Venezuelan President Hugo Chavez inaugurated the state-run Bicentennial Hypermarket in stores that he expropriated from the Exito chain with the promise that products will be sold at "fair prices" without "capitalist profits."
--
Latin American Herald-Tribune, Feb. 13.
On Monday President Obama finally unveiled his own health care overhaul proposal, which looks a lot like the proposal that passed the Senate late last year. Many of the provisions would subsidize the purchase of health insurance and health care, which would increase demand. As any economics textbook will tell you, higher demand encourages higher prices. But the Obama administration has been demagoguing recent insurance-company premium hikes, and the White House's proposal includes a major new wrinkle: a provision that would give Washington the power to impose price controls on insurance rates.
Why not? Price controls certainly worked like a charm during the oil embargo in the early 1970s. Washington simply capped prices, supplies never ran out, and nobody ever had to stand in line to buy gasoline at artificially restrained rates.
Wait -- that's exactly the opposite of what happened, isn't it? Price controls led to horrific shortages, long lines, more government meddling, and efforts by Washington to offset the government-mandated competitive advantage for some firms through the Old Crude Oil Entitlement Program. What's more, as a 1975 analysis by the Federal Reserve Bank of St. Louis noted, price controls "had a perverse impact on the national goal of self-reliance. Domestic production is discouraged by the imposition of price controls and therefore has continued to decline. This, in turn, has increased our reliance on our external suppliers."
Well, that was more than three decades ago. Maybe other countries have learned how to tamp down prices without affecting supply since then.
Zimbabwe sure seems to have pulled it off. As The New York Times reported back in 2007, "Zimbabwe's week-old campaign to quell its rampant inflation by physically forcing merchants to lower prices is edging the nation close to chaos . . . .As the police and a pro-government youth militia swept into shops and factories, threatening arrest and worse unless prices were rolled back, staple foods vanished from store shelves and some merchants reported huge losses . . . ."
Oops. Well, maybe price controls have worked better in Venezuela:
"Faced with an accelerating inflation rate and shortages of basic foods like beef, chicken, and milk, President Hugo Chavez has threatened to jail grocery store owners and nationalize their businesses if they violate the country's expanding price controls. Food producers and economists say the measures announced late Thursday night . . . are likely to backfire and generate even more acute shortages and higher prices for consumers . . . ." (New York Times, Feb. 2007)
. . .
The president's political allies bristle with righteous indignation any time his critics toss out the word "socialism." But it's not the critics' fault that the White House's own economic rhetoric and policies are starting to resemble those of Hugo Chavez. Obama might think he has come up with a winning strategy to ram through health care reform. Economic realists recognize it as a prescription for disaster.
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