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People are Starving and we’re celebrating medals our country has – “Venezuela’s death spiral is getting worse”

August 9, 2016

People are Starving and we’re celebrating medals our country has –  

Venezuela’s death spiral is getting worse

 

August 8

 

Venezuela is stuck in a doom loop that’s become a death spiral.

Its stores are empty, its people are starving, and its government is to blame. It has tried to repeal the law of supply and demand, and, in the process, eliminated any incentive for businesses to actually sell things. The result is that the country with the largest oil reserves in the world now has to resort to forced labor just to try to feed itself.

It gives new meaning to the revolution devouring its own.

How has it come to this? Well, Venezuela was always going to have a tough time when oil prices fell from $110 to $40 like they did the past two years. That’s because it doesn’t have an economy so much as an oil exporting business that subsidizes everything by making up 95 percent of the country’s total trade revenue. Even then, though, the oil crash has hurt it much more than any other petrostate. To take one example, the International Monetary Fund estimates that Russia’s economy will “only” shrink 1.8 percent this year compared to 10 percent for Venezuela. That’s the difference between a run-of-the-mill recession and a complete collapse.

And it’s entirely man-made. The easiest way to think about this is as a four-stage cycle of doom that begins with inflation, continues to price controls, then shortages, and finally nationalizations. Here’s how it works, or rather doesn’t.

1. Inflation. Even when oil prices were in the triple digits, Venezuela’s government was in the red. The problem was that its state-owned oil company stopped producing as much after Chavez took money that should have gone into maintaining its fields and put it into social spending instead. This was the economic equivalent of eating your seed corn when it would have grown you more than ever before. Now, at first, the regime was just spending more than it had, but eventually, after oil’s vertiginous drop, this became more than it could borrow as well. So it did what every bankrupt government does: It printed the money it needed. Which is why inflation went from 19 percent in 2012 to, the IMF estimates, 720 percent this year, and a projected 2,200 percent the next.

2. Price controls. Venezuela, for is part, has resorted to a tried-and-untrue strategy for dealing with all these price increases. That’s pretending they haven’t happened. The government tells businesses what they’re allowed to charge, and then given a select few of them dollars at deeply discounted rates so they can afford to buy what they need overseas and still sell at these deeply discounted prices. In effect, the Chavista regime is trying to spend the inflation away. It hasn’t worked.

3. Shortages. Something Venezuela’s government hasn’t quite managed to figure out, though, is that trying to force companies to sell at a loss means they won’t sell anything at all. It’s better to make nothing than to lose something. And that’s even been the case when the government has tried to cover some of their costs. The problem, you see, is that it isn’t profitable for unsubsidized businesses to stock their shelves, and isn’t profitable enoughfor subsidized ones to do so either. Why is that? Because companies can sell the cheap dollars they get from the government for more than can resell the imports they’re supposed to buy with those dollars.

That’s why Venezuela has had shortages of everything from food to beer to medical supplies and even toilet paper. About the only thing it is well-supplied with are lines, to the point that it’s had to limit how many of them people are allowed to join. But those are still long enough that as many as 85,000 Venezuelans poured into Colombia to go grocery shopping when the Chavista regime opened the border for 12 hours last month.

4. Nationalizations. So what do you do when businesses refuse to sell things at a loss? Easy. You blame them, and then do so yourself. That, at least, is what Venezuela’s government did when it took over toilet paper factories in 2013, and what it’s threatened to do with the country’s top food and beer brewing company today. But, of course, this means losing even more money that Venezuela’s government doesn’t have — which, in turn, means it has to print even more money. And round and round it goes.

Now, there are two things you need to remember about Venezuela. The first is that if it can get worse, it will get worse. And the second is that it can always get worse. In this case, that means that it might not be long until we look back at all of this as the good old days. How in the name of five-hour long grocery lines is that possible? Well, Venezuela’s government might be reaching the point where it can’t coerce people economically, but only physically. After all, it barely has enough money to even be able to print money anymore. So it can’t buy people off anymore. It has to bully them instead. Indeed, the army has started forcing butchers to sell food at a 90 percent loss, and the government has said it can force anyone to, um, take a break from their job and work for at least two months growing food instead. Amnesty International has said this is tantamount to “forced labor,” which is just a polite way of describing what’s very close to modern-day slavery.

It brings to mind the old joke: Under capitalism, man exploits man, and under Bolivarian socialism, it’s just the opposite.

Amid economic hard times, Venezuelans turn to city farming

 
Facing a national food crisis, Venezuela’s pumpkin-growing socialist president is exhorting compatriots to grow fruit and vegetables on balconies and roofs and in barracks across the country. (Reuters)
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