Maduro Brings to Appliances all the Dynamism of the Apartment Rental Market

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ManuelVRoman-800x600
Allnighters…

It’s been a shocking day: the image of people calmly lining up to buy forcibly discounted appliances was a lot to take on. The scene was repeated again and again in dozens of stores nationwide, and was quite distinct from the deeply deplorable – but apparently isolated – looting event in Valencia.

Alongside the fully justified revulsion at the looters, there’s been a strong note of  disgust against people who decided to take advantage of the forced bargains on offer today, often queueing up around the block for hours – some, overnight – to do so. Personally, I’m not comfortable with that.

Standing up for economic rationality means avoiding the temptation to rail against those who are doing nothing more than trying to increase their well-being amid difficult circumstances. The government’s demonization of Daka for seeking to maximize profits through its pricing is just as morally bankrupt as our demonization of regular people trying to maximize their family’s well-being by taking the chance to buy appliances while there’s still something on offer.

We need to keep the long game in mind: from today, electronics join milk, apartments, wheat flour, harina pan, chicken and cars in the list of things that you can’t just walk up to a store and buy. TV sets and ACs and such will become the stuff of operativos, of tips shared sotto voce between friends who drop whatever they’re doing and rush out to try to score whatever scarce item it is that, exceptionally, has hit the market. That, really, will be the legacy of the day’s events.

This, I think, is a part of the consumer response today that people are missing. People aren’t fools. Years of living with mounting scarcity has taught them what happens when the government gets aggressive about controlling the cost of this or that good. You don’t need an economics degree to know what comes next, you just need an open pair of eyes and the experience of having lived through the last few years in Venezuela.

Reacting to the announcement that appliance prices are to be aggressively controlled from now on by rushing to buy what’s on the shelf just shows people are fully aware of the unworkability of controls. Reacting to the certainty of shortages tomorrow by moving up your consumption date is proof that the very kind of economic rationality Maduro would have to stamp out to “win the economic war” está vivita y coleando. 

Venezuelans aren’t stupid. And we do ourselves no favors by attacking them for refusing to be stupid.

1 COMMENT

  1. I think you got it wrong, we’re not, at least I’m not, attacking them for their clever economical behaviour; my problem is the “looting” which is nothing but outright theft.

    I attack the lack of respect for others property, the zombie-like attitude of hordes standing in front of stores waiting for a chance to steal whatever they can while Fredo “Maduro” Corleone and his thugs protect them.

    Being poor is no excuse for turning into a criminal.

    PS: And before anyone uses the “qué sabes tú sifrino que nunca ha trabajado” card, I ain’t no sifirno, I went to a government subsidized school and work my ass off monday to monday to try to make a living =)

  2. I can’t agree with you this time. When controls (or devaluation) have been announced in the past and people rush to buy things nobody attacks them. But this is different, way different. If people just wanted to “protect themselves” from future shortages why weren´t they buying also in other stores? There were lines in, say, JVG but not by the registers but outsides waiting for “an opportunity”.

    What happened today wasn’t a group of wise people “moving up their consumption date” but a group of vultures trying to get something for free or almost. This by no means intends to be a defense of Daka, that is a different matter, I only wish to distinguish between smart people and the “vivo criollo”.

    • The “vivo criollo” concept is the most vulgar, comentario-de-señora-en-peluquería and intellectually corrupt concept in the history of Venezuela. You really think people wouldn’t do exactly the same thing in Sweden if faced with the same economic incentives? If you do, then you epically miss the key moral argument that supports the superiority of the market as an allocation mechanism,, i.e., that it allows for the emergence of cooperation *without requiring people to mind much beyond their naroow self interest*. You just can’t criticize Maduro for demonizing speculators who take advantage of idiotic exchange controls, then turn arround and start screaming with horror bacause people do exactly the same thing in another context.

      • I disagree that they are morally equivalent. Those businesses are the lifeblood of all who are associated with them, all along the supply chain. If rules are bent to supply merchandise it is out of necessity. On the other hand, the shoppers have greater discression.

      • As for the cultural comparison, you’d have to push a swede pretty far to see that behaviour. In fact, the swede would probably have to be venezuelan…

      • Actually, I think most Venezuelans think that what the the government is lawful.The Venezuelan state has been traditionally such a big, powerful, interventionist one that the idea that it cannot lawfully make you sell something at a price without a legal basis is lost on most the population. You can see that a group of the people queuing in Daka Valencia were outraged, called the looters thieves, filmed then and did not participate in the looting,

      • Demonizing the “speculator” has always been a favorite theme of Venezuelan governments, not just Maduro’s, to blame others for when they mess up the economy and the people start feeling the consequences. The fact is every business, and buyer as well, is a speculator in the economy and that is not a bad thing that is what moves the economy and builds a country. The Chavez-Maduro government has made shamelessly blaming others (opposition, US, animals, businesses) for their own faults (crime, inflation, blackouts, scarcity, pudreval) a linchpin of their communications strategy.

        That others, even smart people, buy their arguments is the real pity.

        That prices for some goods change violently is only the measure of the distortion created by the government. Like someone is like blaming the thermometer for the fever.
        Tell me those importers are not justified in getting absurdly high margins for their products when they cannot know if they are going be able to get enough dollars for the Bolivars they get to keep their business going or if they are going to be forced to give the product away or if they are going to be looted or expropriated or have their businesses taken by the workers.

  3. The people lining up for immoral bargains may be complicit to some extent, but the main culprit is obviously the regime, using illegitimate tactics to win people over with short-term benefits. As a purely political matter, we shouldn’t push the regime and the consumers into the same boat. There’s daylight between them, and it should be recognized.

    • They are rational actors, you cannot save you cannot do anything with your money at least is a way to save your money of the inflation + devaluation…

  4. “The scene was repeated again and again in dozens of stores nationwide”

    Care to elaborate, Francisco? What stores and where?

    And another thing missing: focus on the timing of the announcement/colas.

  5. Mr Toro, I’ve read repeatedly both your many writings as well as Mr. Nagel’s regarding the lack of understanding by the warp and woof of Venezuelan society as far as opportunity cost goes.

    I think the events at Daka today demonstrates otherwise. I think they understand it very well. They just have a profoundly high discount rate which doesn’t allow for long term planning/thinking of the consequences of economic decision making.

    Why plan for tomorrow economically when that day may never come?

  6. Well, maduro seems to understand the Demand curve very well and is using it to the max. I wonder when he’ll accept that the same concepts apply to the Supply curve, and that evil nor greed have anything to do with it, and forced altruism is certainly no successful way to control it.

    Then again, the same kind of blinders seem to be on those who insist on electoral platforms with lower chances of winning elections due to their lower attractiveness, then criticizing the voters for not voting for the less attractive platform.

    • Oh, really??

      Get abreast, my friends: those websites have been being blocked by Venezuelan ISPs since last year as well as others Maduro did not speak of, i.e. diariodecuba.com

      What’s going to happen is the rise of other websites and web services showing the information Maduro’s trying to censor, and eventually another crass display of (alleged) power on his cadena stage. In the end, he will not succeed, at least on this issue.

      • They can only control access within Venezuela. They made a law that made it illegal to publish rates years ago, so many ISPs fearing that they would be held accountable for the actions of others censored some websites themselves. What’s new now is that the government seems to be taking on the responsibility itself of filtering websites out, the way China does. Proxy servers, Anonymizing services, and external computer access, are our friends…

  7. I don’t mind people taking advantage of a low price even if is the result of the government indecently strong arming businesses. What bothers me infinitely more is people, even smart commenters here, blaming businesses of price gouging or hoarding and being immoral abusers because they have grotesquely high prices. It bothers me because the high prices and the scarcity are to be blamed solely on the government. It’s just too much that the government creates all kinds of obstacles for businesses to work, distorts the exchange market, distorts the economy, accuses the private sector and the opposition of all the bad things they are doing to the country, attack directly the businesses, causing thousands of them to close or be taken and workers to lose their jobs, breaking I don’t know how many laws in the process, and still people, even smart people here, blame the businesses because the prices are high. I understand that happening in Aporrea but here?

    Contrary to most people, yes I will defend and justify the businesses. First of all, those TVs, refrigerators or whatever belong to their owners, they can sell them at any price they like, at least they should be able to do so, no matter at what price they bought them or at which exchange rate, no matter how obscene the price may seem to you. There is a basic economic principle that says the higher the risk the higher the return, which means when you don’t know how soon, or if ever, you are going to recover your investment you need to have a higher return for it, which means higher prices. I think you’ll agree that Venezuela right now has the highest risk for businesses when you can even go to jail just to make Maduro look like Robin Hood.

    • Yes but that Is capitalismo salvaje…and How you dare? of course besides supply and demand , market value..it is called value because the consumer decides if he is going to get it or not…I could sell my 3 year-old laptop for 5 million $ if I found a person that is willing to pay that, it is not my problem, now I could wait aeons for someone to buy at that price if the same computer could be bought anywhere in 100$

  8. I usually have said “don’t take people for idiots, they can ignore lots of things, but they are not idiots” and “there must be a social organisation educating people in areas C, D, E about economic reality”.

    I don’t think almost anyone queueing up yesterday got it and they won”t get it when “scarcity” in that sector appears.

    Scarcity was a fact already for those who were not buying appliances abroad or didn’t have the money to go to such places as DACA.

    Scarcity will be larger now, but it doesn’t change things: the fronts are the same and they will change little unless some of the remaining people in Caracas try what they have always thought unrealistic: to teach people at a national level through grass roots organisations.

    • The govts measure was irrational and idiotic, Daka was not profiteering it was protecting its capacity to replenish its inventory of imported goods (and goods produced by import dependent local manufacturing sector) , by raising prices that it could exchange for USD in an escenario of a free falling bs USD exchange rate . People who know that this will mean a future severe surfeit of appliances do not act irrationally by queing to buy whats on offer for a last time .They are being rational although morally they are taking advantage of an injustice , sometimes you cant have it both ways !!

      • Bill,

        I am undecided about calling these people’s action in using this event “amoral” or not. I think like Quico might have a point here…and yet that is besides the point:
        the point is whether these people will identify or not that it is the government that is the ultimate cause of these problems – the government and their actual voting behaviour.
        And I very much doubt it.

    • I don’t think someone is teaching them, they know otherwise, they wouldn’t people for example selling beer in their ranchos for a profit because people do don want to go down”they co to the super market…they know what inflation is, one time I started asking questions to different people about what if the $ goes up, everything is going to cost more! I could sound as an anecdote, but people in here, and people from Colombia Peru, ecuador, know a lot because they used to send money back to their countries…so intuitively they know, a lot of economic principles, they know what scarcity means. they know when they cannot find gas to cook…The thing is in history the scarcity have been temporary, the problem is now would be forever…

  9. Well, I hope that they get what they can. DAKA will close eventually, and that those appliances last, electric blackouts, criminality and all. The only appliances coming will be Haier and such, directly imported by Maduro at who knows what cost (including even more corruption than that involved in importing privately), for maximum electoral effect and not because they might be any good, mortgaging Venezuela until who knows when in the process. They have only to last a year at most. On the plus, they will be cheap. Now. Their cost in lost opportunities, development and lives will come later.

    The saddest thing about this and all the other bad regimes, is that they either make you an accomplice of their delinquency, or force you to act in ways that in normal times would be delinquent. In any case, you become accustomed to act like a crook and a swindler. Depending on whether it’s a carrot (stolen) they offer, or a stick (which you avoid).

  10. “Cuando adviertas que para producir necesitas obtener autorización de quienes no producen nada; cuando compruebes que el dinero fluye hacia quienes no trafican con bienes sino con favores; cuando percibas que muchos se hacen ricos por el soborno y por influencias más que por su trabajo, y que las leyes no te protegen contra ellos sino, por el contrario, son ellos los que están protegidos contra tí; cuando descubras que la corrupción es recompensada y la honradez se convierte en un auto-sacrificio, entonces podrás afirmar, sin temor a equivocarte, que tu sociedad está condenada.” -Ayn Rand

  11. I understand the whole rationality thing… But, in the circumstances we are facing, with a deeply inmoral government using its power to blackmail ordinary people into digging their own graves, justifying such behaviours because they are logical from an economically rational point of view seems a very dangerous path. Happily waiting in line in the road to serfdom.

  12. I think it’s interesting that Maduro declares an early Christmas, with bonuses coming on 10th/11th November then clears the way for Christmas shopping. The government has no money for give-aways so the “other peoples money” now becomes your own! What a clever concept to lead the people to think you’ve given them something while they spend their money. Of course, not all the populace receives bonuses and I suspect the poorer classes will be the most left out. Maybe the remaining upcoming price fixing for other types goods will help them out.

    One thing to be sure of, there is almost a month before the election and the government will only become more astonishing in there brazeness between now and then. And assuredly, this won’t be enough to win the election so they will steal it by cheating and intimidation and out right fraud when 8 December arrives. Chavez and the current admin have stated they will not leave power. Count on it.

  13. If we’re speaking about several million electrical units, or at least a few hundred thousand, I can see the shorterm gain for Maduro. But in reality I can only imagine the number of looted items to be in the thousands. From the YouTube videos a number of the thieves had more than one item and indeed a few of the items ended up being trashed by the apparent innocent shoppers. So it is likely only a very few of the December electorate gained. I suspect that there are more pissed off people for different reasons than we may think.
    So if this is a ploy by Maduro to gain favour with the public pre-election he must also realise there’s a lot more looting to organise. There is also the likely case that he is intentionally creating an atmosphere of instability and violence in order to cancel the December election.
    Either reason indicates that this is all a planned move with more to come yet.
    Of course Maduro will engineer an election victory, if indeed we get that far, however he has demonstrated a desire to not avoid possible violence and the consequent instability.
    As they say there is no Revolution without war, or violence I suppose. The key question is can Maduro control the floodgates he is so hell bent on opening.

    • Another factor is that this wasn’t people from el barrio sticking it to the rich. As far as I saw in Valencia this weekend, it was mostly middle class families in their cars and SUVs forming lines to buy cheap stuff.

      I don’t think this will bring a middle class political exodus. But I do worry that social discomposition is going up the ladder.

      • Hey if you want a big flat screen tv for a long time but you can’t afford it, then all of a sudden you can afford, wouldn’t you buy it? Human nature.

        • if you want a big flat screen tv for a long time but you can’t afford it, then all of a sudden you can afford AND AT THE SAME TIME REALIZE THAT IF YOU DON’T BUY IT NOW YOU MAY NOT GET ANOTHER CHANCE FOR YEARS BECAUSE TVs ARE ABOUT TO DISAPPEAR FROM THE MARKET, wouldn’t you buy it?

          • Ok. The people who are lining to buy it, are engaging in a rational behavior, let’s call them shooppers. The morality of the behaviour I think is open to discussion.

            My point would be better made using Daka Valencia as an example. What happened there can only be defined as looting and thievery. Those people were middle class.

  14. The best analogy for an economy is as a big lake. When the lake is calm and there is a little constant breeze many many vessels of different kinds and sizes, from dinky sail boats to big tankers, can cross it without problems. The job of a government is to keep the lake as calm and consistent as possible. In those conditions the future is predictable and margins for businesses tend to go down since there are little risks, many and varied businesses open up and function in those conditions. Competition is a given.

    When a government intervenes with big policy changes and imposes controls and conditions and taxes on businesses is equivalent to creating big splashes and having the winds change constantly and putting unnecessary ballasts on the vessels. Keeping with the analogy a big storm in the previously calm lake. In those conditions only the biggest and sturdiest ships can navigate (i.e. Indst. Polar) and even they are at risk because there is no ship big enough that cannot sink. So the risks are extremely high and the rewards also need to be high to justify it. Big companies may actually welcome the storm because the competition will be greatly diminished if not gone completely so that will give them monopolist powers to govern the market.

    The other ships that may risk braving the seas are extremely fast boats that may take advantage of temporary lulls in the storm to make quick a cross. Those would be the “speculators” who can’t know how long they are going in business and need to make a killing every time.

    Hurricane Hugo/Maduro making a big splash since 1999.

    • May I add to your analogy, that we’re all fish living in the lake, and it only takes one fish to take a crap so that we all swim in, well, you know where Im going…

      And this government fishes have a serious case of diarrhea

    • Hey! first ARE YOU NUTS? ok it does not matter (JK ;P ) … But hey anything contact in here or join twitter…sometimes things happens so fast, and there i s a 15 years gap that I don’t think no one could get you a good summary… I just read you passport story…and started fearing…but ok…

  15. People, countries etc are Rational actors, there are goods, and there is an incentive (Thanks Mancur and Olsen after i hated you so much for you stupid paper, now I could use it LOL) So it is totally rational to go and even use the BS now in anything even chewing gum before inflation erodes any of the value of your money…There is a public good to try to do a collective action? maybe, everyone has the same incentives to do such? No (Go and fight with Mancur and Olsen) . That of course we know in the long run is not going to help but MADURO-CASTRO _GIORDANI Polpot-cultural revolution-North korea smoothie? Yes … Well for those in Political science and elections try to get un enchufado that gives you data from the central bank….wonderful papers in your road and even work for stata monkeys….

  16. Incredible how Quico takes the moral high ground about busimnesses maximizing their profits. Anyone, wherever they live, will know that 1200% profit margins are just inmoral. The only people that refuse to recognize this are politically obsessed people who are anti-chavistas desperate for their side to get into power.

    So the theory is that if prices come down this will obviously stimulate demand since most Venezuelans were excluded from buying such products as the retailers wanted to have inmoral profit margins.

    If you think that shortages will appear médium to long term because retailers can only have a 25% – 30% profit margin instead of 1200% then you will be proven wrong. The pruchasing price will be based on dolalrs at 6.3 so the items will not cost any more to buy.

    The businesses will just have to sell more.

    IMO the inmoral part was to exclude most people from having such consumer items by pricing them out of the market.

    We don’t want these crooks running businesses here such as the brothers running Daka with their filthy margins and ripping off IVA.

    This is a sly line: “doing nothing more than trying to increase their well-being ” – yes, speculation and usury are OK with you them Quico?

    If you think this then there is a strong smell of disgust from your moral standpoint which suppoorts exploitation of the poorer sectors of society. But, hey, this is nothing new. We knew this about you all along.

    • “Anyone, wherever they live, will know that 1200% profit margins are just inmoral.”

      Let’s take your 1200% number and use it for the sake of argument. Maybe if they were the only store that had bread and the population was starving, yes it would certainly be immoral to sell at that rate. But, they are not selling basic goods, they are not selling food, medicine, milk, clothes, items that people need to live. They are selling LUXURY goods. No one needs a big screen TV or Bose speakers, or the latest iPad, and Chavez would have told you the same. No one is forced to buy any of that. Just don’t buy it, or buy it somewhere else. Daka will not sell any product and they will be forced to either go out of business or lower their prices.

      Sellng luxury goods at a price higher than other stores or at a price no one can afford to pay isn’t immoral, it’s just stupid because they will go out of business.

      • Here’s how I see it:

        What bothers Chavistas/Arturo isn’t really that any one store sells things at high prices, but that they all do. Now, say a TV set is selling at Bs.10,000 at most retailers, and you think this is an undue mark-up. What exactly is stopping you (or, well, if not you, then someone) from going into business and offering the same TV for sale for Bs.9,000?

        If the original price really is artificially inflated, knocking a Bs.1,000 off the price is a surefire moneymaker. Whomever tried this would make off like a bandit…clients would line up around the block, hell, it’s Bs.1,000 cheaper than the competition!

        Do this and, in time, you’ll *force* everyone else in the market to follow suit: nobody’s going to pay Bs.10,000 for a TV you can just as easily get for Bs.9,000. And, of course, in following suit, maybe one of your competitors will try to go one better and say “hmmmmmm…I bet I can still make money selling that TV set at Bs.8,000…” and the cycle is repeated once again.

        Yet, mysteriously, this doesn’t happen. There are three imaginable reasons why that might be:

        1-There is an enormous price-gouging conspiracy to keep all retailers cartelized and selling at an agreed-price. This is INDEED a crime, and really should be prosecuted, and would be anywhere. Oddly, this isn’t what chavismo alleges! And, indeed, there is no evidence of this. Cartels can, in some cases, be very good explanations for abnormal pricing decisions in markets with high barriers to entry. As a general explanation for high prices across all markets and at all times, it’s senseless.

        2-Venezuelan capitalists hate money. They hate profits. They have an irrational, insane, monothematic determination to raise prices even when lowering them would make them more money. They aren’t actual capitalists at all, they’re members of a kind of sect dedicated to the worship of price-gouging, a mystical activity that for some reason they value more than they value profits.

        3-Bs.10,000 really is the price you need to sell to keep your business viable given demand conditions, the competition and, crucially, the conditions you’ll face when you need to replenish stock. With access to foreign currency iffy at best, pricing below this point would leave you unable to replenish your stocks, slowly canibalizing your business out of existence.

        My sense is that the chavista view is something like 2-. What’s funny is that it’s pitched as a critique of capitalism, but in fact is a critique that makes zero sense in light of the incentives actual capitalists face!

        • And let’s not forget the crazy barriers to entry state-socialist policies impose themselves on markets in the form of bureaucratic requirements to set up businesses, failure to provide basic security services, insane labor regulations that make it practically impossible employ people, etc. Under those circumstances it’s obviously impossible for the competitive process that you describe to exist, but they simply keep adding insult to injury with puting the blame on “malfunctioning markets”, as if the malfunctioning itself emerged as a force of nature rather than their own idiotic policies.

          • That’s right, but I wouldn’t want to over-egg that point. As long as you have at least TWO competitors that are not part of an illegal cartel, price competition should hold sways. There are clearly more than two retailers in the appliance space in Venezuela, and there are no allegations that they collude, so…

    • So if you can’t get them to compete you get them to obey? Soon enough everyone will be your slave… But we know how people react to that, don’t we?

  17. In the US and Europe people stand line all night to buy the latest iPhone and Play Station since they want them so bad. I suppose that if you could never afford a washing mechine before you might also stand line all night as well.

    Is it the same motivation?

    This BS about not feeling comfortable with people waiting all night is absurd.

    • The difference is that over there, people are not waiting in line because the US government demands iPhones be sold at fair prices every time a new version comes out. Those people actually have the money to buy iPhones, always had and always will. Most of them, at least.
      We have yet to see, however, the US dispatching their military to oversee an iPhone sale.

  18. Attempting to analyse and apply logic to the complexity of the Venezuelan Bolivarian business model is meaningless. What is happening at the moment is the result of no more than an organised apparent turf war, the excuse, orchestrated from afar.
    Castro believes that without war and violence there is no Revolution. Maduro has provided that violence because that was his order. There have been too many recent indicators that the regime is failling. That is a threat to the Castros. And the consequence of that is Venezuela is now in the accelerated process of being sacrificed for the survivability of Cuba.
    And now it is not about what is predictable, how many Bs to the dollar and crap like that. It’s about how much time remains.
    I do hope the Opposition has a plan. At least they should have seen this or something similar on the horizon bearing in mind the 8th December elections.

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