Chavez the Fool Strikes Again

Hugo Chavez is a fool, and an arrogant one at that. Foolishness and arrogance seem to go together, do they not? The AP reported Monday that Venezuelan president Hugo Chavez shut down stores this week that raised their prices following the government's recent currency devaluation. According to the AP, "authorities began inspecting retailers a day after President Hugo Chavez threatened to temporarily close or take over businesses that raise prices as a result of the devaluation he announced Friday. Chavez said he is determined to curb inflation — even if it means deploying the military to prevent price hikes." 1 Though Mr. Chavez seems to think much of himself, he obviously knows nothing about economics - and his nation is paying the price. You cannot devalue a currency and expect prices to stay the same. Money is a commodity like anything else, therefore it's value to everything else is relative. If the purchasing power of money is devalued, that means it purchases less than it did before. And if it purchases less than it did before, that means it takes more money to purchase goods and services. In other words, prices have to go up. If they don't, businesses can't make a profit and stay in business.

Chavez may intend for his heavy-handed measures to make goods and services more affordable for the poor, but the end result is going to be scarcity. If retailers can't sell and make a profit, they will choose not to sell at all.

With policies like these, Chavez is doing extreme damage to his nation's economic future by making it astronomically risky to start a business. Think about it: would you want to invest tens or hundreds of thousands of your hard earned cash knowing the government might choose to regulate your pricing, shut your business down, or confiscate it altogether? Most people wouldn't. It will takes years of sound economic policy to repair the perception that Venezuela is a risky place to do business, and in the meantime the citizens of the nation will suffer.

References

1. Venezuela shutters stores in price-hike crackdown. (January 9, 2010). Retrieved January 9, 2010, from http://www.dailyfinance.com/article/venezuela-shutters-stores-in-price-hike/

Posted by mroberts at 9:41 PM