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Thursday, April 3, 2014

Food Rationing in Venezuela

Megan McArdle gives an overview of the Venezuelan crises:
... first the late President Hugo Chavez diverted money from capital investment in the oil industry to “social investment” in the poor. ... And for a while, it worked -- oil production fell, and the decline was more than offset by rising oil prices. After a while, however, oil prices stopped rising, and Venezuela got into a spot of trouble. As the trouble got deeper, the government started having trouble laying its hands on ready cash.

“As the price tag of the Chavez/Maduro regime has grown, the country has dipped more and more into the coffers of its state-owned oil company, PDVSA, and (increasingly) the country’s central bank," Steve Hanke of Johns Hopkins recently explained.

This created a little problem with Venezuela’s currency, the bolivar. Venezuela now has runaway inflation. Naturally, it needed to do something about that, so -- price controls. And currency restrictions. ...

Any economist -- or, for that matter, anyone who slept through one semester of microeconomics -- can tell you what came next: shortages. It became regularly impossible to buy toilet paper, flour or anything else at controlled rates; when such items were available, lines were often hours long, and people started hoarding.

Sales of airline tickets boomed as people used trips abroad (which often took place only on paper) to get around currency restrictions. Then they plummeted when the government cracked down on this dodge and refused to let the airlines repatriate billions in ticket revenue. ...

Now the government is setting up what appears to be a rationing system, although at the moment it’s still voluntary. It is shopping incentive cards that allow shoppers a slim chance of winning prizes -- and give the government a way to crack down on people who buy too much stuff at subsidized prices.

...Venezuela’s government may be running out of encores. It can crack down on black-market activity, but that won’t make the shortages go away. It might redistribute the suffering a bit, but that’s not all it will do. The black market is often a sort of release valve for bad policy; shut it down, and you turn the formerly annoying into the totally intolerable.
 The Associated Press describes the rationing system in further detail here:
Battling food shortages, the government is rolling out a new ID system that is either a grocery loyalty card with extra muscle or the most dramatic step yet toward rationing in Venezuela, depending on who is describing it.

President Nicolas Maduro's administration says the cards to track families' purchases will foil people who stock up on groceries at subsidized prices and then illegally resell them for several times the amount. Critics say it's another sign the oil-rich Venezuelan economy is headed toward Cuba-style dysfunction.

Registration began Tuesday at more than 100 government-run supermarkets across the country. Working-class shoppers who sometimes endure hours-long lines at government-run stores to buy groceries at steeply reduced prices are welcoming the plan.
... Rigid currency controls and a shortage of U.S. dollars make it increasingly difficult for Venezuelans to find imported basic products like milk, flour, toilet paper and cooking oil. Price controls don't help either, with producers complaining that some goods are priced too low to make a profit and justify production.

As of January, more than a quarter of basic staples were out of stock in Venezuelan stores, according to the central bank's scarcity index. The shortages are among the problems cited by Maduro's opponents who have been staging protests since mid-February.

Checkout workers at Abastos Bicentenario were taking down customers' cellphone numbers Monday, to ensure they couldn't return for eight days. Shoppers said employees also banned purchases by minors, to stop parents from using their children to engage in hoarding, which the government calls "nervous buying."
 The article notes a general anger toward people who are "hoarding" or shopping everyday. As Glenn Reynolds notes, the government will be going after "hoarders" next.

(H/t Instapundit)

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