Failure of Central Planning and the Venezuelan Toilet Paper Shortage

Venezuelan officials continue to undermine individual freedom by further demonstrating the deleterious effects of economic central planning. The nation is experiencing shortages of dozens of staple items including rice, milk, butter and toilet paper. These shortages have been exacerbated by a new pilot program designed to limit the amount of goods each person can purchase. However, innovation and decentralization have provided a way for savvy shoppers to once again beat the government’s vain attempts to control the market.

In an attempt to curb the crisis, the western state of Zulia is embarking on a digital endeavor that will track the goods individuals purchase and will block them from buying staple products from different stores on the same day. Blagdimir Labrador, a state official, explains:

Considering the average size of a family, one person should only buy 20 staple products during the period that we establish, which we think will be one week.

The initiative’s pilot will be run in 65 supermarkets in Maracaibo, the capital of Zulia.

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The shortages were in part caused by price controls set into law during the Hugo Chavez administration, which keep goods like rice and flour below their market price. Steve Hanke, an economist at Johns Hopkins University, describes the flawed policy:

State-controlled prices – prices that are set below market-clearing price – always result in shortages. The shortage problem will only get worse, as it did over the years in the Soviet Union.

Although the intention of these policies was to ensure that the poor would have access to these necessities, their actual (and predictable) effect has been to dramatically reduce the supply of staple items.

Recognizing the shortage, many people are stocking up on supplies and some are reselling them at greatly inflated prices to needy Venezuelans. Zulia borders Colombia, where prices are several times the subsidized costs in Venezuela, and there has also been an increase in trade across the border.

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The result of this market mangling is an eminently foreseeable feedback loop: Economic controls and central planning distort the actual prices of staple products. This imbalance between cost and actual value leads to shortages which create incentives for people to hoard goods. This further diminishes supply, and by rationing the remaining goods the government further induces people to stockpile and the shortage is exacerbated.

In short, the Venezuelan government dug itself into an economic hole and is trying to dig its way out.

The national shortage of toilet paper has struck a nerve with many Venezuelans. In order to quell their frustration, the government says that it is going to import an additional 50 million rolls along with 760,000 tons of food.

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Amazingly, Commerce Minister Alejandro Fleming blamed the shortage of staple goods on “excessive demand.” To a dyed-in-the-wool statist, the inherent friction involved in managing a society is always to be blamed on the proletariat, never on the Top Men attempting to organize the nation.

However, people are already ingeniously subverting the statists’ attempts to model society. On May 29 Jose Augusto Montiel launched an app called Abasteceme, which translates to “Supply Me,” which helps people get around government-caused scarcity. The app utilizes crowd-sourcing technology that alerts users to supermarkets that still have desired goods in stock. According to Montiel, toilet paper and flour are the items most sought after by shoppers. When users find a store that has these items on the shelves, they flock to the market and whip out their checkbooks. More than 12,000 people have already downloaded Abasteceme, mostly in Caracas, but its popularity is spreading.

The economic problems in Venezuela are intrinsic to the state-controlled political legacy Chavez helped create. Venezuela ranks 174th out of 177 in the 2013 Heritage Foundation report on economic freedom, nestled neatly between Eritrea and Zimbabwe. Chavez’ authoritarianism echoes elsewhere in Venezuelan society, as Chavez repeatedly attacked and censored the media for criticizing his regime and held human rights in disregard.

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Central planners believe in Top Men who have the knowledge and ability to maximize the productivity of a country and its people. They fail, however, to have the humility to realize that this is an absurd task for any leader or politburo, as it’s inherently impossible for a group of few to effectively run a nation of many. History has borne this out repeatedly and this further elucidates the mindset of Top Men. Every problem or inefficiency can be blamed on the Little People who audaciously have an “excessive demand” for anything, be it toilet paper, a free press or even liberty itself. For them, the problem isn’t that their political and economic ideology is fundamentally flawed, logically destined to devolve into the same illiberal hell that every socialist government has thus descended.

It’s that the proletariat didn’t comply or simply that the “right” Top Men weren’t in charge.

Modern technology has made controlling human activity gloriously challenging. This is a decided advantage of living in the 21st century, where people can wirelessly transmit knowledge and innovate myriad wrenches to throw into the machinery of tyranny. However, to statists this development makes their ultimate goals more difficult to achieve. To them it is something to be stymied and snuffed out, perhaps most dramatically seen during the 2011 uprising in Egypt when the Mubarak regime literally turned off the Internet to make it more difficult for the protesters to organize.

This authoritarian impulse can also be seen in America, as news of secret NSA surveillance has been leaked. Also reminiscent of Chavez’ regime, the Associated Press was specifically targeted and the phone records for 20 reporters were seized by the Department of Justice.

The statist playbook is outdated; their only remaining tool is the administration of further force onto an increasingly unwilling populace. This gambit continues to work in many regimes around the world, but its expiration date is nearing. People have begun to realize that the decentralization of power and the abandonment of Top Men leads to freedom and peace.

By innovating to strip Top Men of their iron authority, the Little People—too numerous and evasive to be stomped out—can hopefully reject unwanted and unwarranted authority in illiberal governments around the world.

Sic semper tyrannis.


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Bitcoin’s Rise and the Cyprus Bailout


Nations around the world are flexing the powers of their central banks, from open-ended quantitative easing in the US, to Greek bailouts in the Eurozone. This top-down approach is stretching dangerously thin, both in scope and in effectiveness. One emerging contender to upend the locus of control is Bitcoin, which demonstrates a way to decentralize this authority by sidestepping the fiscal monopolies of individual governments. The demand for Bitcoins has risen dramatically in the past few months, currently trading at well over $100 per coin, as people see a potential escape hatch from traditional currencies. There is now more than $1 billion worth of Bitcoins globally, more than the entire currency stock of 20 countries.



Bitcoin is an online and anonymous currency that can be used to make global transactions. Unlike similar services such as PayPal, the servers that support Bitcoin are distributed across the world, which makes it impossible, or at least very difficult, for governments to shut down. Bitcoins can also be used to purchase traditional hard currencies like dollars, euros or yen. These advantages are making the service an attractive way for people to secure money – almost likened to a digital, mobile version of squirreling gold away in a shoebox.

People are becoming more interested in a monetary safe haven, especially considering the recent events in Cyprus. In mid-March, the European Union and the International Monetary Fund penned a deal that rightfully incensed Cypriots and sent ripples of fear throughout international markets. In exchange for a €10 billion economic flotation device, the agreement stipulated that accounts in the two largest banks in Cyprus would be given a haircut: a 6.75% confiscation of amounts under €100,000 and a whopping 9.9% for accounts holding more.


The Cyprus legislature rejected the deal. However, on March 25, Cyprus President Nicos Anastasiades, along with Eurozone and IMF officials, announced a new plan (which didn’t require parliamentary approval) that would preserve the tax on amounts of more than €100,000 but not on those with less. An estimated 40-80% of the value of such top-tier accounts could be lost. As many of these are held by wealthy Russians who use Cypriot banks as a tax-haven, this compromise seems to be an example of shortsighted and naïve thinking: “Well, it’s not our money being stolen, so it’s OK this time!”

Upon hearing the news, many Cypriots wanted to withdraw their savings to avoid the automatic deductions. However, the government simply closed banks for 12 days, eliminating that avenue of escape. Upon opening them again, withdraws were limited to €300 a day per customer, with some locations lowering the maximum to €100. Anyone leaving the country may only take €1,000 in cash with them. There also restrictions for how much money can be sent overseas.

This is one example of why Bitcoin is becoming so popular. These drastic and draconian measures that hope to ensure solvency are likely attractive to myriad nations facing economic stressors, the US included. Bitcoins can’t (yet!) be confiscated or shut down and they can be used by anyone, anywhere, for any reason. The anonymity the service provides also helps ensure that itchy government fingers–jonesing for their next fiscal fix!–can’t simply swipe money from Bitcoin owners.

People like Charles Schumer (D-NY) and the Drug Enforcement Agency decry Bitcoin for its utility in circumventing federal laws. This is completely irrelevant, as regardless of its form, money has always and will always be used for funding of any kind, illicit or otherwise. Their outrage is based on the idea that somewhere there is activity that they cannot control. Anything that unnerves moral busybodies is a net positive and is further reason to support crypto-currency. People own the fruits of their labor and anything that helps keep the government from snatching it away is something to be lauded. 

Bitcoin and other digital currencies are certainly nascent technologies prone to error. With the rapid increase in Bitcoin’s value, it has been speculated that the entire enterprise is a rapidly inflating bubble. The value has skyrocketed since early March, from $35 a coin to $145 on April 2. I wouldn’t be surprised if the theorized balloon eventually bursts, but I think the collapse would be due to its relatively recent emergence into the market rather than any inherent flaw in the currency. It takes time for new industries to fully adapt to its environment and clientele—just look at the Internet—but that doesn’t mean that the technology is unwanted or not revolutionary.



More than just Bitcoin, I am enamored with the idea of state-less money and better, safer ways for people to preserve their labor free of government intervention. I welcome increased competition in the crypto-currency market, which would help weed out design flaws, increase stability and ensure that users are as satisfied as possible. It would help individuals retain autonomy over their money, which is considerably better than the current central bank system, which either directly taxes wealth away or decreases its value more subtly through inflation.

Anything that helps maximize individual liberty is a good unto itself, and the cynic in me derives otherworldly pleasure from helping to deprive governments of the unjust ability to impose their will upon the unwilling. Bitcoin may not be perfect, but it’s a step in the right direction towards financial autonomy.


That’s a fiscal revolution worth celebrating.