Supply & Demand RIP

Venezuela Repeals the Laws of Supply and Demand

By Mark Perry

The twisted logic of Venezuela's price controls:

1. Under President Hugo Chavez, Venezuela's central bank has doubled the money supply over the last four years.
 2.  Because of the the doubling of the money supply, Venezuela is experiencing the highest annual rate of inflation in the Western hemisphere at 27%. 

3. In response to the high inflation, the Venezuelan government just announced it is expanding price controls to cover many basic consumer items like toothpaste, coffee, toilet paper and deodorant to prevent "monopolies from ransacking the people." 

4. The move to expand price controls sparked panic buying by consumers, which is causing shortages of many products. 

5. The Venezuelan government is accusing people of panic buying with the intent to hoard consumer items and capitalize on the shortages by selling products in the future at higher prices.   

Conclusion: According to the Chavez government, the shortages of key consumer goods in Venezuela are being caused by consumers, who are guilty of engaging in panic buying, hoarding and "capitalist" behavior.  The inflationary monetary expansion, rising consumer inflation and government price controls have nothing to do with the shortages.  After all, “The law of supply and demand is a lie,” said Karlin Granadillo, Venezuela's head of its price control agency.