Tuesday 22 January 2008

Chavez following Mugabe?

This BBC report says that Venezuelan President Hugo Chavez has threatened to nationalise farms, in an effort to tackle food shortages. Exactly how this will help isn't clear. The report states that Venezuelan government controls keep food prices low in shops to help even the poorest Venezuelans feed themselves. But some farmers prefer to sell their produce in neighbouring countries where prices are higher and this leads to shortages of bread, milk, eggs and meat. Arbitrage anyone?

You do have to wonder why Chavez thinks that nationalisation will improve the incentives for framers to produce more and sell locally. Has nationalisation increased farm output in any country that has tried it?

The report also says that Chavez also announced a rise in milk prices, in an apparent attempt to tackle recent shortages. That will help. It will at least reduce the incentives for arbitrage.

1 comment:

Eric Crampton said...

You've mis-specified the objective function, Paul.

Crank it through again with power maximization as objective function. Re-read Hayek 44.