President Nicolas Maduro of Venezuela has signed a decree to control the prices of new and secondhand cars. He has accused criminal gangs (and, no doubt, those pesky economic saboteurs) of creating artificially high prices for automobiles. According to Nicky, anyone caught breaking the decree/law will face jail sentences of between 6 and 12 years.
The decree is due to be released to the public today.
As a practical observation, this means one of two things:
- Nicolas Maduro is clinically insane; and/or
- Nicolas Maduro is evil.
And if you’re a believer in M. Scott Peck’s feelings on the evil amongst us (and I am), then being evil also makes him clinically insane.
So really, this decree just means one thing… All we’re arguing about is whether it exemplifies deficiencies in the logic area of the brain, or failure in his ability to self-doubt*.
*my extremely summarised translation of human evil according to Peck.
Let’s Talk About Price Controls
The theory goes something like this:
- Ignore economics
- Impose price
- Punish anyone that disagrees
I’m not saying that the occasional government intervention isn’t warranted. I think it can be, especially when the market needs a little encouragement (as in the case of public goods). But price controls are rarely a response to market inefficiencies. Price controls are a response to a market that is being altogether too efficient in its response to an economically useless government/governor.
It looks like this:
As Milton Friedman has said:
“We economists don’t know much, but we do know how to create a shortage. If you want to create a shortage of tomatoes, for example, just pass a law that retailers can’t sell tomatoes for more than two cents per pound. Instantly, you’ll have a tomato shortage.”
So the Venezuelans are set to be walking around for a while. Because the following is going to happen:
- People who have cars to sell are not going to sell them.
- Companies that would have imported cars are going to stop importing them.
- At which point, no cars will be available.
- And the market for cars will go underground and freshly acquire the adjective “black”.
Prison sentence? Please.
I realise that some people might be thinking that a prison sentence would be a good deterrent to stop the black market from happening.
I have two responses to that:
- Has the threat of imprisonment stopped the black market for drugs? And
- Let’s take a walk through history.
Venezuela is not the first to try it…
Price controls have been the conceit of many a megalomaniac. Some examples:
In his infamous Edict of 301 AD, Diocletian blamed the rapid rise in prices in the Roman empire on the “avarice” of merchants. Obviously, the inflation had nothing to do with his debasement of the currency to pay for all the new troops he was hiring.
A line from that edict which could have been written by the Venezuelan bus driver:
“To be sure, if any spirit of self-restraint were holding in check those practices by which the raging and boundless avarice is inflamed…perhaps then there would be room left for shutting our eyes and holding our peace…[but since it is unlikely that this greed will restrain itself]…it suits us, who are the watchful parents of the whole human race, that justice step in as an arbiter in the case”
He then imposed the death penalty on anyone that tried to sell at higher prices than the price controls that he’d set on beef, grain, eggs, clothing, and everything else.
In fact, the death penalty was also there for anyone that tried to hoard goods, as well as for anyone that tried to buy at a higher price.
So many people died under that law that it was eventually set aside. And Diocletian abdicated with it.
The key point: people would rather die than comply.
In the aftermath of the French Revolution, the new assembly passed the “Law of the Maximum”: price controls to try and slow the inflation in the new french currency, the assignat.
The penalty for violation was also death.
The French public largely ignored it. And as Robespierre was dragged to the guillotine, the historical record is that the mob jeered “There goes the dirty Maximum!”
The Soviet price controls are perhaps the most famous of all. And despite the threat of heavy penalties, black markets flourished.
You can go back through history and look at price controls enforced in every era in almost every place (megalomania happens across the board), and you’ll find a story of overreach followed by a lesson in humility.
Mr Maduro – you’re crazy to think that you’ll get away with it.
Maybe the Venezuelans will also build a guillotine.
It’d be loco.