Analysts: Pending price-control law could backfire

Source: Associated Press

CARACAS, Venezuela — Pending legislation aimed at curbing Venezuela's soaring inflation could backfire by boosting consumer prices, spurring corruption, stemming investment and causing more severe shortages of basic goods, analysts warned on Saturday.

Government officials and lawmakers loyal to President Hugo Chavez claim the Law for Fair Costs and Prices would help reduce Latin America's highest rate of inflation by forcing businesses to set retail prices at rates established by government officials. Among the factors that officials would consider are production costs such as raw materials and labor.

While price controls already exist, the new law would impose such limits on a wider range of goods and give the government more enforcement authority.

"Stringent enforcement of this law will bring consequences including fewer products in markets and less investment," Luis Vicente Leon, director of the Venezuelan polling firm Datanalisis, said Saturday at a news conference. Datanalisis regularly tracks the availability of basic goods and consumer prices.



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I never believed that price controls really work. If you look at 1970s and look back to the wage-price controls, the only way that you curb inflation is through increasing interest rates.

I think that Hugo Chavez's regieme shows the excesses of socialism. Hugo Chaves has spent a lot of money and has a negative debt rating.

Venezuela's example is an example when you put too much stimulus into the system and inflate it to pay off the debt.

However, there seems to be no evidence that fiscal stimulus has led to significant inflation in the US. Any inflation issues that US saw was due to monetary policy due to Fed printing money and not due to lack of fiscal stimulus.

Right now, the economy is starting to show a bias towards deflation and not inflation. Therefore, I think that the US is in a different state than Venezuela's is in right now and the US could use some targeted fiscal stimulus right now. I have not seen the political will to do this and therefore, the economy will go into further decline.

They will be met, initially, with some populist support, but will backfire as price controls virtually always do.

and dropping it all over the country to cause the massive inflation.

We have massive printing presses that run all day, every day. Just churning out Bolivars.

I mean I know historically they did not work in the long term for things like food as we saw with the soviet union but I am not sure if they result in higher prices for everything.

If Venezuela has high inflation, it ought to cut its deficit, raise interest rates, and discourage capital flight (or encourage foreign investment.)

for the lower and middle classes, eviscerate the social safety net, dismantle all regulations for anything, discontinue all funding to improve infrastructure, label yourself a blue dog and advance to go.

capital flight by not nationalizing everything under the sun. Who wants to invest in a country if you know there is a good chance that your stuff is going to be stolen by the government.

And price controls on food won't work. Know what happens if the government tells you that you have to sell milk at a certain price? You stop producing milk.

capitalist oligarch pigs who refuse to produce and/or sell food products for less than it cost them to produce them. It's a win-win for Chavez as elections approach.

Force the people to work and produce at the point of a rifle? Steal their livestock and equipment? Jail them for refusing?
Yeah. That'd look really good for Hugo's fans.
They'd probably find some way of excusing it.

There will be violators of the controls, and an active black market in all controlled goods.

Then you get a real black market.