Venezuela in Cuban Death Spiral

For well over a decade now, European and even American socialists have pointed to Venezuela as the new socialist paradise. As now-defunct president Hugo Chavez socialized sector after sector and chased foreign oil companies out of the country, his global admirers went politically ecstatic. Little did they care when oil production plummeted because the experts left the country and the socialists tried to run oil production on dictates from the country’s political leadership; little did Chavez’s global congregation of spoiled iPhone-using socialists care when the Venezuelan economy was hit by rolling black-outs. They cared even less when Chavez introduced destructive price regulations on food, regulations that made it close to impossible for anyone to make a living producing and distributing food in the country.

When sector after sector imploded, European and American worshipers of now-defunct Hugo Chavez raised him even further to the skies.  When the Dark Bells of Beelzebub chimed, calling Chavez to eternal torment, his fanatic followers did a good job ignoring his legacy: destructive unemployment, wiped-out prosperity, food shortages, destroyed property rights, rampant crime, corruption… and inflation. Last November prices were rising at 54 percent per year, an absolutely outrageous inflation rate. (More recent numbers point to 57 percent, but that remains to be verified.)

With prices of just about everything running amok, shortages in supply are inevitable. The higher inflation is, the more serious the shortages will be. Since people can afford fewer and fewer things in life, their fight to feed themselves becomes ever more desperate. This in turn causes chaos at the retail end of the food supply chain. Once a country gets to this point there is not much left of economic freedom for ordinary people. But instead of getting government out of the entire business, socialists respond by doubling down on their government-expansion project. Alas, we found this report in The Guardian a few days ago:

Venezuelans queued on Friday to register for an electronic card system designed to end food shortages that have plagued the country – but which some fear may be the thin end of the rationing wedge. The ID card, introduced this week, will limit Venezuelans to once-a-week shopping and will set off an alarm to halt any transaction if a purchaser breaks the rules. The government wants to prevent individual shoppers from “over-buying” in a country hit by acute shortages of basic items including milk, sugar and toilet paper.

Do we have “acute shortages” of these items here in the United States…? Why not…?

Critics say it is an admission of failure of economic policy in one of the world’s big oil-producing nations. “The government needs to control the hoarders. They have made this worse. But if there weren’t shortages there wouldn’t be hoarders. We are trapped,” says Jose Diaz, a 65-year-old construction worker. By keeping a record of what is purchased and limiting shopping trips, the electronic card is supposed to curb hoarding and prevent speculative shoppers from buying to resell at a profit. But the larger aim is to halt the huge outflow of food to neighbouring Colombia, where it sells for up to 10 times as much. It is estimated that almost 40% of Venezuela’s food is transported illegally across the border.

This is exactly right. Inflation in consumer markets creates a speculative opportunity just like it does on the stock market. If stocks rise fast over a sustained period of time, it is a safe bet that you can make good money buying them “now” and selling them “later”. The exact same thing is now the case in Venezuela’s food markets.

But where does inflation come from? That is a good question, to which we will have to return later. For now, back to The Guardian:

Outside the Bicentenario megastore in Plaza Venezuela, a middle-class neighbourhood in the capital, Caracas, the line stretches for several blocks. Some of the people here have come to register for the new system; others simply want to buy food. Most of them have already been waiting for several hours. They are desperate over what they say is a lifetime spent standing in queues.

Can you say “Soviet Union”?

The card, they hope, will put an end to a perverse cycle they say they cannot bear for much longer. “This card will take the edge, the sense of panic, out of shopping. If we know that we will find rice or milk next time we come we don’t need to stock up and so there will be more to go around,” says Oscar Romero … After queuing for almost three hours, Pascual Sandoval is just three blue plastic chairs away from registering for the “card for secure supply” as it is being called. … fellow queuers share his enthusiasm for the shopping card, but are not as confident that it alone will solve the shortages or the ensuing long lines. For many the root causes run deeper. Critics say the new system will do little to galvanise the productive parts of an economy in which people see no point in producing goods that are then subject to price controls and end up being loss-making.

Spot on. Price controls have disrupted productive activity that worked well before socialism came to town. Government takeovers of large sectors of the economy have further destroyed economic incentives that feed people on a daily basis in Capitalist nations. And last, but not least: by pretending to care for the poor better than any private organization could, government has shoved aside private, charitable activity. Not only has government taken over their “market” with entitlements and other programs sold as compassionate with the poor, but by devaluing the standard of living of regular Venzuelans the government has severely shrunk the incomes out of which people could donate to private charities.

In other words, the Venezuelan government has done in about a decade what European welfare states have taken half a century to accomplish: the destruction of free society by means of government promises. The more promises government makes, the more promises it can’t keep. But since government wiped out the private sector during its promise-making process, there is nobody there to replace government once it collapses.

As for the future of Venezuela, it is well captured by these words from a disillusioned Chavez disciple:

For some, the recent move is nothing short of a Cuban-style rationing card that will sooner or later hamper citizens’ economic freedoms. “I don’t want to be told what I can buy and when I can buy it. That’s what I work for. I am a revolutionary but I didn’t go into this wanting it to become Cuba,” says Mercedes Azuaje as she exits a corner shop with an almost empty bag of groceries.

In short: be careful what you wish for – you might get it. This woman is yet another example of the arrogance of socialists. Before they come to power they always know “a better way” and smile at those who are stupid enough to not understand. Once in power they are too eager to implement their agenda to research its consequences. When things go awry they tell us that “this is not what we intended” and leave the cleaning up to libertarians and conservatives, the only adults in politics.

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