Venezuela, under Hugo Chávez, took up the mantle of socialism. Socialism of the twentieth-century century and free-market industrial capitalism, he argued, have failed to solve problems of humanity. Therefore, he took Venezuela down the road of twenty-first century socialism – whatever that is. Perhaps we should ask Bernie and Hillary.
Importantly, Venezuela is not a South American nation growing bananas. Venezuela’s proven oil reserves are among the largest in the world, totaling 297 billion barrels. No one thinks of Saudi Arabia as a poor nation. Venezuelan proven reserves surpass those of Saudi Arabia.
[Source: Venezuela is on the brink of a complete economic collapse, by Matt O’Brien]
Therefore, Chávez had the resources to accomplish the “free thing.” So how is that going? Sadly for Venezuelans the only question now is whether Venezuela’s government or economy will completely collapse first. The word “completely” is not used heedlessly.
The Venezuelan economy shrank 10 percent during a single year and then an additional 6 percent in the next. Add in that inflation will surge to 720 percent in 2016 from 275 percent last year, according to a note published by the IMF’s Western Hemisphere Director, and we have a nation on the brink of collapse. Markets expect Venezuela to default on its debt in the very near future. The country is basically bankrupt.
Venezuela’s ruling party, the United Socialist Party of Venezuela, is in no better shape. They just lost congressional elections that gave the opposition a veto-proof majority, and it’s hard to see that getting any better for them any time soon — or ever.
How is it possible for a nation with these resources to collapse? Step 1 was the socialist notion that everything will be rosy if people get “free stuff.” Hugo Chávez’s government commenced typical socialist notions: everything from two-cent gasoline to free housing. Unfortunately, by 2005, Venezuela no longer had enough money. I guess Chávez never heard Margaret Thatcher’s famous quote: “The problem with socialism is that eventually you run out of other people’s money.”
Why did the money run out, ask you? Because, answer I, Chávez turned the state-owned oil company from being professionally run to being barely run. [From the O’Brien article] People who knew what they were doing were replaced with people who were loyal to the regime, and profits came out but new investment didn’t go in. That last part was particularly bad, because Venezuela’s extra-heavy crude needs to be blended or refined — neither of which is cheap — before it can be sold. So Venezuela just hasn’t been able to churn out as much oil as it used to without upgraded or even maintained infrastructure. Specifically, oil production fell 25 percent between 1999 and 2013.
Well, say you, the price of oil collapsed, otherwise this would have “worked.” Au contraire, mon ami! Even when oil was above $100 per barrel Venezuela was heading into the red. They continued to spend huge sums on “free stuff” but were producing less and less oil. After all, who is incentivized to work hard under socialism?
Then, of course, they did what every country does when they are running out of money. Yes, you guessed it. They simply printed more money. Of course, the translation of “more” is actually “a lot more!” Shock of all shocks, Venezuela’s currency has, by black market rates, lost 93 percent of its value in the past two years. It turns out Lenin was wrong. Debauching the currency is actually the best way to destroy the socialist, not the capitalist, system. (Too bad that, by the time it works, the nation is already dead in the water. Otherwise, we might all just vote for Bernie and let nature take its course.)
Phase 2 of socialist dogma: Deny economic reality with price and currency controls. The “idea” that pops into the mind of every socialist is that they can stop inflation without having to stop printing money by telling businesses what they were allowed to charge, and then giving them dollars on cheap enough terms that they could actually afford to sell at those prices. The end result is no food on the shelves – not even toilet paper is available.
Of course, socialists then claim that it is not their policies at fault for inflation. No. The country’s socialist economic czar tells us that their nation’s woes aren’t due to socialist policies, but because… “When a person goes to a shop and finds that prices have gone up, they are not in the presence of ‘inflation,’ but rather ‘parasitic’ businesses that are trying to push up profits as much as possible.”
Does any of this sound familiar? Have you heard Bernie Sanders’ stump speech?