"The Price Had Better Be Right."

It’s worth noting that, although the President of the United States hasn’t the power of Generalisimo Chavez, Pres. Obama’s attacks on speculators are just as politically opportunistic and economically ignorant – and potentially as destructive – as are any such attacks issued by Latin American dictators…

– Don Boudreaux, Café Hayek.

If anyone out there still needed a primer on why a Government-Centered Society was doomed to ineluctable failure, Hugo Chavez is conducting a seminar in ineptitude out of Caracas. Hugo Chavez has decided to devalue his currency in order to flood the Venezuelan State-Run oil company with revenue. He would then “tax” these revenues in order to fund his social welfare apparatus which has fueled his political viability.

Looking only at the revenue side of the equation makes this plan look like a winner. The oil company gets more cash, Chavez gets more revenue. However, the cash is held in the form of a deliberately devalued currency. By definition, each individual unit must buy less in goods and services. Except that Hugo Chavez doesn’t like that definition. He wants to have his cake and eat it too. He doesn’t like the price of a hyper-inflated lunch.

So now the Venezuelans get to play the Leftist Version of The Price Is Right. Soldiers are deploying to make certain that store owners don’t guess too high when they haul out the price gun. If they do, the Venezuelan National Guard will haul out the weaponry and confiscate the store. The Christian Science Monitor describes this hyper-Keynesian view of a well-regulated system of commerce.

Chávez said the moves should not spur price increases, and on his Sunday radio and television address promised to punish those who do. “There is no reason for anybody to be raising prices,” he said, calling on citizens to “publicly denounce the speculator” and promising to “take over any business, of any size, that plays the bourgeoisie speculation game.”

This means that any store owner that reacts to a 50% decrease in nominal currency value by raising prices a logical 100% will need bayonet assault course training to plead his case. So the store owners are using their only other viable recourse and de facto shutting down. The artificial price levels are insuring that nothing remains available. The New York Times described the fundamental breakdown in everyday commerce.

A supermarket in the upscale La Castellana neighborhood recently had plenty of chicken and cheese — even quail eggs — but not a single roll of toilet paper. Only a few bags of coffee remained on a bottom shelf. Asked where a shopper could get milk on a day when that, too, was out of stock, a manager said with sarcasm, “At Chávez’s house.”

The United States blessedly limits the power it invests in one branch of our Federal Government. This is good, because compared to the technocrats in Venezuela; America’s current political leadership has no monopoly on decency, logic or even basic common sense. In recent years, America’s economic “Leaders” have felt their perspicacity impinged as prices for essentials like food and fuel have gone up “unexpectedly.”

After a major spike in the summer and fall of 2008, people believed the worst had receded as prices reached a valley of $1.61 by Christmas. But then, they began an inexorable climb back up to about $3.90. This happened at a monotonic rate, over a three year period. This was not a shock or a manipulation. It was a steady, consistent climb of approximately $0.70 per year.

What has happened between 2009 and now has not been a speculative bubble. The behavior is entirely too consistent and steady. There is no sudden shock* to react to. Yet still “The Speculators™” get trotted out there like “The E-VIL Banksters™” were a few short years ago. Like Hugo Chavez, Our President Barack Obama wants the US electorate to dance to the tune of yet another boogeyman.

On April 17th, as the predictable commodity market reaction to a policy of loose money and low interest rates caused him political grief, Barack Obama busily pulled out “The Speculators™.” In order to “check the box on the economy” and “do something about the problem,” Barack Obama unveiled the following proposals.

The Obama administration proposed new measures Tuesday to limit speculation in the oil markets, seeking to draw a contrast with Republicans who have been calling for more domestic drilling during a time of near record gasoline prices. The new proposals require oil traders to put up more of their own money for transactions, ask for more money for market enforcement and monitoring activities, and call for higher penalties for market manipulation.

– CNN Money

Of course this ignores the lack of any physical evidence that a “cornered market” has occurred. Somebody has to own a significant portion of an existing commodity to profoundly manipulate its price. This would imply that prices can fluctuate in ways that President Obama doesn’t like absent any sort of greedy capitalist boogeyman.

This would pierce the eminence front that gets erected anytime a government wants to spend beyond its means and use implicit inflation to make the people pay back the debt without the appearance of excess taxation. And that’s the truth that gets hidden when a government attempts to control prices. Inflation remains the cruelest tax of all and is present in the margin between what interest bearing accounts pay and what goods and services cost. No blaming a corporate entity with a margin to hold will make this obvious truth any less obvious.

* – Magically doubling a money supply is an example of speculative price manipulation. hedging against a consistent, observable price trend is not in the same league.