Micro-managing the downfall

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With today's inflation, it reads like the Sucesos page
With today’s inflation, it reads like the Sucesos page

Economists sometimes use the term “bounded rationality” to explain the impossibility managers have in understanding reality in all its complexity. Basically, bounded rationality says that managers and economic actors are rational, but only up to a point. At that point, people’s natural cognitive limitations kick in, and this affects their decisions.

Now, if this all seems too abstract, I have a useful tool to provide you with an example: Official Gazette Number 40,166, dated May 15th, 2013.

As you may know, the Official Gazette is the government’s official newspaper newsletter. All acts of government must appear in it.  Every law that is passed, every appointment to senior or even mid-level positions, everything – if it’s not in the Gazette, it’s not official, and it didn’t happen. Legal flunkies all over Venezuela are given the thankless task of poring over it every day.

Today’s Official Gazette is a doozy.

In it, we learn the government has set the prices for all types of products. Not only do we learn the new prices for first-rate, second-rate, and third-rate beef (my new favorite insult is “eres un lagarto con hueso que se cree pollo de res”), but also the prices of a whole assortment of other products.

The mind is baffled when you think of the countless hours it took to put this Gazette together. Your tax bolívares are being spent in endless meetings where bureaucrats decided that Pausterized Milk in 1,800 CC containers has to sell for BsF 13.2, but the one in 900 cc containers has to go for BsF 6.6. It doesn’t matter that “real” prices are much higher, we still need to set the official prices. If we don’t, how will buhoneros know which number they have to multiply by 3 to set their own prices?

In some obscure conference room, in one of the many government building populating the Municipio Bolivariano Libertador, several red-shirted, sleep-deprived bureaucrats surely spent countless hours deciding that Gouda cheese had to be sold for precisely BsF 3.42 less than Munster cheese – not 3.40, not 3.43, but 3.42 damn it!

The “bounded rationality” aspect comes in when you think of the alternatives. Our government cannot think of new ways of creating incentives for producers to increase production, of attracting foreign investment, of improving education, solving crime, paving roads, or building new ports.

They are too busy deciding that breaded chicken patties should be BsF  4.78 more expensive than boneless chicken thighs (with or without skin!).

(Brief digression: of course, Hugo Chávez made it a habit to skip the Gazette altogether – this particular act of government never found its way to the Gazette, but you catch my drift)

1 COMMENT

  1. I’d have imagined that the incongriuty of end-user prices was arrived at not by laboriously (undefined in offficial vocabulary, ostensibly owing to régime-localized allergic reactions.) teasing out ‘to-the-cent’ amounts but rather by simply applying a blanket percentage to priorly prevailing prices and registering the resulting figures as new prices willy-nilly. I have seen numerous Covenin norms (e.g. the height-range above the floor for hanging fire extinguishers) as simply lifted from ASTM or similar ones and converted into metric.

  2. “eres un lagarto con hueso que se cree pollo de res”. Love it. And will use it pretty soon.

  3. In economics,
    the invisible hand of the market is a metaphor conceived by Adam Smith
    to describe the SELF-REGULATING BEHAVIOR of the marketplace. WRONG!!!

    But then,
    how was Adam Smith to know that the Gaceta Oficial
    SUPERCEDEs and voids his teachings,
    by setting a VISIBLE HAND for one and all.
    That, my friends is Progress!

  4. Mercal might be able to sell some of that stuff at those prices (though I’ve heard some recent stories that made me suspect that at least some outlets were just dumping their merchandise). And private market chains might not be able to sell them for more. I would be very surprised if those prices can stop the shortages for long. Buhoneros will thrive, as always.

  5. It always seemed to me that Chavez believed on some level, despite the fact that he did whatever he wanted, when he wanted, and despite all outward appearances, that if something was written in a law or regulation, it was real. Hence, a non-stop tsunami of laws and regulations deemed: revolution.

    I don’t know if that condition is in the new DSM manual, but whatever it is, it has spread.

  6. Gaceta Oficial consumer prices/increases are just for the Eljuris/GACs/PSFs of the world to pretend that cosumer goods in Venezuela are accessible to the masses at reasonable prices. Virtually no retail outlets observe them, except perhaps Mercal/similar and a few large SM chains forced to do so. The “Indice De Desacato”, or “Price Disobedience Index”, of the Banco Central (BCV) for key consumer goods such as harina pan/margarine/cooking oil/chicken/beef/milk/cheese/etc. etc., is currently at 300%, meaning that retail outlets are charging an average of 3x more for these vital consumer goods than their Government price-controlled list prices

  7. I think it was henry ford sr who declared that the price of any good would be ‘what ever it will fetch’, i.e. whatever price people would be willing to pay for them , the phrase is still good today!!

  8. But, can the government actually enforce the price control?

    “No es que yo lo diga, es que todos los días las amas de casa lo ven en el automercado. Resulta que aumentamos el precio de los quesos en 20%. El queso blanco duro pasa a 38 bolívares y estaba en 32. Vayan a cualquier panadería, compren 400 gramos de queso blanco tipo Santa Bárbara. ¿Cuánto les cuesta? 55 bolívares. El queso blanco duro hoy está a 90 bolívares en Quinta Crespo y 120 bolívares en las panaderías. Veintidos millones de personas compran queso a 120 bolívares. ¿Cómo vamos a decir que lo estamos subiendo a 38,35?”

    http://www.noticierodigital.com/2013/05/rodrigo-agudo-el-queso-duro-cuesta-ahora-38-bolivares-pero-22-millones-de-personas-lo-pagan-a-120/

    • The Government cannot enforce price controls–there most recent attempt involved 5M “inspectores”, working for 2 weeks, and confiscating (no payment) mainly from Polar (their normal 1-2 days’ inventory) and some poor Chinos in Quinta Crespo (the sacrosanct buhoneros were, of course, spared) a food tonnage equal to 1/2 day’s consumption in Venezuela….

      • The funny part is imagining someone really believing that a bunch of capitalists are sitting in a smoke filled room, presumably somewhere in the Evil Empire, plotting to cause instability in Venezuela by hatching a plot to limit the supply of toilet paper available.

        This is the same explanation they use for every shortage for the last 5 years…how many people actually buy it at this point? Even ‘true believers’ have limits on their ability to suspend logic that would undermine their glorious belief in the ‘revolution’…or do they?

        • Well, following that line of logic…

          If there is a food shortage, how could there possibly be an increase in demand without some sort of external pressure? After all, output cannot exceed input, right? And if there’s less to eat, there logically must be less to, um, wipe.

          Or, let us reflect a moment further on the media involvement.

          See, here abouts, say, 100 years ago, when a new Sears catalog came out, the old ones were “recycled” as it were, since they were one of the few consistent supplies of quality paper (meaning paper without actual wood chunks/cellulose still physically extant). There was actually quite a secondary market for old sears catalogs. I actually have one from 1886 in my library. (note: used not recycled).

          Is it possible that there has suddenly been a rapid dropoff in the quality of the paper used by the various print outlets across Venezuela thus precipitating this crisis? Is that what the government is now ranting about? Cuz that I can believe.

          • Venezuela is fast on the way to using corn cobs, which pre-dated the Sears catalogs in the U. S. ( I know-ouch!), although in Venezuela it might have been platano leaves. The scarcity in Venezuela is of raw paper stock, which is not available locally, due to no recycling of newspapers/et. al., and which has been traditionally imported from Puerto Rico/U. S., but for which there have been few if any scarce dollars available, except for (still, hasta nuevo aviso) local newspapers.

          • I think this whole topic should be the starting point for conciliation and opening a dialogue between both sides of the political spectrum.

            Furthermore, I believe that the gobierno should show its willingness by opening its purse and purchasing every member of the AN, every minister, every politician great and small, every parent of a child great and small and anyone else who wants one, this book:

            http://www.amazon.com/gp/product/0916291774/ref=olp_product_details?ie=UTF8&me=&seller=

            After all…even revolutionaries can identify with this issue. Should be a major talking point.

    • Funny thing is, the government puts the requirements at 125M rolls per month. They are importing a 2 week supply (to calm people down – hah!). You just can’t beat quotes like this:

      “Commerce Minister Alejandro Fleming blamed the shortage of toilet tissue on “excessive demand” built up as a result of “a media campaign that has been generated to disrupt the country.”
      “The revolution will bring the country the equivalent of 50 million rolls of toilet paper,” he was quoted as saying Tuesday by state news agency AVN. “We are going to saturate the market so that our people calm down.”

      So the media caused the excessive demand? Well, it’s certainly true that excessive La Reina Pepiada is not causing excessive demand 🙂

      Read more: http://www.foxnews.com/world/2013/05/16/already-short-some-foods-venezuela-is-facing-toilet-paper-crisis-government/#ixzz2TSk8j091

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