The Wall Street Journal
December 5, 2011
By Mary Anastasia O’Grady

Venezuela’s Hugo Chávez says his Bolivarian Revolution needs more time to produce its utopian fruits. “We barely have 10 years here,” he told a crowd of supporters in Caracas last week. “We will take it to 10 more and 10 more and 10 more to construct the new social virtues.”

In that time, Mr. Chávez pledged, “we will deepen the socialist revolution: socialism, socialism and more socialism. We have to deepen the struggle and defeat the vices of the past that still persists among us: violence, insecurity, corruption, selfishness, individualism.”

Considering that the human condition hasn’t changed much since we got kicked out of the garden, a 40-year plan to conquer vice seems pretty ambitious. But Mr. Chávez has never suffered a lack of self-confidence. Of course being an individual is hardly a vice. On the other hand, notably absent from his list was another perennial transgression that has yet to be defeated in Venezuela: the central bank’s sinful practice of printing money to finance the government.

Double-digit inflation has been the Venezuelan norm for decades. An annual rate below 20% since 1987 has been the exception; this year the International Monetary Fund expects a 25% increase in the price level.

Of course Mr. Chávez does not blame the central bank for inflation. In his school of economics rising prices are caused by producers, suppliers and merchants, who control the availability of goods and continually charge more for their products so that they can have a fatter profit. The solution to this injustice against the consumer, according to chavismo, is price controls. When they don’t work, the answer is more of the same.

It was 2003 when the Chávez government introduced its first big wave of price controls. That year inflation exceeded 31%. Since then prices have been frozen on a wide variety of food items—meat, corn flour, rice, bread, sugar, coffee, powdered milk, cooking oil—and a host of other products and services, including cement and building materials, domestic air travel, private education and medical clinics. The main effect is that many items that used to be readily available are now scarce. Yet inflation stubbornly persists.

The inflation tax hits the poor the hardest and they are Mr. Chávez’s most important constituents. Thus, in August he officially redoubled his efforts to control inflation by decreeing the “law of costs and fair prices.” This sweeping new legislation creates a regulator charged with monitoring what consumers are charged, analyzing those charges by researching the cost of production and setting “just” prices. An army of 4,000 apparatchiks will make up “committees” that will fan out around the country to report and denounce noncompliance. Hoarders, speculators or anyone found guilty of price gouging will be prosecuted. Offenders can be fined, lose their property, be banned from commerce, and even go to jail.

Among Mr. Chávez’s more amusing traits—providing you don’t live in Venezuela—is his unshakable belief that he can dictate what the Austrian classical-economist Ludwig Von Mises called “human action.” Thousands of years of experience suggest otherwise, most recently in the Soviet Union. But never mind. It is Venezuela’s destiny to suffer central-planning hubris all over again.

Mr. Chávez recognizes at least some limitations. He knows he cannot decide, from the commanding heights, every price in the Venezuelan economy on day one. So his latest effort will start small. On Nov. 22 his government added 19 new products, mostly in the area of personal hygiene and home-cleaning, to the list of items with frozen prices. By Dec. 15 regulators will have analyzed the cost to make these products—advertising and marketing costs not included—and will decide what they should be sold for. Once those prices are set, the bean counters will move on to other goods.

Mr. Chávez has asked the regulators to keep a close eye on foreign-based companies like Colgate-Palmolive, Pepsi, Coca-Cola, Nestle, GlaxoSmithKline, and Johnson and Johnson. The Italian milk company Parmalat, now controlled by the French Lactalis Group, has already been accused of hoarding. But the large Venezuelan food producer Polar is also in Mr. Chávez’s cross-hairs.

Putting aside the absurdity of government bureaucrats overruling the laws of supply and demand, there is also the problem that many producers require dollars—which are not available at the official exchange rate—to pay for imported inputs. If the state insists on using the artificially strong Bolivar exchange rate to calculate costs, the vast majority of producers will either be judged guilty of overcharging or go out of business.

Consumers are anticipating what will ensue. In recent weeks the local press has reported that shops have been cleaned out of many price-controlled items. Sources say that products that are hard to find in stores can usually be purchased from street vendors at market prices.

In the meantime the government is feeding inflation by ramping up spending ahead of the election. Maybe Mr. Chávez will need more than 40 years to cure original sin.

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