NY Times Forgets Root Cause of Inflation
Simon Romero of The New York Times romanticizes the benefits of Venezuela’s new government-owned cafes without discussing the larger effects government control has over the economy. Romero describes two new state-owned cafes that opened this year in Venezuela and how they serve coffee and snacks grown and produced within the country. The prices for these goods, and others, are kept artificially lower than its competitors. Romero writes:
The planners behind the cafes have multiple objectives: to provide food and conviviality at democratic prices, to serve as commercial linchpins to renew some of the city’s most run-down districts and, not incidentally, to remind satisfied patrons of the government’s populist program in an election year. The government’s entry into the restaurant business is part of its effort to alleviate shortages of basic foods like milk and eggs, which weighed heavily on voters in 2007, when Mr. Chavez lost a referendum about overhauling the Constitution, his only major electoral defeat since rising to power in 1998. The prices are intended to offer a respite from the country’s rampant inflation and may help deflect heat from a recent scandal in the government’s food-distribution network in which thousands of tons of imported food were found rotting in ports.
Keeping prices lower than the market clearing price could lead to more shortages rather than alleviating them. When the government creates a price ceiling, Venezuelans could hoard products because they are buying them at an artificially low price. This occurred in the United States when the government imposed a price ceiling on gasoline prices; gas stations quickly ran out and lines for gas were miles long. Further, the article assumes that when the government spends money, that money falls freely from the skies. When the government subsidizes production of cafes and food, it must either print money or borrow funds to do so. This will undoubtedly lead to higher inflation rates.