Thursday, November 24, 2011

Yet another commie law: now it is Chavez regime which tells you how much to sell

Controlled substance
There has been quite an effervescence around the "ley de precio justo" or "ley de escasez" as its opponents call it.  To the point that I have readers (in plural) complaining that I had not discussed it yet.  I will not, at least not in the details because that law intended to fix how much a margin you are allowed to include in your final price is NOT an economical measure but 99% a political one.  Thus I will start by the 1%.

Certainly, in time of great crisis, you may decree that for a few weeks or even months you may forbid people to increase prices (same thing as telling them how much they can make).  When the crisis is over, we are all back to normal.  This bears no discussion: there have been so many such schemes through history, 99% of them having failed, and 1% having worked up to a limited point at best, that there is no need to revisit an issue that has been settled long ago.  Markets rule.  You can restrain them somewhat, avoid excesses, but markets rule.  Otherwise there is no more market, no more choice, single products when you can find them.  It is called communism, war economy and such similar names.  Even chavistas know that (with the possible exception of Giordani who at this stage I am seriously starting to question any sanity or any sense of shame left in him).

It has thus to be a political law.  Let's see why.

To simplify a little bit our discussion let's split it in two parts: causes and objectives.

Causes are very simple: the policy of price controls in place since 2003 has failed.  If it has not failed in an unbearable way yet it is due to the high price of oil which has allowed the regime to import food massively, to the point of wrecking the production capabilities of the country and needing now to import at least half of what we eat, and going.  A consequence of a lack of choice and production and printing money to buy is inflation, which has been a feedback way to "demand" further price controls which in turn push for more scarcity (escasez) and in turn yet more inflation.  You may think that with our own numerous failures at price controls since 1958 coupled to the obvious failure of the regime after 7 years, they would start to have second thoughts about it?  But no, they in fact realized that inflation and scarcity can be convenient political tools.  If you behave nicely, if you support Chavez, if you go to his meetings, then you will be allowed to buy milk, coffee, corn flour at state stores for lower prices than elsewhere.  No guarantee that you find them there but at least if you find them there they would be at half price from what is now an in your face black-market of street vendors (making thus black-market and street vendors yet another perverse plus for the regime).

And there is the changed mentality of the country who after decades of hearing populist politicians placing the blame for inflation on anything but the government decisions, preferably on the producing class, have created a feeling in the country that price controls are needed, they work, but they are just not applied efficiently.  This is essentially a result of the poor education of the populace in general, of the limited choices now available making more relevant the need of price stability for the single items left on the shelves, etc, etc...  But hold tight for your life if you do not give your workers a 30% pay raise a year!  Price control YES!  Wage moderation NO!

There is no better way to explain this than this cartoon of Weil today in Tal Cual.

On stage there are the 5 candidates of the Unidad offering what all want (private property, stopping crime, education, health, jobs).  They are speaking to a chavista group as potential voters of the Unidad, those that think that after 13 years maybe a change is needed as some problems cannot obviously be fixed by the regime.  But int the last quadrant, when "removing price controls" is shouted, then they suddenly start losing interest (UA is a word play untranslatable but you get it I trust, something like Whoa?).

And this is unfortunately the reality of the chavista lumpen who truly is the most battered sector of the population.  I have less "luxuries", less holidays than before but I do not need to count my pennies when I go to the grocery store and thus I am still better off than them, 13 years after Chavez has started harassing me for the benefit, supposedly, of that lumpen.  In their immense ignorance and need these people have nothing else to hold but to the hope that price control will work, miraculously, since they cannot find jobs, housing, safety, health....  The over-aching need to feed your family and the blackmail associated to it eventually rule.

This being said it will be easier to understand the objectives.  First, obviously in an election year as the chavista hostages are looking elsewhere to vote (or not vote at all) there is a need, a desperate need to take measures for effect since the regime knows it cannot achieve anything major by October 2012.  Price control is a way even if it comes disguised as a law for maximum gain.  The beauty of this law for the regime is that now ALL activities that are for sale, from food to professional services will have to be registered and their costs declared and their expected gain approved.  And the law gives absolute discretionary power to the bureaucrats in charge who will be allowed to decide what is a real cost or not.  For example they will decide that any foreign bills are payed at 4.3 to the USD even if that importation was not allowed by CADIVI currency control and thus you needed to buy it through SITME or dark alleys unless risking to see your business go under, and thus you had to pay it at 8 instead of 4.3.  Just with CADIVI the new law can now shut down half of business in Venezuela by making them unprofitable (not that they profit much nowadays...).

It is to be expected that costs that do not sound "socialist" such as personnel and installation security expenses, promotions, representation expenses, etc, will not be registered as valid.  Also, price increase will have to be approved by a bureaucrat and guess waht will happen?  Delays, bribes, incredible corruption ("OK, I will allow it but I want half of what you are going to make").

Even if the intentions of the regime were genuine, it does not have the personnel to apply them, to do the thorough inspections required, to understand what production costs are.  Thus the law cannot be applied, no matter what good intentions may exist.  After all, price controls which are more direct, simpler, limited in range have failed.  Does anyone think for a second that this new hyper-complex bureaucracy will succeed ?  I mean, they start by studying the cost of floor polish!  As if buying floor polish was a major necessity!!!!!!

And thus, there must be another reason for such a law than trying to please the lumpen who will soon be sorry as more and more items are going to start missing from the shelves.  The regime has helpfully advanced that companies that cannot produce at "real" cost do not need to close, can be surrendered to the state and workers.  And we already have ample evidence of what a success chavista nationalizations have been, how productivity and production increased along quality and service......NOT!

No, the real reason is elsewhere and as such it exempts us to discuss the details of this law because this law is a punitive law, to be used to target "enemies of the regime" and most important, in election year, to target those business that may make enough money to allow some of their gains to go to the opposition campaign effort.

You advertise in Globovision? Yet a new state agency (ironically called SundeCOP!) will fall on you to control your prices.

You gave a fat check to Pablo Perez, even if it is on your own money?  The same squad will go down on your business to make sure you make no money to keep giving.

And amen to all the opportunities for fake fake or real "speculation" accusations.  Veracity does not matter as long as it is politically expedient in helping to hammer inside the chavista lumpen the class warfare language and ideology so essential for the survival of the regime.

If the economy falls to Cuba levels by the end of 2012 who cares as long as Chavez is reelected.....


  1. Anonymous5:15 AM

    Great post! I couldnt have explained it clearer myself to some friends who still dont understand what that BS law really means. I think i'll just send them a link to this blog via email and have them google translate it all. It is a shame and trajedy what is happening to Vzla. I just really hope all these laws just blow up in the regimes face sooner rather than later.

  2. You need to simplify it in the final paragraph.

    Price controls bring shortages and bare shelves.

  3. Island Canuck11:08 AM

    Daniel you have again explained with clarity what should be obvious to us all.

    I just couldn't get my mind around this new law - the impossibility of controlling it, the impact it will have on shortages & employment & the damage, yet unseen, that it will have.

    When you look at it as a political act then everything clears up. The end goal becomes crystal clear. There is no logic to it - just a strong arm act by an out of control dictator.

  4. Charly2:02 PM

    There it goes, my wife is going on a toilet paper buying rampage.

  5. Anonymous4:24 PM

    Ahora si a limpiarse con monte, fregar platos con arena, desodorizarse con baïrun, ya estamos en la prehistoria. Gracias a quiénes? a una cuerda de analfabetos. QUE VIVA LA LIBERTAD!
    La Maga Lee

  6. geron

    i write this late and it needed some editing now done. but i do not need think that i need to ad a paragraph as you suggest because it is quite clear from the title and the text that we are going toward a communist system of scarcity of goods to control the populace.

  7. Anonymous5:36 PM

    There is an even greater irony here that was missed. Hugo Chavez has embraced the Peoples Republic of China as his Number 1 ally in the fight against the capitalist empires of the west, North America and Europe. Yet no one seems to notice amongst the Chavinistas that there are no, price controls on goods and services on products made in China. China, and especially Hong Kong, is ( since 1982) a free-wheeling market economy that has produced enormous wealth for the Chinese people/economy. The only proviso, of course, is that taxes and power are thus paid to the Chinese Communist Party in return, ... "You guys (the Chinese people) keep producing the wealth in this capitalistic, free market economy that is China, just give us a portion of that wealth so that we (avowed communists one and all,...he/he) can stay in power." It's really that simple. Why doesn't Hugo emulate the Chinese? ...especially when it comes to economics? One can imagine that there are corporate board rooms back in Shanghai where members of Chinese boards of directors are simply laughing their asses off at the irony...

  8. Anonymous6:07 PM

    One final comment to my above post. When Mao tse Tung and his communist party instituted 'price controls' in 1957, known as the Great Leap Forward, it resulted in the most number of deaths in human history. Tens of millions of Chinese died of starvation. The lessons of history....

  9. "one step forward, 2 steps backward, in a de babylone.. pathetic. those "bolivariano" thiefs are just desperate for more money, period. No soul, no education, no morals, zero class: Bastards, is the word.

  10. I have an even more cynical interpretation of this law. I think the Chavista leadership understands that the end game is near and that this system ultimately unsustainable. They fully understand that Chavez is mortally ill and that they will not be able to sustain the Bolivarian fraud without him.

    Thus, this law is designed to allow them steal as much as possible prior to abandoning ship. They want to make sure they have every opportunity to expropriate or simply steal everything of value while the getting is good.

    This is not a political calculation, but cynical, amoral, and criminal one.

  11. Yes, from an intellectual standpoint this law sucks. However, from a political standpoint its probably a winner. The public is infected with the disease of populism which draws them the hair-brained ideas such as price controls and government "guarantees" of employment. This isn't limited to Venezuela or even just the developed world and it isn't exclusively on the right. In the US the Republican candidates tell their supporters they are going to rid the nation of illegal immigrants, yes, the apostles of small government are just going snap their fingers and round up all those nasty illegals and deport them! Yes use socialist language to justify their actions "get rid of the all the illegals and those nasty employers will pay more."

    They don't understand that passing a law is more difficult than making it work and lot of them frankly don't even care. The big problem is the public wants politicians to tell them things that aren't true, so the politicians do. Chavez and Chavismo are merely one of the more ext reme examples.

  12. The essence of chavismo economic policy: "they in fact realized that inflation and scarcity can be convenient political tools."

    Perfectly put, Daniel. Whatever the policy anywhere in the economic realm, this is the motivation behind it.

    Looking at the list of products, it seems they are trying to make people as unhygienic as possible (soap, mouthwash, deodorant, etc). That way, if you're on the fence about this policy, you won't get to close to the people who can talk rationally about why it's stupid.

  13. Roger6:12 PM

    This should also raise bribes to a new level.

  14. This is regarding the Ley de Arrendamiento. A foreigner that I know here has a couple of apartments that he has been renting for several years. In one, the contract is up in February, and he has other plans for it, so he advised the renter with the notification required by the contract that they will have to move out.

    Their response?: We aren't leaving. Get yourself a lawyer. This is happening all over the country, and the law is allowing people to simply stay in property that doesn't belong to them. Even non-payment of rent does not get them removed.

    Meanwhile, there are no more apartments on the market to rent, because of the risk of this happening. Cause and effect... Government created scarcity.

    The Ley de Costos will create the same type of scarcity with virtually all products and services. In a short period of time, to the extent that this law is actually implemented, we will see a growing black market in groceries and nearly all other products. We will stand in long lines to buy low quality products at government controlled prices, if and when they are available, or buy them from the back of pick-up or out of garage feeling like we are making a drug deal.

    Cause and effect... Of course, Chavismo says this won't happen. And if it does happen, it is only because of unscrupulous people hoarding and cheating. But this will be the only way to survive, so we will all be guilty of breaking these laws. People will enact revenge on their neighbors by reporting them for hoarding. Everyone will be scared to let anyone see that they have anything more than their neighbors do. We will live in fear of the neighborhood committees and that nosy lady down the street that always gossips about everyone will have real power over us.

    Cause and effect...


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