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Hugo Chavez Post Mortem: How to ruin an economy in a few basic steps


Time and time again, those who seek to control the law of supply and demand find out that it is as immune to tinkering as the law of gravity or the speed of light.   And those rulers foolish enough to deny this fact end up ruining their countries.

Hugo Chavez followed the instructions of his stepfather Fidel.  And now Venezuelans face the same sort of painful consequences as those experienced by the Cuban people. Peru, Bolivia, Ecuador, Argentina, Nicaragua are all following the same instructions.

The U.S.A. is nowhere near the edge of this suicide cliff, but it sure does seem to be headed in the same general direction.

Hugo Chavez's voodo economics

The late Venezuelan president's effort to stiff-arm a basic economic tenet has brought the economy to the brink of disaster.

By Brad Schiller
Emeritus professor of economics, American University. 
Los Angeles Times
March 24, 2013

Two years before his death, Hugo Chavez tried to repeal the law of supply and demand, which says that free markets set the price: the higher the demand, the higher the price. Every producer who was willing to sell at that equilibrium price would be able to do so and every consumer willing and able to pay that price could acquire the product.

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.

In all cases, the prices set by the government have been below market — sometimes far below. This has caused production cutbacks, market shortages, massive government subsidies, runaway inflation and extraordinary government intervention. 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.

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