Here is a youtube clip that was reasonably entertaining (although I’m not sure if entertaining is the right word). For those of you reading this in your inbox, here is the link: “Watch What Happened When A Reporter Tried To Buy 8 Basic Goods in Venezuela“. It’ll take you 3 minutes, give or take some buffering time.

The basic summary if you don’t have 3 minutes:

  • Reporter wakes up to go shopping in Caracas.
  • Reporter shows 8 item shopping list to camera.

    Thanks for the screen capture, Bloomberg
    Thanks for the screen capture, Bloomberg
  • Reporter spends time in queue to buy cooking oil.
  • Fails.
  • Reporter spends time in second queue.
  • Many pictures of queues.
  • Reporter manages to buy some corn flour.
  • Cut to: Metro Stop.
  • Reporter reports that he eventually managed to get three items on his list.

What the reporter doesn’t report on is the price of the goods that he’s not able to buy – which I guess makes sense if he couldn’t buy them. But this is the really fun part of economic madness. For two reasons:

  1. Whenever you have a country that has both official and black market rates of exchange, you get absurd prices.
  2. But particularly when that country is experiencing goods shortages due to price controls (or, as President Bus Driver would have it, “due to economic warfare and sabotage from the West”).

Here are some fun cost-of-living-in-Caracas numbers from expatistan.com:

Food
Why eat anything if you can drink beer?
Transportation
Expensive cars, cheap gas
So no coffee then...
So no coffee then…

Of course, those numbers are mostly fictional because there is the enormous disparity between the official and black market exchange rates:

So what you actually need to do with those prices is divide them by 30 to get a feel for how much it would cost a visitor to visit Venezuela (after all, we don’t earn Bolivars – we get to arrive in Caracas with real money). Some examples:

  • A lunchtime menu will cost you $2.36
  • A beer: $0.20
  • A dozen eggs: $0.90
  • Half a kilogram of cheese: $1.43
  • A litre of petrol: less than a cent.
  • A fancy dinner for two: $17
  • A cocktail: less than a buck

Caracas – here I come!

The Important Point

In real terms, living expenses in Caracas are cheap as chips. Which is exactly why there are such shortages.

You can talk about price controls – which I have done before, in this post: “That Venezuelan Bus Driver Is Crazed.” Or you can talk about economic sabotage.

But the real problem (pun intended) is:

  • Most Venezuelans earn in bolivars – which means that their salaries are constantly losing purchasing power.
  • Shop owners can do one of two things with every bolivar they receive in sales:
    • Buy more goods to sell in Bolivars; or
    • Buy US dollars and hold them as the black market continues to depreciate.
  • Unless the price of goods can stay the same in real terms, it makes no sense to buy more goods to sell.
  • Prices can’t adjust properly, because of logistics, administration, and customers who are earning bolivars.
  • There’s also greater risk with buying the goods, because Victor Maduro rules by decree and you can almost certainly expect him to be a drama queen with his price controls and shut-downs and general crazy.
  • So the easiest and best thing to do is buy US dollars on the black market.
  • Cue: shortages.

Other entertaining articles worth reading:

To be continued.

Rolling Alpha posts opinions on finance, economics, and the corporate life in general. Follow me on Twitter @RollingAlpha, and on Facebook at www.facebook.com/rollingalpha.