Evo-nomics in Action

There is a very old joke about the businessperson to whom it was pointed out that their company was selling their product at less than cost and thus going to make a loss. The owner replied something like, "that's ok, we'll make it up on volume".

The above is a fairly accurate summary of energy policy in Evo's Bolivia. The price of oil there is set by government decree at $27.11 (the oil and gas industries were nationalized by Evo in 2006).

Amazingly this has caused two things (1) a lot of smuggling and (2) domestic demand now outstrips domestic supply by around 30%. This gap is made up by the government buying oil on international markets and then re-selling it to its citizens at the $27.11 price (making it up on volume, just like Walmart)!

From the linked article:

"The Bolivian state is turning into a protectionist one, fixing oil prices that do not match international market prices," said Carlos Toranzo, an economist at the Latin American Institute of Social Research in La Paz.

"Smuggling is a national habit, but we are going to suffer from it as long as we keep prices artificial," he said.