We Have Missed Key Lessons from the Downfall of Venezuela

As the coronavirus dominates the news and populations are increasingly restricted to their homes, staple items disappear from supermarket shelves.  Buyers hoard toilet paper and many other products.   Commentators respond by ridiculing and criticizing the hoarders.  We accuse them of taking supplies needed by seniors.  We yell at them when we see them with their loaded shopping carts.  We lecture them that toilet paper has nothing to do with the virus.  We demand that the government prosecute them for something.  We appeal for calm.  Celebrities and politicians join the chorus.  Stores have responded by limiting purchases of certain items.

News commentators have asked why the stores cannot keep up with the demand.  We wonder when the new shipments will arrive.  Truck-drivers delivering supplies have become the new heroes.  News of new shipments dominates social media as friends help each other to find each new supply before it disappears.

Despite all of these efforts and all of this talk, the shelves remain empty.  The bathroom tissue aisles in supermarkets and superstores look like the empty shelves in Venezuela.  Consumers line up outside the doors, waiting for products that cannot be found.  Meanwhile, the hoarders are reselling toilet paper on eBay, other internet sources, or anywhere else that they might find a buyer. Toilet paper has become the new gold.  A black market has emerged that will not soon go away.  The black marketeers who have now cornered the toilet paper market are the targets of public figures, media commentators, and social media scorn.

Throughout history, tyrannical regimes have sought to scapegoat black marketeers for the failure of the economies that they have crushed.  The fictional Soviet enforcers in Ayn Rand's We the Living would prosecute and execute individuals who sold products secretly while the rest of the citizens stood in line at the empty Soviet stores.  It was official policy to blame the isolated secret sellers for the absence of products at the Soviet stores (both in the novel and in the actual Soviet Union).  One of the enforcers finally presented the obvious point: "It will be important to explain how a penniless aristocrat [one black marketeer] managed to lay his hands on the very heart of our economic life."

He asked the right question, but no such explanation can be given.  It makes no sense that a handful of hoarders and black marketeers can bring an entire economy to its knees or deprive the nation of staple products.  Yet those few unnamed hoarders are the easiest target for the politicians. 

Venezuela, years ago, enacted actual price controls on many products.  Shelves have been empty ever since, as the government helplessly blames the usual suspects.  The scapegoats are always few, and the explanations are always wrong.  In America, we point to Venezuela and decry "corruption" or "socialism" as an explanation for the empty shelves.  "Socialism" happens to be the correct answer, but it is too general a term.  That word alone fails to explain the whole story, just as our internet jokes fail to restock the shelves.

Outrage, shame, anger, and even legislation will not curtail or eliminate the black markets.  For the same reason, public pressure and government meddling will not fill the shelves with toilet paper.  There is only one way that those shelves will fill up again.  Toilet paper and other commodities will be plentiful once again only if prices rise.  Economics 101 teaches us that the market clears when prices can move freely to the point where supply equals demand.  Right now, demand far exceeds supply.  This situation provides the classic example where a price increase will end that imbalance.  When prices rise, there will suddenly be enough of those scarce items for everyone. 

So why don't the retailers raise their prices?  Is the government preventing them from doing so?  Not officially.  But every time there is a natural disaster, local officials threaten prosecution against "price-gougers" and "profiteers."  Social media commentators and consumer advocates would descend upon any local retailer that dared to raise prices.  We have internalized the notion that raising prices is somehow evil.  The propaganda has become self-enforcing.  We do not need the government to hold down prices for us.  Decades of government education have trained us to violate the laws of economics on our own.  We join the stampede against "price-gouging" even as there is nothing for us to buy.  We complain that higher prices would be unfair to seniors, even as those same seniors get nothing from the empty shelves.

I know the feeling of unease that empty shelves bring.  We have grown accustomed to having certain items in abundance.  It is scary when those products disappear from every store.  I would feel much more comfortable if those shelves were full again — even it means that the prices must rise a little in the short run. 

If the retailers do not raise their prices, the black marketeers will do it for them.  Toilet paper can be purchased on the black market for a higher price.  At the same time, other products remain available in the stores at higher prices.  It is usually only the cheaper store brands of certain foods that disappear while the more expensive brands remain available.  This observation applies to soup, bread, pasta, and other foods in recent weeks.  But somehow, even the more expensive toilet paper brands are not currently expensive enough.  The black market has made its biggest impact on that product.

"Socialism" is a broad term that describes deep economic fallacy and far-reaching tyranny.  Government price controls are a key part of such fallacy and tyranny.  It does no good for us to decry "socialism" while resisting price increases and demanding public and government pressure on hoarders to make products available at below-market prices.

President Trump has promised that America will never be a socialist country.  If we are to fulfill that promise, we have to understand that fighting socialism means allowing prices to rise or fall on their own — especially in a crisis.  We must teach ourselves to avoid the buzzwords of the leftists.  We must affirm that there is no such thing as price-"gouging."  We must realize that hoarding is the natural reaction to government overreach.  Most of all, we must learn not to scapegoat a few powerless individuals for conditions that naturally arise when prices are suppressed.

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