Digital Non-Cash

by on October 24, 2014 at 7:29 am in Current Affairs, Economics | Permalink

In the United States we are using advanced technology like fingerprint scans to pay for goods. In Venezuela they are using advanced technology like fingerprint scans to ration goods. Here is the WSJ:

Amid worsening shortages, Venezuela recently reached a milestone of dubious distinction: It has joined the ranks of North Korea and Cuba in rationing food for its citizens.

…Under the system in place here, basic price-controlled items—including milk, rice, coffee, toothpaste, chicken and detergent—are rationed, with the fingerprinting machine used to ensure that a shopper doesn’t return over and over to stock up.

The stark contrast between our advanced technology and our primitive ethics has often been noted. Our advanced technology also stands in stark contrast to our primitive economics. Sadly, the problem is not only in Venezuela. Here is the WSJ (!) “explaining” the shortages:

Venezuela is turning to rationing because of shortages caused by what economists call a toxic mix of unproductive local industry—hamstrung by nationalizations and government intervention—and a complex currency regime that is unable to provide the dollars importers need to pay for basics.

No, no, no, a thousand times no! (And I very much doubt that is what the economists told the reporter.) Nationalizations, the currency regime, unproductive industry, Venezuela has many problems but shortages are caused by price controls.

Check out this wonderful photograph and the face of the customer.

Venezuela

1 Bill October 24, 2014 at 7:46 am

Agree.

And because of price controls and rationing, the rationed products themselves become a form of traceable currency. If you don’t need or want product X, but you can exchange it for another product, you go to the store, get your rationed Product X, and exchange it for something you want more.

Remember cigarettes in France after WWII.

2 Bill October 24, 2014 at 8:35 am

tradeable, not traceable

3 Nick_L October 24, 2014 at 9:24 am

Traceable too, I suspect. Those 2D barcodes can get quite detailed. Won’t be too long before it’ll be a straight association between a barcode and a fingerprint. Hard to explain how your rationed food ended up in someone else’s pantry, or shop..

4 Rahul October 24, 2014 at 10:41 am

All packs of the same SKU of detergent have the same 2D bar code. I think.

5 Dan Weber October 24, 2014 at 1:52 pm

For now.

6 Rahul October 24, 2014 at 2:35 pm

Does it have enough bandwidth?

7 JWatts October 24, 2014 at 5:06 pm

“Does it have enough bandwidth?”

Yes, potentially. Several of the common standards support over 2,000+ ascii characters, though the ones you typically see are smaller. Generally, you can increase the size of the square and a lot of packaging uses the smaller sizes.

http://en.wikipedia.org/wiki/Data_Matrix

8 T. Shaw October 24, 2014 at 8:11 am

Socialism will work next time! My socialism professor promised.

9 KemballP October 24, 2014 at 10:50 am

yes, of course — advancing technology will soon enable socialism and wise central government planning to fully control a progressive economy, overcoming past limitations on government’s span of control.

Finger-printing personal economic sales transactions is a step in the right direction. But we need full government tracking of all credit card transactions, all bank accounts & transactions, all phone calls/email/snailmail, all vehicle movements by license plate cameras, all personal movements by Facial ID cameras, body searches at all airports and transportation hubs, and by exhaustive compulsory tax reporting on all aspects of citizen economic life.

Perhaps the NSA/DHS/IRS/etc could help us achieve these necessary technological economic advances ?

10 Johnathan October 24, 2014 at 1:24 pm

We’ll find out soon.

11 Albigensian October 24, 2014 at 5:17 pm

Well, it’s always “actually existing” socialism that fails.

When comes the revolution, we shall have the ideal.

12 josh October 24, 2014 at 8:30 am

Let us all learn history from the expression on the face of the man in this composed photograph. (This is also how I learned that the dust bowl was sad, but like in a wistful, contemplative way.).

13 Benny Lava October 24, 2014 at 8:33 am

Sounds like the professor has an epistemological problem.

14 prior_approval October 24, 2014 at 8:53 am

‘In the United States we are using advanced technology like fingerprint scans to pay for goods.’

As compared to totalitarian states, which only dreamed of such things?

15 JWatts October 24, 2014 at 5:09 pm

As compared to another country, that uses it to enforce a rationing system. But knowing that would have required reading the post. And that might have slowed down your sniping.

16 Scott H. October 24, 2014 at 9:30 am

Well, maybe not a thousand times no. The currency regime is related to the shortages.

17 derek October 24, 2014 at 10:10 am

Wasn’t the tightening of the currency regime in response to people’s reaction to the shortages, ie. Take their money elsewhere to buy stuff?

I wouldn’t count on economists educating journalists correctly. How many economists describe QE as price fixing?

18 Scott H. October 24, 2014 at 2:52 pm

There’s a lot going on with the currency regime. Mostly it’s a way to curry favor with normal citizens and corrupt party officials by allocating them a quota of relatively cheap dollars each year. Private companies are pariahs in a country moving towards socialism so they get nothing. it is illegal to trade on the currency black market so large companies don’t dare purchase goods and import them at the black market rate. The result is a lack of machinery, maintenance, food stuffs, or any flexibility that importing into a totally dysfunctional economy might allow.

19 Dana October 24, 2014 at 11:30 am

Good point. My first thought was “well, prices too low to justify production are what cause shortages” which in this case is likely the result of the price controls, but obviously the currency regime is likely to play a role too.

I think we have an instance here were the ideological rush to excoriate price controls coupled with a professorial need to scold/sound smart clouded a nuanced analysis of the economic situation and the reporting on it.

20 derek October 24, 2014 at 12:57 pm

Are price controls ideological now? Socialists/ left leaning people think now that government can set prices and it will work?

21 Johnathan October 24, 2014 at 1:25 pm

Always have been.

22 Scott H. October 24, 2014 at 2:59 pm

Given that Venezuela’s socialist government comes right out of an Ayn Rand novel I don’t think any nuanced analysis is really necessary. After hitting the victim with a baseball bat, shooting him in the head with a revolver, and poisoning his drink with hemlock are we now going to get technical about what REALLY killed him?

23 Thomas October 24, 2014 at 9:27 pm

The currency regime is simply price controls on money. I don’t understand why everyone is imagining a distinction here. To be clear, they have set a price-ceiling on dollars which doesn’t allow people to purchase them.

24 BC October 24, 2014 at 9:56 am

I’m sure some people are thinking, “If it weren’t for price controls, only the ‘rich’ would be able to afford food.” However, the photo of the supermarket reveals that the store is actually quite modern. Venezuela can “afford” advanced technology like fingerprint scanners, but they can’t afford food? Price controls are leading to too many resources devoted to technology, including technology for enforcing price controls, and not enough resources devoted to food.

25 Scott H. October 24, 2014 at 3:02 pm

Your average Venezuelan politician just knows what food should cost. No supply at that price point is just defiance from evil, profiteering companies.

26 mike davis October 24, 2014 at 9:56 am

True, price controls lead to shortages in the Econ 101 sense—i.e., without controls prices would rise to their market clearing level and alleviate the shortage. But the WSJ’s explanation reveals the more important truth. In Venezuela and most other places, price controls are not the Original Sin. When rent-seekers use socialist rhetoric to control local industry (and also foreign exchange) they create the inefficiencies that make life hard for many citizens. This inevitably creates a demand for price controls (see, for example, the renewed interest in minimum wages laws in the U.S.).

Analogy: When your kids get poison ivy you should warn them not to scratch the itch. But it’s even more important to tell them to pay attention when they play in the woods.

p.s., Now that I’ve written this, I’m less sure that I’m correct. It is certainly plausible to think that other forms of rent-seeking create inefficiencies that lead to higher prices and that the political response to higher prices is to impose controls. But it might also be true that price controls are the direct means used to control economic activity and transfer income to politically important constituencies. In that case, price controls really are the Original Sin (unless you want to say that rent-seeking itself is the true Root-of-all-Evil).

BTW, I think this is more than a question of semantics. It gets to the heart of what we should advocate and hope for in a place like Venezuela.

27 derek October 24, 2014 at 10:12 am

Didn’t Chavez drop prices of commodities right away as a way of benefiting the poor?

28 Andre October 24, 2014 at 12:29 pm

I think it’s simpler than that. They forced companies to pay higher wages so all their inputs got more expensive, then capped prices so they had to operate at losses. They go out of business and you start importing the goods instead. Currency problems follow and so on. Not so much subtle inefficiencies.

29 Rahul October 24, 2014 at 10:36 am

Speaking of dubious distinctions let’s not forget India. For most of the last 65 years India has had a food rationing system. It’s a very weird system though.

30 freethinker October 24, 2014 at 11:11 am

Rahul I live in India. I buy as much food as I want. so what do you have in mind when you talk of a weird rationing system in India?

31 Rahul October 24, 2014 at 1:09 pm

That’s why I called it weird. You a native or an expat?

Anyways, have a look here for example: http://controllerofrationing.net We actually have a guy designated “Controller of Rationing”. Right now the system is at its weakest. A decade or two ago these guys wielded a lot more power & the system had a lot more true “rationing”.

32 freethinker October 25, 2014 at 2:15 pm

Rahul, I am a native. The designation “Controller of Rationing” appears to be a sinecure. One never hears of him or her in the media and as you may know a person with power in this land, even after the drive towards deregulation and privatization, is invited for every damn social event since he/she is suppose to be an authority on everything, from classical dance to mathematics. But One never reads in a daily that the “Controller of Rationing”. inaugurated a book exhibition or was the “chief guest” in a concert . Evidently, not a VIP at all! Moreover, to repeat , I never had to live with rationing of food. I buy as much as I want of food and everything else. And I am no VIP!

33 Rahul October 24, 2014 at 10:42 am

Are there any valid situations for using price controls to a reasonable economist?

34 Ray Lopez October 24, 2014 at 11:13 am

Rahul says: “Are there any valid situations for using price controls to a reasonable economist?” Ask Richard Nixon’s chief economist, Arthur Burns, who later become the Fed Reserve chair. Google this.

Also, if there’s a black market, how can there be price controls? Unless the penalty for selling in the black market is death.

Apropos of nothing, I’ve asked that TC pay commentators that are worthy (that presumably include modest me) in Bitcoin. This would improve the comment section (people respond to incentives, and with Bitcoin you can pay people in fractions of a penny). Bitcoin would also solve Venezuela’s currency prohibition problem, as it would subvert currency controls. Unless, again, the penalty for using Bitcoin in such a manner is death.

Death. That is such a socialist/communist/fascist phrase I’m afraid.

PS–Ariel detergent, shown in the photo, is popular in the Philippines too. A Third World soap!

35 Nick_L October 24, 2014 at 11:37 am

Ray, perhaps there’s an argument for a system that allows ‘upvoting’ of comments, similar to Quora. Not sure on the costs or benefits of moderating an actual payment system? Question: How many people here would pay Tyler to ban or limit Ray’s posts?

36 dirk October 24, 2014 at 12:30 pm

I believe Arthur Burns’s idea was that he could manage inflation expectations with price controls, similar to The Fed announcing a target interest rate.

37 dirk October 24, 2014 at 12:56 pm

And was Arthur Burns’s idea so bad in theory? Inflation is a monetary phenomenon, but market expectations play a key role in the short-run. Normally the Fed manages expectations by first announcing a rate target and then manipulating the money supply until the target is hit. But the announcement itself does a lot of the heavy lifting because traders expect the Fed will be true to its word and therefore trade in a manner that makes the rate target easy to hit. So why would announcing price controls on goods other than interest rates be so different assuming 1) the Fed is credible in its commitment to control prices and 2) the Fed adopts a monetary policy consistent with its price target?

Assume also that this measure is a short term measure meant to halt runaway inflation in its tracks, not a usual way for the Fed to manage price stability.

Please correct me if I have said anything ignorant, more knowledgeable people than I.

38 dirk October 24, 2014 at 1:04 pm

Oh… also assume the action is not a *response* to a shortage, but a response to runaway inflation caused by too loose money in the recent past.

39 Thomas October 24, 2014 at 9:31 pm

Why death, Ray? A price control doesn’t need to be set at infinity for it to exist. A punishment less than death is still a government-imposed cost (price floor) ergo, market price + (P(Punishment)*Subjective Value).

40 Axa October 24, 2014 at 10:47 am

P&G is blaming CADIVI (currency regime) for loses between 230-280 million USD loses in fiscal year 2014 in Venezuela. Should they correct the corporate news page?

41 Ray Lopez October 24, 2014 at 11:16 am

From P&G’s page: “In the late ’60s Ariel was launched to the world*. It was a time when individuals believed they could make a huge difference in the world—a time of challenge and idealism, of vision transformed into action. For Ariel, it was about imagination, determination, and technological empowerment freeing women from their traditional domestic role. … With its groundbreaking atomium logo, Ariel looked and sounded completely different from any other product on the market”

Oh brother…talk about getting on a soap box.

42 Danno755 October 24, 2014 at 11:45 am

“Democracies don’t suffer famines,” Amartya Sen. Shouldn’t the same condition be in place for food shortages?

43 mulp October 24, 2014 at 11:53 am

But in the US, fingerprints ARE NOT USED to secure financial transactions with banks and merchants opposing all government efforts to secure financial transactions because merchants object to paying over $1000 for new terminals, and banks objected to not being able to charge really high fees based on the high fraud rate, to silently fleece customers.

It is only the capping of fees for debit transfers that the banking industry promised would be cheaper to process and more secure than checks cleared cheaply by the government and even cheaper by competing private clearinghouses that banks are faced with eating fraud losses, and they are forcing businesses to eat fraud losses instead.

While US individuals have been worried about the costs of fraud, the business sector has seen fears or and actual fraud as business opportunities to drive high profit growth.

While conservatives have been screaming about fraud in voting, they have opposed to any efforts to stop fraud that costs individuals money.

I think the US should have the Federal government issue Citizen IDs to EVERY citizen with smart chips and biometric ID using the IRS, Social Security, DHS, access to State vital records, and USPS contact with every address as sworn agents of the Federal government, so that identity fraud becomes virtually impossible, and if done represents a Federal crime with significant prison time certain.

Why should developing economies like India and Venezuela employ advanced technology before the US?

44 chuck martel October 25, 2014 at 9:31 am

Why is it that an expired driver’s license or passport is unacceptable as identification for business, rather than government purposes?

45 chuck martel October 25, 2014 at 10:04 am

A second question: Why do people unthinkingly accept that fingerprints are an infallible method of identification? Or DNA analysis, for that matter? They’re not. The last century’s remarkable advances in technology have given people a faith in science that’s unfounded in reality. Remember that just a few years ago stomach ulcers were caused by stress. Now they’re not.

46 LeBron James October 24, 2014 at 12:01 pm

Erik Spoelstra is Venezuelan?

Shouldn’t he be busy getting the Miami Heat for the start of the NBA season next week?

47 yarı manuel istif makinası October 25, 2014 at 4:23 am

al government issue Citizen IDs to EVERY citizen with smart chips and biometric ID using the IRS, Social Security, DHS, access to State vital records, and USPS contact with every address as sworn agents of the Federal government, so that identity fraud becomes virtually impossible, and if – See more at: http://marginalrevolution.com/marginalrevolution/2014/10/digital-non-cash.html#comment-158360210

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53 The Devil's Dictionary October 25, 2014 at 5:44 am

In Czechoslovakia, they had pretty stiff price controls AND currency controls until 1990. Yet no rationing was in place. Admittedly, the choice of goods was rather modest, but there were never empty shelves.

54 Marian Kechlibar October 25, 2014 at 8:34 am

I was young at that period. The shelves were never empty, unlike in neighboring Poland, but the goods were of sub-par quality and frequently suffering from shortages (there was, among others, shortage of toilet paper caused by fire in the main toilet-paper-producing factory). Some goods were only available in some period (bananas and mandarines = just before Christmas).

And a simple rationing was in operation – with the goods that suffered from shortages, you were only allowed to buy a limited amount at a time. Given that queues were long, this pseudo-rationing was efficient. People tried to skirt the law by dividing the family and having 4-5 relatives in the same queue, acting as independent buyers. In the period before Christmas, when some rare things went to the market (such as bananas), some people would withdraw their children from the school (by calling them in as “sick”) and put them into the waiting queues.

55 Massimo October 25, 2014 at 9:27 am

Price controls are a government intervention. Yes, yes, yes, a thousand times yes!!!

56 Boffo Buleau October 27, 2014 at 11:00 pm

But …., ‘income inequality’ has been reduced, so everything is good, no?

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