07/17/08

Haggle over and inflation will disappear

by Larry Email  268 words

Someday somebody should compile a Venezuelan Dictionary of Economic Idiocy. One of the first entries should go to the idiocy spouted by Agriculture and Land minister, Elías Jaua, in regards to one of the possible solutions to the inflation problem.

Jaua tells us that one way to fight inflation is haggling over prices:

Venezuelan Agriculture Minister Elias Jaua asked consumers to start bargaining over prices with retailers to try to curb inflation.

The most important help that people can give us (in fighting inflation) is that they defend their income. We can’t get used to buying everything at any price, Jaua told reporters . If we all start haggling over prices, speculators are going to start feeling pressured, Jaua said.

He also said that

If they sell me tomatoes at 6 BsF today and at 12 BsF tomorrow, the fault does not lie with the government, no, the government is not at fault, because it's doing all the effort in order to have more production (...)

But Mr. Jaua, the fault does lie with the government. Inflation is always an entirely monetary phenomenon and it doesn't matter how much people haggle over prices, so long as the streets continue being inundated with "monetary liquidity", prices will kee going up. And the only one with the legal power to create money is the government through its central bank.

Of course, I will not deny that you can get better relative prices if you haggle a little bit, but this is irrelevant when the absolute level of prices is rising. Any gains from haggling will be overshadowed by loses through monetary inflation.

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