited three hours more to check out….

Patrons will register with their fingerprints, and the new ID card will be linked to a computer system that monitors purchases. The food minister, Félix Osorio, said it will sound an alarm when it detects suspicious purchasing patterns, barring people from buying the same goods every day. But he also said the cards would be voluntary, with incentives such as discounts and entry into raffles for homes and cars.


You’d best hope to win a car in the raffle, because buying one might be difficult. The last car company in Venezuela, Toyota, closed shop this year after it was denied permission to remit payment for the handful of cars purchased this year. Ford wasn’t doing too good either — selling a total of two cars last month. Venezuelans looking for a car must buy second hand. And wouldn’t you know? Venezuela President Nicolas Maduro signed an edict to regulate the price of used cars “in the government’s latest measure to combat inflation.”

The legislation, which has yet to come into effect, would allow the government to set car prices, ensure that used car prices don’t exceed new car costs and provide licenses to individuals to import a vehicle using an account in euros or dollars with a state bank, Maduro said in a national address.

Pretty soon they’ll be convoying beaters through the streets like they were priceless artifacts. Literally. It’s not inconceivable because Venezuelans are now trying to supplement their comestibles from street vendors, just as if New Yorkers, unable to buy groceries, were forced to resort to eating from pretzel and hot-dog stands. But the Venezuelan government, with more half a million price control regulations under their belt have got that loophole covered already with another regulation.

CARACAS – The Venezuelan government ordered Tuesday that sidewalk vendors may only sell basic foods if they respect price controls and guarantee the necessary conditions of “hygiene and healthfulness.” …

Foods subject to the government resolution are “rice, pre-cooked cornflour, wheat flour, pasta, beef, chicken, turkey, lamb, goat and pork.”

Also included are canned sardines, tuna and mackerel; powdered whole milk, pasteurized and sterilized with a long shelf life; cheese, eggs, soy milk, edible oils except olive oil; margarine, legumes, sugar, mayonnaise, tomato sauce, ground coffee, coffee beans, and salt.

The official resolution allows 30 days for sidewalk vendors to conform to the official measure, and says that whoever infringes it will be penalized with the “confiscation of their goods.”


SADA’s going to be pretty busy chasing down the arepa vendors. I’m going to go out on a limb here and predict that the street food price controls are not going to work, whatever PhDs in Marxist economics think. But I will leave explanations of the Law of Supply and Demand under socialism to the experts at the Guardian.

The more interesting question is the absence of the demand for common sense. To wit: why doesn’t the Chavez government wise up? What keeps the feedback loop from working in Venzuelan politics? You would think that disastrous experience with price controls would lead to less of it and to an increased supply of common sense. But the contrary is happening: instead the greater the disaster the bigger the demand for more imbecility.

The problem is not confined to the Venezuelans. For example Charles Krauthammer at the Washington Post noted that Obama administration’s signature Mideast Peace Initiative has failed dismally. Which should be no surprise. But the fact that it is no surprise  is itself the surprise. Krauthammer lists out the string of disasters. And the punchline is that they were going to try it again.

First, John Kerry convenes — against all advice and holding no cards — Geneva negotiations to resolve the Syria conflict and supposedly remove Bashar al-Assad from power. The talks collapse in acrimony and confusion.

Then, even as Russian special forces are taking over Crimea, Kerry goes chasing after Russian Foreign Minister Sergei Lavrov — first to Paris, then Rome, then London — offering a diplomatic “offramp.” Lavrov shrugs him off. Russia annexes Crimea.

The crowning piece of diplomatic futility, however, is Kerry’s frantic effort to salvage the Arab-Israeli negotiations he launched, also against all odds and sentient advice. He’s made 12 trips to the region, aiming to produce a final Middle East peace within nine months.

It is month nine. The talks have gone nowhere. But this has been a fool’s errand from Day One. There never was any chance of Palestinian leader Mahmoud Abbas concluding a final peace .


How come Kerry couldn’t see this coming? The real shocker is that, after everything that had gone before, the Obama administration actually expected this to work, just as Nicolas Maduro thinks that fingerprinting Venezuelan supermarket buyers will put food on the shelves. Pardon my skepticism, but it probably won’t. However, that’s beside the point. The real head scratcher is why they thought it would work at all?

One possible answer is that once a ruling elite buys into a paradigm then all solutions have to be found within the paradigm space.  It’s useless to argue ‘why doesn’t Venezuela leave the producers alone’ because that option is not on the table within the terms of their mental system. The only levers Venezuela actually has are the ones they allow themselves to consider. They have hired millions of bureaucrats to implement their price control system and that’s all they can do. To accept price controls are a failure is to accept they and all their useless functionaries are failures and to dismantle themselves.

That’s never going to happen while a single Venzuelan Boliver remains left to debase. Similarly the Obama administration’s foreign policy model cannot be fixed except within its own terms of reference. They know — like the Chavistas — that they’re always going to be re-elected, perhaps not only in spite of their failures but in some sense because of them. So this is not the end of the Mideast Peace Process. Rather, it can only the beginning.  Abbas and Putin know this for a dead cert: that Kerry will be back, so they’re going to bilk old JFK for all he’s worth.


Which only goes to show that perhaps Chavez was right after all. Perhaps there is no Law of Supply and Demand. If there were a homo economicus, if the rational actor of market theory really existed, then neither Obama nor Chavez would even be elected. Those who criticize president Obama’s lack of belief in American exceptionalism should look at the counterargument from his point of view. ‘If America is so exceptional then how come I am president?’ The real problem with believing in the Law of Supply and Demand is accounting for the existence of an apparently endless market for stupidity.

Did you know that you can purchase some of these books and pamphlets by Richard Fernandez and share them with you friends? They will receive a link in their email and it will automatically give them access to a Kindle reader on their smartphone, computer or even as a web-readable document.

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