The Eight-Lane Superhighway to Serfdom

Normally, I try to steer well clear of Hayekians. In contemporary discourse, Austrian Economics is the hobby horse of an extremist fringe of market fundamentalists: ferocious parrots with a one track mind centered on a single remedy to all economic ills.

Personally, I’m on the center-left, with a strong emphasis on “center”. I think the market works, except when it doesn’t, which is most of the time, so then government’s job is to do what it can to help it work better: an inexact science full of messy compromises and suboptimal outcomes that usually goes by the name of “democratic governance”.

So it’s a testament to the know-nothing extremism of the Chávez government that they’re making even a guy like me – temperamentally and ideologically ill-disposed to libertarianism – turn to Hayek for guidance. But the dysfunctions of the Venezuelan economy these days so closely follow the predictions of the Austrians, it would be intellectually dishonest to softball it.

Reading articles like this makes the reflection almost inevitable. In it, VenePirámides (copy-pasting El Nacional) discusses the Nth reason why chavismo can’t meet its house-building goals. It’s not just the cement bottleneck, it’s that there’s a steel rebar bottleneck too…y no está precisamente cabilla.

The nationalized steel sector is only producing about half of the steel rebars it would take to build 150,000 houses this year. Why? In part because Sidor is concentrating on making thicker rebars for large-scale infrastructure (like bridges), leaving smaller-diameter cabillas for the housing industry in the dust.

It’s the kind of fundamental misallignment between supply and demand that centrally planned economies can’t help but generate. If Sidor was allowed to set rebar prices, stepped up demand for housing rebars relative to infrastructure rebars would be a business opportunity. Steel-makers would see they’d make more money by switching production from one line to the other, and in time both markets would clear.

But with rebar prices set by administrative fiat, producers are cut off from the information they need to know how much of which product to make. There may be too much demand for rebars in the housing sector and not enough demand in the infrastructure sector, but none of it is reflected in rebar prices. So Sidor never gets the signal to switch from one to the other.

In Venezuela, the upshot has been to turn Community Councils into arbitrageurs: exploiting their privileged access to cabillas at the subsidized rate to turn around and sell them on at massive markup. As usual, the arbitrage margin gets captured by a rent-seeker with privileged access to political decision-makers. This “solution” shields the producer from any benefit associated with increased demand for its product, and so creates no incentives to actually step up residential cabilla production.

If this was just a problem in the rebar value chain, it’s imaginable that state planners could gather enough information to “get rebar prices right” – setting administrative prices that closely mirror the breakdown of supply-and-demand between different rebar subsectors. (But then, where would be the fun in that?)

The real problem comes when these kinds of misallignments become generalized: when there’s a problem with rebar prices and cement prices and PVC pipe prices and rooftile prices and copper wiring prices and ceramic tile prices and on and on and on, touching every input needed to make a house.

It’s one thing to have one misalligned price, but in a centrally planned economy every price is misalligned.

Hayek understood that, within the logic of central planning, every step you take to try to remedy the distortions that administratively-set prices engender will take the form of an encroachment on individual freedom. Worse, none will be effective in its attempt to overcome the endemic shortages that central planning makes inevitable, and so each encroachment becomes the foundation for the next.

In the first world, these insights have been delegitimated, in the public sphere, by attempts to apply them to centrist governments that sane people easily recognize as very far from the fascist tradition. Libertarian overstatement has turned Hayek’s name into a kind of dog-whistle for reactionaries.

And that’s unfortunate, because Hayek was right. Central planning really does create a dynamic that’s deeply inimical to liberty. Only a fanatic would say that’s now happening stateside; only a fool could fail to see it in Venezuela.