Houses and toilet paper

ScreenHunter_13 Jun. 18 08.18

By Leith van Onselen

The Telegraph published an interesting article recently on rationing policies implemented by the Venezuelan Government, which is causing shortages in a variety of basic goods like toilet paper:

First milk, butter, coffee and cornmeal ran short. Now Venezuela is running out of the most basic of necessities – toilet paper…

One supermarket visited by The Associated Press in the capital on Wednesday was out of toilet paper. Another had just received a fresh batch, and it quickly filled up with shoppers as the word spread.

“I’ve been looking for it for two weeks,” said Cristina Ramos. “I was told that they had some here and now I’m in line”…

Economists say Venezuela’s shortages stem from price controls meant to make basic goods available to the poorest parts of society and the government’s controls on foreign currency.

“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,” said Steve Hanke, professor of economics at Johns Hopkins University.

President Nicolas Maduro, who was selected by the dying Hugo Chavez to carry on his “Bolivarian revolution,” claims that anti-government forces, including the private sector, are deliberately buying up basics like toilet paper to destabilise the country…

Commerce Minister Alejandro Fleming blamed the shortage of toilet tissue on “excessive demand” built up as a result of “a media campaign that has been generated to disrupt the country.”

The Venezuelan toilet paper situation highlights one of the most basic tenets of economics. When a government implements policies that impede the market’s ability to supply goods, such as price controls or quotas on the quantity of goods supplied, it inevitably leads to a combination of:

  • Shortages (or perceived shortages) in the number of goods produced;
  • Rises in prices either directly, or via black market activity;
  • Wasted economic activity, such as excessive search times or activities aimed at side-stepping the regulations; or
  • Speculative activities or hoarding.

Indeed, most of these elements are on display in Venezuela.

Shortages in toilet paper brought about by price controls is causing lots of wasted economic activity, with Venezuelans spending excessive amounts of time searching and queuing to buy the goods. One Venezuelan has even resorted to developing a smartphone app enabling users to let each other know which supermarkets still have stocks of the tissue. The shortages are also leading to speculative activity and hoarding, as buyers seek to either stockpile toilet paper in order to avoid running out or sell it on the black market at over inflated prices.

While the mechanisms are different, similar factors are in play when it comes to the supply of urban land for housing in markets where urban consolidation (“Smart Growth”) policies are in effect. Examples of such policies include restrictive zoning, urban growth boundaries, or cumbersome planning approval processes (e.g. precinct structure plans) that place an effective quota on the quantity of land that can be used for housing. When combined with the lack of infrastructure funding and provision, such policies usually result is a combination of:

  • Inflated land costs and unaffordable housing;
  • Smaller land plots than would otherwise be provided in the absence of such regulations;
  • ‘Panic buying’ from home buyers afraid of ‘missing out’;
  • Land banking and other speculative activities from land holders ‘cornering the market’; and
  • Inefficient ‘leapfrog development’ (aka ‘planner sprawl’) as buyers look further afield for more affordable housing options.

Most commentators understand these dynamics when it comes to basic goods, like toilet paper. Yet, many have a blindspot when it comes to housing, instead arguing that land/house prices are set only by demand.

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Unconventional Economist

Comments

  1. Mining BoganMEMBER

    I guess we’re lucky in Oz that new houses are of that poor a standard one would think the walls are made from toilet paper.

    Win-win.

  2. I have no idea what’s going on in Venezuela, and I have about zero trust in MSM to tell me, but before assessing the “Bolivarian revolution” as a failure I think the toilet paper shortages should be weighed against any improvements in the areas of poverty, illiteracy, infant mortality rates etc
    A lot of people in that country had (and maybe still have) bigger problems than toilet paper.

    • “….improvements in the areas of poverty, illiteracy, infant mortality rates etc….” have been achieved by political systems other than Chavismo, and that did not run out of toilet paper in the process. The toilet paper question reminds me of this classic essay in which David Horowitz excoriates an old Marxist.

      “The Road to Nowhere”.

      http://www.discoverthenetworks.org/Articles/The%20Road%20to%20Nowhere.htm

      “….In the Soviet Union in 1989 there was rationing of meat and sugar, in peacetime; the rations revealed that the average intake of red meat for a Soviet citizen was half of what it had been for a subject of the Czar in 1913. At the same time, a vast supermarket of fruits, vegetables and household goods, available to the most humble inhabitant of a capitalist economy, was permanently out of stock and thus out of reach for the people of the socialist state. Indeed, one of the principal demands of a Siberian miners’ strike in 1989 was for an item as mundane and basic to a sense of personal well-being as a bar of soap. In a land of expansive virgin forests, there was a toilet paper shortage. In an industrial country with one of the harshest and coldest climates in the world, two-thirds of the households had no hot water, and a third had no running water at all. Not only was the construction of housing notoriously shabby, but space was so scarce, according to the government paper, Izvestia, that a typical working class family of four was forced to live for 8 years in a single 8×8 foot room, before marginally better accommodation became available. The housing shortage was so acute that at all times 17% of Soviet families had to be physically separated for want of adequate space.

      After 50 years of socialist industrialization, the Soviet Union’s per-capita output of non-military goods and services placed it somewhere between 50th and 60th among the nations of the world. More manufactured goods were exported annually by Taiwan, Hong Kong, South Korea or Switzerland, while blacks in apartheid South Africa owned more cars per capita than did citizens of the socialist state……

      “……Even in traditional areas of socialist concern, the results were catastrophic. Soviet spending on health was the lowest of any developed nation and basic health conditions were on a level with those in the poorest of third world countries. A third of the hospitals had no running water, the training of medical personnel was poor, equipment was primitive and medical supplies scarce. (US expenditures on medical technology alone were twice as much as the entire Soviet health budget.) The bribery of doctors and nurses to get decent medical attention and even amenities like blankets in Soviet hospitals was not only common, but routine. So backward was Soviet medical care, 30 years after the launching of Sputnik, that 40% of the Soviet Union’s pharmacological drugs had to be imported, and much of these were lost to spoilage due to primitive and inadequate storage facilities. Bad as these conditions were generally, in the ethnic republics they were even worse. In Turkmenia, fully two-thirds of the hospitals had no indoor plumbing. In Uzbekistan, 50% of the villages were reported to have no running water and 93% no sewers. In socialist Tadjikistan, according to a report in Izvestia, only 25-30% of the schoolchildren were found to be healthy. As a result of bad living conditions and inadequate medical care, life expectancy for males throughout the Soviet Union was 12 years less than for males in Japan and 9 years less than in the United States — and less for Soviet males themselves than it had been in 1939.

      Educational conditions were no less extreme. “For the country as a whole,” according to one Soviet report, “21 percent of pupils are trained at school buildings without central heating, 30 percent without water piping and 40 percent lacking sewerage.”[22] In other words, despite sub-zero temperatures, the socialist state was able to provide schools with only outhouse facilities for nearly half its children. Even at this impoverished level, only 9 years of secondary schooling were provided on average, compared to 12 years in the United States, while only 15 percent of Soviet youth were able to attend institutions of higher learning compared to 34 percent in the U.S.

      Education, housing and health were the areas traditionally emphasized by socialist politics because they affect the welfare of a people and the foundations of its future. In Deutscher’s schema, Soviet schools (“the world’s most extensive and modern education system,” as he described it) were the keys to its progressive prospect. But, as glasnost revealed, Soviet spending on education had declined in the years since Sputnik (while US spending tripled). By the 1980s it was evident that education was no more exempt from the generalized poverty of socialist society than other non-military fields of enterprise…..”

      Do read the whole thing…..

      • Nah I’ll pass, thx anyhow. I’m not interested in authoritative states, in my book they are a failure just for being authoritative.

        But in Venezuela people elected the current govt freely if I’m not mistaking.

      • In my backpacking days I was in the USSR in ’89. & it was the only place where I’ve ever been where I really just wanted to come home & suck my thumb. I’d already had a fairly full life of experiences by that stage, but that was a Serious wake up call for me. I didn’t learn as much as David Horowitz perhaps, but I saw enough not to doubt any of it.

        Massive 4 lane roads with hardly a car in sight, they weren’t allowed to have a car till they were 28yrs. & most couldn’t afford one, or to run it. I would’ve loved to have had my A9X over there. (In hindsight I wish I still had it)

        Empty shelves, 2 way mirrors & KGB following you everywhere like flies. You couldn’t fart without it being notarised. The staple food was the crop of the year – cabbage, with a hint of Venison, so I’m sure I was notarised a lot.

        After a day of cueing they’d go home with whatever they could get, & barter amongst themselves throughout the evening to eventually get what they needed from others who’d cued on any number of long cues on any corner. Cueing & bartering were full time jobs – without pay.

        We were flocked upon by anyone that had any semblance of english – all wanting to do deals to get anything western – anything you could offer was in demand, even half wornout western clothes. Womens hygiene products were probably the biggest hit though.

        If SHTF ever happened here, it’s not the ATM I’ll be heading for, I’ll be backing up the trailer to the local woolies & filling it to the brim with longlife foodstuffs, chocolate & hygiene products.

        Their drudge was enough to drive you to drink if the cold didn’t. Fortunately the Vodka was truly something to die for (I had nosebleeds for weeks 🙂

    • +10. Right, it is interesting to weight education and poverty against toilet paper.

      One can consider also that:

      Poor people actually cannot afford toilet paper at all that is why there is no shortage of toilet paper in countries with great inequality and poverty.

    • Jud,

      How about murder rates?

      With crime as it is, corruption as it is, inflation running at over 30% annualized, and a currency trading at close to 30 on the black market versus 6.9 official I think it is a failure.

      • You think I’m sure, maybe I think too (not sure, I’m old school, I need to live in a place to really understand it), but at the end of the day what matters is what people who live there think, especially the ones who experienced the previous state of things. Not sure if latest election results indicate that they consider it a failure?

    • rob barrattMEMBER

      Seems to me that PB, Lori & Rich have put together a cogent argument for being a centrist. It’s the only place from which you can change rulers without a revolution. It bows to the necessities of social conscience and competition. And, if you now narrow the focus down on whereabouts you want to be around the center, how about a pragmatic approach that allows for those all too familiar failings in our leaders:
      “You should change political parties from time to time for the same reasons you change your underwear”. Unfortunately you can’t do it as frequently…

      • Personally I think the current situation has a fair chance of ending in a coup. It was far from a strong victory. Whether the economic situation, the close election results or the military initiate it I have no idea.

      • There is a book by a Latin American, called “The Perfect Latin American Idiot”; about the tendency of Latin Americans to be suckers for failed socialist ideas. Mind you, the decadent west is heading that way too.

      • PhileBest

        re: “The Perfect Latin American Idiot”

        have not heard of it, but will check it out. I would suggest it’s really poverty and tghe past history of imperialsim that has lead to these pockets like Venezuela, Bolivia, etc.

        I’ve always thought it strange that the most right wing of LatAm, Colombia, also has strong history that would suggest they may be anti-US & anti-trade; however being the oldest democracy in LatAm the people consistently choose anti-left parties. I suggest many would be looking over the border from Venezuela and wishing they were living in Colombia right now.

    • Jesus wept, another graduate from the Seumas Milne school of mealy mouthed apologia for despotism.

      …..at least they have ‘free’ healthcare…. (sic)

      • Joe, if you haven’t read Malcolm Muggeridge: “The Great Liberal Death Wish”, I know you’ll love to learn of it.

        “I was fortunate enough myself, while still in my late twenties, to be presented with a demonstration of the great liberal death wish at work, so manifest, so incontestable in its implications, and, at the same time, so hilariously funny, that I have never subsequently felt the smallest doubt that here lay the key to the tragicomedy of our time. It happened in Moscow, in the Autumn of 1932 and Spring of 1933, when I was working there as correspondent for the, then, Manchester Guardian. In those days, Moscow was the Mecca for every liberal mind, whatever its particular complexion. They flocked there in an unending procession, from the great ones like Shaw and Gide and Barbusse and Julian Huxley and Harold Laski and the Webbs, down to poor little teachers, crazed clergymen and millionaires, and driveling dons; all utterly convinced that, under the aegis of the great Stalin, a new dawn was breaking in which the human race would at last be united in liberty, equality and fraternity forevermore.

        Stalin himself, to do him justice, never troubled to hide his contempt for them and everything they stood for, and mercilessly suppressed any like tendencies among his own people. This, however in no wise deterred them. They were prepared to believe anything, however preposterous: to overlook anything, however villainous ; to approve anything, however obscurantist and brutally authoritarian, in order to be able to preserve intact the confident expectation that one of the most thoroughgoing, ruthless and bloody tyrannies ever to exist on earth could be relied on to champion human freedom, the brotherhood of man, and all the other good liberal causes to which they had dedicated their lives……

        “…..Why? After all, the individuals concerned are ostensibly the shining lights of the Western world; scholars, philosophers, artists, scientists and the like; the favored children of a troubled time. Held in respect as being sages who know all the answers; sought after by governments and international agencies; holding forth in the press and on the air. The glory of faculties and campuses: beating a path between Harvard and Princeton, and Washington D.C.; swarming like migrant birds from the London School of Economics, Oxford and Cambridge into Whitehall. Yet I have seen their prototypes — and I can never forget it — in the role of credulous buffoons capable of being taken in by grotesquely obvious deceptions. Swallowing unquestioningly statistics and other purported data whose falsity was immediately evident to the meanest intelligence. Full of idiot delight when Stalin or one of his henchmen yet again denounced the corrupt, cowardly intelligentsia of the capitalist West — viz. themselves. I detect in their like today the same impulse. They pass on from one to another, like a torch held upside down, the same death wish…..”

  3. TheRedEconomistMEMBER

    We will never have the problem.

    I usually use Dr Wilson writings in the Fairfax press as a stop gap measure if I run out of Sorbent.

    The ink stains are issue and my backside is now spruiking property.

    Must be where Dr Wilson sources his research.

    What’s that smell??

  4. Wipe your bum now, or miss out forever !!!

    Perhaps the Venezuelan government can introduce a a First Home Sh*tters Grant (FHSG) to aid the affordability of toilet paper.

    People will rush to stockpile toilet paper, knowing that the desire for a clean bum will ensure prices only go up!

    To allow the puntertariat to build real wealth from personal faeces reduction, an industry of brokers can start up, where they go door to door offering people loans to ensure they aren’t priced out of buying toilet paper.

  5. Thanks for the analogy Leith. Next time I get into a ‘debate’ about property, I might try to use this as a way of helping them to see the scheming.

    You can only lead a horse to water….. I haven’t found many that want to drink in this old town – the frustrated younguns that stay are asking questions though!

    • “Central Planning always leads to shortages of things people want and surpluses of things they don’t want”

      – Randal O’Toole

  6. Aside from the myriad opportunities for comic effect from the story about rationed toilet paper, I cannot begin to imagine the insanity of a country with such levels of oil wealth having to live with rationed necessities such as toilet paper. We love to lambast successive Australian governments for wasting the wealth of the resources boom. Let’s put things into perspective – we don’t have to rush from Woolies to Coles looking for stuff to wipe our bums with.

    This is not waste…..THAT’S waste.

    (Apologies to Mick Dundee)

    I do acknowledge, though, that the madness of socialism often takes hold in places where they have experienced the opposite madness of cowboy capitalism -where a few grow fat and rich at the expense of the rest, who are basically wage slaves. This has been played out in so many places, where the elite in those countries were content to grow rich by betraying their countrymen to corporate interests who only wanted profits – and had military muscle to enforce this.

    Sometimes, I think that people in Australia need to be more thankful for what this country is….and is not.

    Ok, that still doesn’t mean I’ll be going out on Australia Day…..

  7. danger_powers33

    Leith implies that these 4 phenomena are unique to systems of state pricing and control. Specifically on wasted economic activity, How is the wasted activity that requires the appearance of abundance any more efficient than people creating software that helps manage the allocation of toilet paper? I agree its absurd that venezuelans have to put up with toilet paper shortages but isnt it equally absurd that our supermarkets overpurchase produce and then throw it away, just so that they can appear to always be in abundance? Why not find a middle ground between state controlled TP ala venezuela and a hypermarket society? What about using technology to develop collaborative allocation systems?

    • It is not in the interest of private firms to throw away products they have paid for. They are not doing this to provide “illusions of plenty” in service of the ideology of capitalism. (This is the sort of thing totalitarians do all the time).

  8. This is quite late, but very apropos:

    Savages of Socialism

    By Daniel Greenfield

    19 June, 2013

    http://canadafreepress.com/index.php/article/55992

    “In Venezuela, savvy shoppers are hunting down scarce supplies of toilet paper with a smartphone app. The smartphones, compact packages of electronics, are several generations more advanced than the white square, but they are available when the toilet paper isn’t, because, unlike the toilet paper, they aren’t subsidized and price controlled.

    While Hugo Chavez did at one point unveil a Chavezphone for the poor, he succumbed to the wonders of Cuba’s Socialist medicine before they could become as big as Obamaphones. But if Venezuela ever falls to the dumbphone, then there won’t be a smartphone app to find a smartphone with.

    The sight of modern men and women hunting down toilet paper with smartphones seems like the Soviet Union as reimagined by William Gibson, but it’s a common enough outcome in an economy that is really a patchwork of uneven subsidies.

    The Arab Spring was fueled by the social media apps of smartphones and anger over insufficient subsidies for staples such as bread and fuel. The smartphones may bring you the revolution, but it’s the toilet paper and bread shortages that set them off.

    The problem is a commonplace one that Americans will shortly begin experiencing with the subsidized medicine of Obamacare.

    Most governments subsidize or price control some necessities to win over the underclass… or at least keep them from burning down everything in sight.

    The Arab Spring took place in countries where government subsidized food and fuel existed side by side with monopolies over nearly everything held by cronies if the ruling class. Bread was temporarily cheap, but nearly everything else was either substandard or nonexistent… except for the American-designed and Chinese-built smartphones being used to document the food and fuel revolution.

    A society stuck somewhere along the way in the transition between Socialism and a free economy finds itself in these savage intersections in which high technology is available, but the basic needs which the underclass is bought off with aren’t.

    Manhattan, that glittering island of towers rising between the waters of two rivers that are one, values real estate above gold. A square foot of dirt in Manhattan might as well be marble for what it fetches.

    Finding an apartment in Manhattan is a challenge worthy of a treasure hunter and Bloomberg recently unveiled a plan for micro apartments that would be little more than closets with kitchen sinks.

    Manhattan is a small and narrow strip of land which accounts for some of the high prices, but its real estate is also a crazy quilt of wildly overpriced market housing and subsidized housing projects. In some tenements rent-controlled apartments that cost less than anywhere else in the city coexist with 5,000 dollar a month pads and the only difference between them is regulation.

    Downtown grim blocs of housing project towers crowd out riverfront views that would be worth hundreds of millions while the bankrupt city Housing Authority fights pitched battles with residents to sell a few scraps of empty land to developers to finance the welfare castles.

    Uptown, large lots sit empty and bound to a covenant of affordable housing signed during the city’s lean years that now make the land worthless for anything except growing weeds.

    A booming housing market in the city is built on runaway prices caused by artificial shortages. Manhattan is really two islands, one is being built up and torn down again every few years, while the other is stuck in a state of permanent slumhood since the seventies. One pays for its organic grapes with smartphone apps and the other buys everything with food stamp cards.

    The gap between these extremes is where the shortages form and the Middle Class eventually falls into that hole between the extremes of the liberal poor who want to be subsidized and the liberal rich who want someone to do something about the poor. The welfare class is relieved not to be burdened with slog to the Middle Class and the crony capitalists are not interested in more competition. Both agree on a static society managed with subsidies and monopolies. This system had more than a passing resemblance to the dysfunctional countries of the Middle East. The only difference is that America still has a Middle Class for the system to drink dry.

    Over in Pennsylvania, the union for liquor store workers in the state-controlled liquor monopoly is running alarmist ads insisting that privatizing the liquor industry will cause mass death.

    If you can’t trust ordinary mortals with the difficult and dangerous task of selling bottles of liquor, what can you trust them with? Nothing.

    There is no reason why liquor has to be a state monopoly except that it pays better for liquor store workers. It also pays better in every other industry.

    Nationalizing industries is a bad deal for consumers and taxpayers, but a great deal for workers. And all it takes is declaring the industry a vital one that can’t be entrusted to the same boobs who run nuclear power plants, design artificial limbs and build dams, but must be put in the care of the great minds responsible for forcing banks to loan money to people who couldn’t afford to pay it back, an economic catastrophe that we are still recovering from.

    Like government toilet paper, subsidizing jobs makes jobs harder to find, but that is only of concern to the people who don’t have them. Every economic system creates those who have and those who don’t. Socialism creates have nots with the same system that it creates haves, manufacturing scarcity for social justice.

    Socialism is an economy in which the haves have jobs giving out welfare and the have nots have jobs receiving it. The one truly scarce commodity under Socialism is employment because there is only so much welfare to be given out.

    Consolidating an industry improves the bargaining power of its employees while diminishing the quality of service. And then there are no longer two tiers, only the tier of the monopoly.

    Nationalize industries in parts or all the way and you end up with taxpayer funded and worker run industries that are run for the benefit of the workers. It’s a Socialism of the civil service, a bureaucratic collectivism that plays at public service.

    The return of the guild system walls off more of those rivers that the Middle Class once depended on to reach the shore. Services become sinecures. Jobs are allocated based on racial representation. The number of employees is inflated while the results vanish. The system exists for the sake of the system.

    In Mexico, teachers from its powerful union pass on their jobs to their children and sell them. Soon enough it will be that way in Los Angeles too.

    When jobs are subsidized then jobs are scarce and it only stands to reason that those who are lucky enough to get their hands on government jobs will want to pass them on to their children. In America the rallying cry if teachers’ unions is that they are doing it for the children. That is also the rallying cry in Mexico, except that they mean their own children. Naturally. Why should they care about anyone else’s children? They’re public servants, not humanitarians.

    There is something medieval about public service being transformed into a family business but this sort of “privatization” is a commonplace consequence of a system in which government jobs are the ultimate commodity.

    The idealism of Socialism turns savage as the Middle Class finds it harder than ever to go up but easier than ever to go down. All you have to do is give up and a life of hopelessness is waiting for you. There will even be cheap government toilet paper… though it may take a non-government smartphone to find it and a mob to keep it.”