Chávez Threatens to Jail Price Control Violators :: NYT

Quote:

Food producers and economists say the measures announced late Thursday night, which include removing three zeroes from the denomination of Venezuela’s currency, are likely to backfire and generate even more acute shortages and higher prices for consumers. Inflation climbed to an annual rate of 18.4 percent a year in January, the highest in Latin America and far above the official target of 10 to 12 percent.
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For now, Venezuela remains far from any nightmarish economic meltdown. The country, which has the largest conventional oil reserves outside the Middle East, is still enjoying a revenue windfall from historically high oil prices, resulting in a surge in consumer spending and lavish government financing for an array of social welfare and infrastructure programs. Dollar reserves at the central bank total more than $35 billion.
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Entering a supermarket here is a bizarre experience. Shelves are fully stocked with Scotch whiskey, Argentine wines and imported cheeses like brie and Camembert, but basic staples like black beans and desirable cuts of beef like sirloin are often absent. Customers, even those in the government’s own Mercal chain of subsidized grocery stores, are left with choices like pork neck bones, rabbit and unusual cuts of lamb.

With shoppers limited to just two large packages of sugar, a black market in sugar has developed among street vendors in parts of Caracas. “This country is going to turn into Cuba, or Chávez will have to give in,” said Cándida de Gómez, 54, a shopper at a private supermarket in Los Palos Grandes, a district in the capital.
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Mr. Chávez also said he would raise subsidies for state-owned grocery stores. Economists say such subsidies, together with hefty loans to farmers, have allowed the price controls to function relatively well until recent weeks.

But recent expropriations of farms and ranches, part of Mr. Chávez’s effort to empower state-financed cooperatives, have also weighed on domestic food production as the new managers retool operations....

“There seems to be a basic misunderstanding in Chávez’s government of what is driving scarcity and inflation,” said Francisco Rodríguez, a former chief economist at Venezuela’s National Assembly who teaches at Wesleyan University.

It is difficult to misunderestimate that basic misunderstanding.

But this is great for the teaching of economics. A government so awash in oil revenue can keep this up for a long time creating plenty of fodder for classroom discussion of shortages, prices ceilings, subsidies, capital flight, yadda yadda yadda.