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Opinion

Castroism caps prices to remain in power in Cuba

The only possible outcome when prices are capped as an anti-inflationary policy is chronic shortages, the proliferation of the black market and, finally, a spike in inflation.

La Habana
A line at an MSME in Havana.
A line at an MSME in Havana. 14ymedio

Sweat trickled down his calves, accumulating in the worn-out tennis shoes he wore without socks; his feet, slipping around inside those shoes, made embarrassing squeaks as he walked, drawing glances that at another time would make him blush, but, after 45 minutes of waiting in line, nothing mattered to him more than finally standing in front of the clerk.

"Give me six pounds of chicken," he said bluntly, without a "good afternoon" or a smile.

"There isn't any," replied the clerk with the same immutable lack of manners, and without feeling the need to explain anything.

"What do you mean there isn't any?" "At MSMEs there's always chicken, come on, you've gotta be kidding me." He was about to throw a fit, but his undernourished body didn't have the energy, and that "you've gotta be kidding me" sounded desperate.

"It’s not worth it anymore," confessed the person behind the counter, expressing some solidarity with the customer. "We no longer sell chicken… here."

"Here?"

Around the corner, in front of the pole." Ask for Yulixandri, he has some, but at the street price, not the capped one.

"Thank you, bro," and he walked out, heading back to the black market.

Castroism is a hammer with two solutions for any problem: when things get serious, it uses the claws, and pulls back a bit, but as soon as it sees a target to hit it strikes again: impositions, repression, limits, caps.

Does the government not have enough imagination, or is it that that it has too many bastards? Capping prices again? How many hammer blows do they need before they see that this is not the right tool to fix a nation?

Inflation is not reduced by capping prices, just as an infection is not cured by lowering a fever. One must seek out the cause. Fixing prices by law does results in a statistical improvement in inflation data, but, in reality, the effect is the opposite.

Some merchants will no longer make any money selling their products at the prices set, so they will choose to stop carrying them and to focus on other products with which they will turn higher profits. The result? Product shortages and rising prices.

Other entrepreneurs will continue to offer them, but reducing their volume, which will lower their wholesale purchases, which will mean that their suppliers no longer give them the same discounts, or the per-unit cost of merchandise transport will rise. The result? Product shortages and rising prices.

Other small business operators, such as in the imaginary case described above, will reroute their products. Because they cannot sell them at their premises at market prices, they will pass them on to an intermediary on the black market who can sell them at their real value. Thus, an intermediary has been added to the distribution chain, plus there is the risk of operating on the black market. The result? Product shortages and rising prices.

The only possible outcome when prices are capped as an anti-inflationary policy is chronic shortages, the proliferation of the black market and, finally, a spike in inflation.

65 years of lines, 65 years of "there is none," 65 years of "we have it, but it's not your turn," 65 years of "we have it, but pay me on the sly so that they don't see you"... six and a half decades haven't been enough for those who run this country to understand something as simple and amply demonstrated as that capping prices is bad. It's that simple. Or, do they understand it, but think that the people don't?

No, Castroism is not ignorant, it is malicious. It knows full well that a government that caps prices induces the immediate problems noted above and that, in the long run, perverts the price system, so the economy goes blind and is unable to allocate resources efficiently, leading to decapitalization. Cuba itself is an example of this process.

But it also knows —because they have gone about keeping the people ignorant about the economy— that people applaud the populist measures because they seem to punish private businesspeople, who are made out to be terrible villains. Castroism loves to play the role of Robin Hood foiling the country's exploiters, and that is what they are after, a propagandistic effect, pretending that it cares and that it is doing something while it profits from the very inflation that it continues to create.

Whenever Castroism limits prices, with the dire consequences this entails, it is to keep from having to limit its own power. They are not idiots (even if they have an idiot as their "president"). Rather, they are perverse.

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