Economic Lessons From Venezuela

In the Socialist country of Venezuela, you might be lucky to find toilet paper available for sale. Don’t bother trying to save money, the country’s currency is inflating at an annual rate of 54.3%. This means any money that people save will be worth only two thirds as much the following year, and it will take one and a half times as much money to buy the same product. This is because Venezuela’s central bank is printing vast amounts of money in order to raise public sector spending… sound familiar? Because of these major shortages of basic necessities, the Socialist government led by Hugo Chavez’s successor, Nicolás Maduro, has decided to take drastic measures and nationalize some businesses and set price controls on others. “Chávez often theatrically expropriated or seized assets from more than 1,000 companies during his 14-year tenure”, but according to USA Today, and obvious to anyone who knows anything about economics, the government’s policies only exacerbate the shortages.

Venezuela’s central bank said the country’s money supply grew 70% in the past year. As a result, the value of the Venezuela bolivar continues to drop at a time when the country must import increasing amounts of basics like food and even toilet paper due to failed state schemes for running the economy.

For Venezuelans, it costs more bolivars every week to buy from stores that must pay the foreign producers of goods they order in hard currency like U.S. dollars. But Maduro blames it on greedy business and his opponents here and abroad.

Despite a massive amount of oil reserves in the country, the Socialist government’s nationalizing of the oil industry led to poor management which decreased output and profits. Most recently, “Maduro has ordered [the retailer Daka] to lower prices or face prosecution”. The Socialist leader insists that he wants the electronics retailer, similar to Best Buy, to charge what he calls “fair” prices. Of course, recent price hikes are due to runaway inflation in the country, but Maduro still blames this on the greed of the “bourgeois parasites”. Obviously the real parasite is government, who expropriates wealth from industry so often that foreign investors will not finance projects in the country for fear of losing their investments to a government with confiscatory policy.

National guard units were deployed outside the Daka stores while people lined up, excited at a chance to get a cheap TV. When prices are controlled by government, shortages ensue, because companies cannot operate while losing money on their products. Higher demand leads to higher prices which slows the flow of goods. Artificially lowering these prices increases demand without increasing the supply.

America should be wary of doing anything similar to what the Venezuelan government has done, or risk suffering the same effects. Our currency is inflating, though at a much slower rate. But depending on the policies of the Federal Reserve that could change. Quantitative easing, while not the same as printing money, could lead to similar effects. Also unnerving is the language used and attitude of Obama when he blames the dropping of millions of health insurance policies on “bad apple insurers”, echoing Meduro’s claim that higher prices are due to greedy business and parasitic companies.

Despite Obama repeatedly promising Americans that if they liked their insurance plan they could keep it, there was apparently nothing in Obamacare which stopped the dropping of coverage–if there was it would have been, in effect, price controls, just like in Venezuela. The fact that the framers of Obamacare did not see the dropping of millions of plans coming, should tell us that they are not capable of running an industry comprising 1/6 of the economy. If they don’t understand that raising requirements for coverage would cost insurance companies more, and that the cost would be shifted to the customer, then how can we believe anything else they tell us about the “great effects” of Obamacare, or any other time they intervene in the economy?

The Affordable Care Act puts more requirements on insurance companies in terms of what their plans need to cover. If prices are not raised, the insurance companies would not be able to provide insurance, and make a profit. Profit is the incentive for companies to provide products at all, so requiring a plan to cover more, and not allowing their price to rise, is similar to forcing an electronics store to provide more products for the same price (or the same product for a lower price). The only difference is that the American government has not yet capped what insurers can charge customers. This would lead to insurance companies going out of business, and a shortage in availability of health insurance. If it came to that, the American government would likely create a public option, which mirrors nationalizing a company. We are really not so far removed from the types of policies initiated by the Socialist President of Venezuela.

The type of risky behavior our government engages in with our money is eerily similar to the lead up to economic disaster in other countries where the government is allowed to intervene in the economy on a massive scale. Only by separating economics from politics will our economy continue to grow. If politicians were not allowed to give out tax sponsored loans, grants, subsidies, bailouts, or contracts (to political cronies), nor administer excessive regulation that burdens some businesses and favors their competitors, then we would also see corporate influence over elections wane, since there would be nothing to gain from buying a politician. But if we do not remove the government’s influence over the economy, it could spiral out of control and end up like Venezuela. And with shortages of toilet paper, our inflated dollars may be more valuable put to a new use.

5 thoughts on “Economic Lessons From Venezuela

  1. Pingback: What’s Happening To Venezuelans Could Happen to You | Vigilant Vote

  2. Pingback: Gun Control in the 5 Countries with Highest Murder Rates | Vigilant Vote

  3. Pingback: The Venezuelan People Need Guns to Protect Themselves from their Government | Vigilant Vote

  4. Pingback: What’s Happening To Venezuelans Could Happen to You | Joe Jarvis

  5. Pingback: The Venezuelan People Need Guns to Protect Themselves from their Government | Joe Jarvis

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