Tim Worstall
Forbes, August 24, 2014
Venezuela under Chavez and now Maduro is an interesting case study in how not to go about trying to aid the poor. What they’ve done is interfered with market signals in an attempt to make certain items cheaper for the poor to purchase. The net effect has been that these same items are now unavailable to anyone at all. Unless they’re actually trying to run a cult of enforced consumer denial, something I rather doubt, their policies are therefore not having the desired effect. The interesting question is why?
I don’t, many people, don’t worry quite as much about inequality as do many on the left. That’s OK, be a boring world if we all thought the same. However I’m entirely willing to agree that trying to make life better for the poor is not an ignoble goal: it’s one I share actually, however much I might be fairly dry in how we go about doing so. But can we agree that a policy which creates a nationwide shortage of toilet paper, a policy intended originally to make toilet paper more affordable to the poor, is not a policy that has worked?
In fact, can we agree that the basic policies being followed in Venezuela simply don’t work at all?

The President of Venezuela, Nicolas Maduro, has announced plans for a major mandatory fingerprinting system to combat the increasingly dire food shortages and rampant smuggling afflicting the Latin American state.
He said the fingerprinting system would be similar to the one the country uses for voting and was intended to stop Venezuelans buying too much of a single item. Venezuelan authorities report up to 40 per cent of the goods the country subsidises for its domestic market are smuggled to Colombia and sold at higher prices.
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Venezuela has been running short of basic goods like toilet paper, soap and cooking oil for over a year.

The basic goal was to reduce inequality in the country. Could be an admirable goal, certainly it’s not an ignoble one. It’s the method they used which was so catastrophic. They decided that the prices of certain goods should be fixed so that the poor could afford them. And price fixing has its problems.
If you fix the price below the market clearing price then immediately there will be a shortage of those goods. Simply because that market clearing price is, by definition, the one at which enough producers wish to produce and the same number of consumers wish to consume. So if you fix milk, toilet paper and cooking oil at lower than market prices demand for them rises, supply shrinks and you get shortages. This isn’t a conspiracy, it’s not greed and it’s not even the CIA: it’s just the basic effect of fixing prices below the market clearing ones. The same is true, in opposite, if you fix prices above market, as the European Union did with agricultural production. Fewer people want to eat the more expensive food and farmers everywhere squeeze the last calories possible out of their fields. You thus end up with lakes of milk and wine, mountains of butter and beef. As the EU did. Again this isn’t a conspiracy nor is it the CIA: it’s just that you’ve set prices above market clearing prices.
Of course, you can solve this by fixing prices at the market clearing prices: at which point why are you bothering?
All that followed inevitably followed from that first flawed decision. The smuggling over the border into Colombia (who wouldn’t smuggle petrol when it’s 10 cents a gallon in one country and $4 in the next?), the empty shelves, the refusal of producers to lose money at the newly mandated lower prices. They all stem from that first deluded decision to fix prices in the first place.
But say we still want to reduce inequality but now realise that price fixing isn’t the way to do it? What should we be doing?
That’s easy to answer: poverty is not having enough money. So, if you want to alleviate poverty give the poor some more money. Then they can go and buy that toilet paper, cooking oil, milk, at the price which someone is willing to produce it at.
The initial goal in Venezuela, let’s reduce inequality, was fair enough in itself if your political ideals run that way. It’s just that the methods they tried to use were nonsensically stupid. And it’s not as if they didn’t have fair warning. Food prices were low all over the Soviet bloc for most of the 20th century and Chavez’s best pal, Castro in Cuba, had used the same methods. And the Soviet bloc and Cuba were, were known to be and were visibly proven to be notably free of easily available food all the while they followed that policy.
If you want to make the poor less poor then give more money to the poor: don’t screw with the markets.