Venezuela: land of wanting
Again we should extend our congratulations to President Maduro and the Chavistas who have done so much to improve Venezuela's economy in recent years. They've managed to get the cost of a day's breakfast up over the amount earned by a full day's work at average pay. And no, we shouldn't be all arch at this point, for it is an achievement. Quite how they've done it is also simple, by entirely ignoring everything anyone knows about prices and markets.
As background it's actually rather difficult to measure living standards and prices over time. Substantial amounts of time that is--for what is available now might be at one price, it was more expensive a little further back but go back far enough and it's simply not available at all. That means the price is infinite and we don't get very far trying to do additions and subtractions with infinity. Various points have been made, Adam Smith pointed out that watches seem to have fallen 95% in price in the century before he wrote. Brad Delong as an economic historian has done a lot of work in this area. And a useful way of trying to compare things over historical periods of time is to ask how many hours of labour at average wages it costs to do x, x being whatever it is that we want to study.
For example, a workable mobile phone can be had for a couple of hours work in the US these days--the average wage is $25 an hour, we can find something that works (perhaps not all that stylish, but works) for $50. Back a decade a smartphone was several hundred $, more like a few days work, back a generation those first generation mobile phones, much clunkier and voice only of course, were a couple of week's work and a century ago of course the price was infinite.
Over much longer periods of time we should do as Delong--a very useful measure of prices and living standards is food. We all need to eat, all human beings have always needed to eat so, how many hours work are needed to produce the minimum viable diet of the time? Delong tends to call this 2,000 wheat calories which is a little misleading. Partly because the calorie requirement of someone doing physical labour is a bit higher than that, partly because of course wheat is not the staple carbohydrate of every time and place. But if we understand "2,000 wheat calories" as being a day's supply of the basic stodge of the time then it all works. It might have been bread for most of England's history ( a gallon loaf being, I think the standard requirement for one man), mealie meal in sub-Saharan Africa post the Colombian exchange, rice in much of Asia ever since when and so on.
How many hours must be worked to produce that 2,000 wheat calories? Back when some 80% of the working man's income went on food and rent. Things have been getting better since the Industrial Revolution but not everywhere of course. But the point being made is that how many hours work must be done to afford food has a long history as a useful method of measuring living standards.
A measure which Venezuela is failing:
The Bloomberg index calculates the average cost and affordability of a typical breakfast -- one cup of whole milk, one egg, two slices of toast and a piece of fruit -- for 129 global and regional financial centers.
Not quite typical for my household as it leaves out the copious amounts of coffee but still:
Residents of Abu Dhabi, Osaka and Zurich can earn enough in less than five minutes to buy their first meal of the day, according to the Bloomberg Global City Breakfast Index. Ghanaians in Accra need closer to an hour, and people in Caracas, where inflation is soaring, need almost nine hours.
And that is quite glorious failure there, isn't it? Breakfast in Caracas now costs more than the average earnings from more than a full day of work. This is not what we might call a success, managing to get to this situation in a formerly middle income country blessed with the world's largest oil reserves. As to how Maduro and his posse managed it that's entirely simple. They just ignored everything we humans have learned about supply, demand, markets and prices. You know, all that economics stuff. We know that prices move to balance supply and demand. Those prices are information about who wants what how badly and who is willing to produce at what amount of effort. The Chavistas decided they were just arbitrary numbers to be assigned at random. So, they did so assign and thinking this would be a nice thing to do they assigned very low prices to food items. At which point everyone stopped producing any food and we get the result we see today.
From which we must draw the obvious lesson. There's nothing wrong at all with wanting to make the poor richer, even with a bit of tax and redistribution to make it happen. But don't go messing with prices and markets--it doesn't work.