Even as economies> in Brazil and other South American countries soar, Venezuela, the socialist basket case ruled by Hugo Chavez, sinks further into economic chaos and stagnation, where, despite immense oil wealth, nearly 40% of the population lives below the poverty line. Inflation runs north of 25% -- the highest in Latin America.
Source: Bloomberg, Rosewood Research>
This weekend, after devaluing the country s supposedly strong currency by 50%, Chavez mobilized the National Guard and announced plans to seize any business that raised prices without government permission. "At this moment, there is absolutely no reason for anyone to raise the prices of anything," Chavez said on his weekly television address. "I want the National Guard in the streets, with the people, to fight speculation," said the dictator, calling higher prices a form of robbery.
If that language sounds familiar, it s because our own country has regularly engaged in a similarly shameful assault. In recent years, elected officials have demonized gas stations and oil companies for gouging customers while mortgage lenders and credit card companies are blamed for excessively high interest rates.
It s as if Chavez and many in our own government, believe businessmen pick prices out of thin air. Yet prices are not arbitrary. More than any other measure, they accurately reflect the supply and demand equation for everything from tech stocks to tuna fish. When permitted to function, markets are self-regulating: high prices discourage consumption and encourage production. Artificially capping prices, as Chavez has done, only insures no goods will be available at any cost.
Case in point in the United States: Consumer finance, where new regulation limiting banks ability to raise interest rates on credit cards has led to nearly 60 million consumers having their card limits cut or canceled altogether.
When producers can t earn a profit, they naturally cease producing.
Reality exists. When unencumbered by government intervention, prices accurately reflect that reality while encouraging greater production and efficiency. Chavez s latest decree is a frightening harbinger of governments that believe they know more than the markets and are willing for force prices to politically expedient levels even at the point of a gun. On issues such as energy and now health care, it s not hard to see how the U.S. could follow down the same path.