Toilet Paper Only in the Hereafter
Readers may recall that we have reported on the toilet paper shortage in Venezuela before. At the time our suggestion to the Venezuelan authorities was to simply replace toilet paper with the country's currency, the Bolivar, as evidently there is more than enough of that to go around.
The great leader Hugo Chavez is no longer among the quick. He therefore doesn't have to grapple with the problem anymore – we are assuming that there are no toilet paper shortages in the Hereafter. So one way of getting a decent wipe nowadays if you're a citizen of Venezuela is to follow the great leader of the revolution into the Great Beyond.
Back in May of this year, Venezuela's rulers made the following promise:
"The revolution will bring the country the equivalent of 50 million rolls of toilet paper. We are going to saturate the market so that our people calm down."
But wouldn't you know, in spite of their near complete control over the country's economy, the darn capitalists have somehow thwarted them again!
Obviously, the revolution has a lot of work left to do in order to create the socialist Utopia Venezuelans have been assured will be theirs. The Land of Cockaigne, where the roasted chickens will fly into the comrade's mouths unbidden and toilet paper will be abundant – its creation continues to be obstructed by the machinations of evil capitalist hoarders. So the revolutionaries have decided to strike at the root of the problem.
“Venezuela's government is known for its state-must-do-it-all mindset, inherited from late President Hugo Chavez and his radical followers, known as Chavistas. But late last week, the notoriously inefficient government went above and beyond to shine its populist credentials: It stepped right into Venezuelan bathrooms.
On Sept. 20, President Nicolas Maduro and a new economic panel ordered national price regulator Sundecop to “temporarily” seize plants owned by Manufacturas de Papel CA, orManpa, the company that supplies 40 percent of the country’s demand for toilet paper and personal-care paper goods. Their reasoning? To oversee production, because consumers can't seem to find enough rolls of toilet paper.
We hereby predict that the toilet paper shortage is going to get worse. It is not the only thing in short supply in Caracas these days:
“It's not just bathroom tissue that's lacking: In recent months, food items such as cooking oil and powdered milk have nearly disappeared from store shelves.
But even after a decade of price controls, foreign-exchange restrictions, runaway inflation, currency devaluations, blackouts and takeovers of more than 1,000 companies or their assets, the government still claims the private sector is at fault for the deficiency in consumer staples.
The Manpa asset grab came a week after Maduro introduced the new regulatory committee, which will address product hoarding and other abuses that he blames for missing goods.
Vice President Jorge Arreaza spoke the party line in a recent appearance, when he blamed consumer-goods shortages on “an ongoing economic war” orchestrated by Maduro’s enemies. Food Minister Felix Osorio chimed in: “There are some incidental production failures.” But he added that “an economic coup” was also in motion.
Apparently the ability of the comrades to convince Venezuela's citizens of their ability to increase the supply of toilet paper by seizing yet another factory is waning though:
“Alert Venezuelans aren't buying this. When Commerce Minister Alejandro Fleming tweeted on Sept. 20 that Maduro had "ordered the Superior Body for the Defense of the Popular Economy to temporarily seize Manpa,” Ricardo Sevillano, of Maracay, responded with a key question directed at Fleming and Maduro: “Will you run it into the ground as you’ve done with all the other companies you have seized?”
We can answer this question for comrade citizen Sevillano: yes, they will! In fact, it was the seizure of a paper company by the late Hugo Chavez that started the toilet paper shortage.
“Those curious about where the latest takeover will lead should examine Hugo Chavez’s nationalization of paper company Venepal eight years ago (renamed Invepal by Chavez). One of the first companies seized by Chavez, Invepal still suffers from production problems, its output numbers remain secret, and it relies on the state to cover its recurring losses. As Venezuelan economist Jose Toro Hardy aptly put it in a Sept. 25 tweet referring to the state’s damaging role: “Nothing is more dangerous than mixing incompetence with ideology.”
True Marxists Are Unperturbed
As Bloomberg's report also informs us, the hard-core Marxists in Venezuela's government know quite well that socialism and scarcity go hand in hand. In fact, they seem almost proud at their achievements in this regard. Remember, one of the basic tenets of 'progressive' and socialist theories is that the economy is static. Their entire economic theorizing stands and falls with this assumption.
There exists actually no progress in the 'progressive' ideologies. In their world view there is a fixed economic pie that only needs to be distributed differently to make everybody happy. Of course, the static economy is an illusion even if one stops all further progress as socialists are wont to do. Some things will still change – resources will run out, soil may become exhausted, population numbers will change, and so forth. This is why a centrally planned economy cannot work even if after the seizure of the means of production it 'just continues where the capitalist system left off'. The anthill of the evenly rotating economy in which nothing ever changes is only a mental tool, an artificial construct. It does not exist in reality. The cynicism of the hard-core Marxists in Venezuela is in stark display below – but hey, you can always 'wipe with the fatherland':
“Things have gotten so bad that Venezuelan Jose Augusto Montiel developed a crowd-sourced, Google Maps-based Android app and a website, Abasteceme (“Supply Me”), that consumers can use to track down stores carrying toilet paper and other scarce products. Meanwhile, late last week the government announced a supervised sale of 21,140 toilet paper rolls seized from manufacturers or distributors, which the government has often accused of hoarding.
Not everyone thinks these shortages spell bad news. Planning Minister Jorge Giordani, an avowed Marxist, famously quipped in 2009 that “socialism has been built based on scarcity.” Elias Eljuri, head of the National Statistics Institute, said in late May that toilet paper scarcity showed “Venezuelans are eating more.” He quickly became the — pardon the pun – butt of jokes on Twitter. Comedian Andres Schmucke tweeted a tongue-in-cheek view on May 23: “According to Elias Eljuri the toilet paper shortage happens because people are eating more. Man, us comedians will be out of a job.”
A frustrated Foreign Minister Elias Jaua only made things worse when he admitted the government “had work to do” to overcome shortages and asked: “Do you want to have the fatherland or do you want toilet paper?”
Critics tweeted their disapproval using a fitting hashtag, #LosChavistasSeLimpianElCuloConLaPatria (#ChavistasWipeTheirBehindsWithTheFatherland), which was already being used by anti-Chavistas.”
We should perhaps remind readers that the crime of 'hoarding' is also a major bugaboo of the Keynesian faith. Mr. 'avowed Marxist' Jorge Giordani is quite correct. Marxism and shortages of consumer goods always go hand in hand. It is simply not possible for a command economy to supply consumers with the goods they want. As to the 'frustrated' foreign ministers rhetorical question: we actually believe most Venezuelans would prefer the toilet paper. Just a hunch, mind.
But There Is a Boom On!
We want to take this opportunity to show an update of the hyper-inflationary crack-up boom that is accompanying these widespread shortages of consumer goods. Readers will recall that we mentioned in our missive on 'forced saving' that hyper-inflationary crack-up booms give us an excellent opportunity to see the economic effects of inflationary policy in a temporally compressed manner. One major effect is that investment moves into the higher stages of production (capital goods) to the detriment of the lower (consumer goods) stages.
In other words, the production of consumer goods begins to suffer as more and more production factors are deployed in the production stages furthest away from the consumer. As a consequence, titles to capital – i.e., stocks, tend to rise strongly in value, not least because they are seen as an effective means to protect one's savings against the ravages of inflation. What is currently playing out in the US economy on account of 'QE' is merely a milder version of the very same principles.
The Caracas stock Exchange Index. Since we last reported on it in May, its value has more than tripled! – click to enlarge.
The shortage of consumer goods in Venezuela is in fact what the 'forced saving' consists of. The pool of real funding, i.e., the pool of final goods that sustains workers, has shrunk and many of the items required to sustain them are not even available anymore at all. We suspect that by now, the damage is so great that the boom can not be kept going for much longer.
Below is a chart of the Bolivar currency, showing the true black market rate compared to the official exchange rate. Unfortunately we have no more recent update, but the black market rate has since then fallen considerably further. In fact, as Reuters reports, there is a brisk arbitrage trade going on. Venezuelans pretend to travel overseas in order to buy dollars at the official exchange rate, and then sell them on the black market, where the dollar currently trades at a new record high of 7 times the official rate.
“After a decade of currency controls set up by late socialist leader Hugo Chavez in 2003, the disparity between the official and black-market rates for the local bolivar currency is higher than ever. Greenbacks now sell on the illegal market at about seven times the government price of 6.3 to the dollar.
There are strict limits on the availability of dollars at the 6.3 rate, but Venezuelans are cashing in on a special currency provision for travelers. With a valid airline ticket, Venezuelans may exchange up to $3,000 at the government rate. Some are not even flying, leaving many planes half empty.
"It is possible to travel abroad for free due to this exchange rate magic," said local economist Angel Garcia Banchs.
The profit is realized from an arbitrage process known locally as "el raspao," or "the scrape."
The bolivar's official and black market exchange rates up until May 2013 – click to enlarge.
In order to visualize the current status, just consider that the rate is now approximately at 45 bolivar to the dollar instead of the 33 recorded in May. Venezuela is yet another excellent case study for the end game of an inflationary policy.
It is quite amazing that we still get to see so many of these crack-up booms in modern times. Only recently there was the Zimbabwe case and currently we can observe the still ongoing Venezuelan and Iranian hyperinflation regimes. The boom in Caracas is well advanced, so the final collapse cannot be too far away. Stay tuned.
Charts by: Professor Hanke / Cato, OnVista
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