Congratulations To Bolivarian Socialism: Venezuela Is Now The Country With No Beer

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http://www.forbes.com/sites/timworstall/2016/04/30/congratulations-to-bolivarian-socialism-venezuela-country-with-no-beer/#3e39014d78b7

It seems that the economic management of Venezuela has just been able to chalk up another milestone. We might have to give them a prize of some kind for this one: in a week or so the country is going to run out of beer. This isn’t because no one wants beer, not at all. There’s been no mass outbreak of Islam or Mormonism to turn the population away from the locally highly popular drink. It’s not because people don’t have the money to buy it: Polar, the local manufacturer, can sell all it is able to make. It’s not because Polar can’t make money doing so either: the company makes a good profit making and selling beer. Nope, it’s purely and only because Maduro and the other Chavistas are entirely incompetent at the management of an economy. And they’re incompetent in a very specific and very stupid way too. They simply do not understand the role of prices in markets.

The news itself:

Venezuela’s largest brewer says it has shut down beer production at the last of its four factories due to a shortage of imported supplies.

Cerveceria Polar says in an email that its factory in Carabobo state closed Friday. It had warned earlier that it had enough supplies only to continue production through the end of April.

They’re rather more than just the largest. Depending upon who you believe they brew (perhaps “used to brew” is better) 70 – 80% of the country’s entire supply of the sudsy goodness.

Maduro’s government often accuses Polar of exaggerating its dollar needs and hoarding products as part of an “economic war” by the business community, politicians and the United States aimed at undermining socialism in Venezuela.

There is no economic war going on. All we are seeing is the result of the rank idiocy of Maduro and his compadres. Here’s what the real problem is. To make beer you need malted barley. Venezuela doesn’t produce this in the quantities needed so it must be imported. But the bolivars are now worth less than the toilet paper the country does not have (and also too small to be actually useful as a substitute) so that means swapping them for the dollars that foreign companies would be willing to accept. And yet that’s not possible:

After Empresas Polar SA closed its three other beer plants over the past several days, the shutting of the San Joaquin plant, near Valencia, will leave just a week’s supply of beer, the company said. Like many other firms here, Polar blames the government, which hasn’t allocated the dollars the company needs to pay for imported raw materials such as malted barley.

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It’s that word “allocated” which is the problem. So, the company, just like all other importers of whatever, needs access to dollars in order to be able to pay for those imports. This means either being “allocated” some through the bureaucratic system or going out into the black market and just buying some. But it’s not actually legal to do that:

“Without approval and a supply of [foreign] currency to the suppliers, the company doesn’t have a way to operate,” Mr. Mendoza said. “The company cannot go out and buy currency anywhere because it’s against the law.”

So, no legal way to get the dollars if the bureaucracy won’t allocate them and the bureaucracy won’t allocate them. Obviously, the company therefore closes the plants that can’t be run because they can’t get the imported ingredients.

The answer is, as it is right throughout the unholy mess that the Chavistas have made of the Venezuelan economy, to trust market prices a little more. In fact, to trust them even a little bit. Here it is that there should be no management of the exchange rate. Just have an open and free market in bolivars. Whatever the price that results is the price which balances the supply and demand of bolivars and dollars. That’s just what a market price means. The price at which the market clears, where supply and demand are balanced. And that’s also why the interventions Maduro has been making into the economy have been such an awful, stinking, mess. Because either he and his advisers don’t get this or they simply don’t believe it.

If you fix a price, whether for toilet paper or currency, if you set it below that market clearing price then you will have shortages. If above then you will have a glut. The only price which balances supply and demand is the market one: because that is the definition, the market price is the one where the markets clear, where supply and demand are balanced. There just aren’t exceptions to this.

And given that this is true, that only the market price is the market clearing price this is also information to us. As I’ve mentioned before, there’s many ways of achieving all sorts of reasonable enough goals. Just don’t choose the methods which involve messing with the markets. You know, like minimum wages, rent controls and so on.

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Ouch, a country with no beer? Nope!

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Socialist utopia or dystopia?

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Socialist utopia or dystopia?

In my opinion, definitely number 2. Just another example of what happens when government controls capital and markets.