Why Did Chávismo Wreck the Venezuelan Economy?

You probably won’t be surprised that in William Finnegan’s lengthy history of Venezuela under Chávez and since in his New Yorker piece only two explanations for Venezuela’s economy having been left in tatters are presented. The Venezuelan government’s position:

I asked about the current food shortages and failing hospitals. “It is an economic war totally orchestrated by fascistic factions on the right,” Ruiz explained. “In every country, you have an oligarchy, a bourgeoisie, working to prevent other groups from gaining power. Our economic situation is imposed by outside powers, by transnational companies like Polar.”

The government constantly cites this “economic war,” secretly directed from Washington, to explain the gutted economy. Polar is Empresas Polar, Venezuela’s leading manufacturer of food and beer. Polar has been threatened with expropriation, and is harassed and vilified by the government as a treacherous bastion of capital, but it has become indispensable to feeding the country. Ruiz explained that Polar is responsible for shortages because it has reduced production. Polar’s management contends that it cannot import essential ingredients, because the government, which controls all foreign exchange, declines to provide the dollars necessary. These claims are false, according to Ruiz. “They have enough.”

or that it’s just too complicated for us mere mortals to understand:

Understanding Venezuela’s failing state as just another failure of socialism, and of statism generally, is ahistorical. Venezuela before Chávez was often extravagantly statist. Corruption has been a major problem in every era. Even dire food shortages are not new. These things happened under capitalism, too, as did intense political repression. Today’s crisis is for most people the worst in memory, but it is not all about socialism. The predatory state, the extreme insecurity, the sheer weakness of the rule of law—these are problems more profound, at this stage, than a traditional left-right analysis can clarify, let alone begin to solve.

Actually, it’s quite simple. Making economic decisions politically always introduces inefficiencies into an economy. That’s as true in Venezuela as it was in the Soviet Union or Mao’s China or as it is in today’s United States or North Korea. Those inefficiencies are what I’ve been referring to here at The Glittering Eye as “deadweight loss”. China’s economy was supine until it incorporated some market economics into its system.

When enough decisions are made politically, incentives are completely bolloxed up. People do things they shouldn’t and don’t do things they should. They hoard. They become profligate.

When you add rampant corruption to the mix, something inevitable when economic decisions are made politically, it makes matters that much worse.

Stir in monetary mismangement and you’ve got Venezuela.

10 comments… add one
  • TastyBits Link

    Since I do not have much patience for such nonsense, I skimmed most of it, but by the time Mr. Samuelson actually comments on socialism, it is the 85th paragraph of a 98 paragraph article. The word “socialism” is used three times. The first time it is used as an adjective in a phrase from I suppose a local source. The second and third are the 85th paragraph.

    The preceding 84 paragraphs establish that Venezuela is a shithole, and Mr. Samuelson does his best to not implicate Hugo Chavez as the sole reason for the shittiness. Rather than improving the shittiness, Chavez is the reason it would become what it is today, and because of him it was destined to this (and greater) level of shittiness.

    Socialism is a statist economic/financial system, and therefore, it is solely politically driven. Crony capitalism is solely politically driven, and therefore, it is an economic/financial political system. Socialism and crony capitalism are both corrupt – one philosophically, one politically, and both economically/financially.

    Chavez created a socialist paradise, and the socialists are a tad bit reluctant to take credit for it.

    While we are at it, let us note other “get rich quick schemes that do not work”:

    free-trade – this would solve the shortage problem
    credit backed currency – this will facilitate the free-trade solution
    fractional reserve lending – this will provide the capital for everything
    stimulus spending – gotta prepare for those space alien invasions

  • It’s Finnegan not Samuelson but otherwise I agree with most of your comment.

  • TastyBits Link

    I got the writer’s name wrong it should be Mr. Finnegan not Mr. Samuelson.

  • TastyBits Link

    I have too many tabs open, and I am switching between emails and work.

    Off-topic: Our male chihuahua has not been right for over a year. They have been poking, prodding, and x-raying, and they did find bladder stones and kneecap problems. But, nothing they did or prescribed changed anything, and then, I noticed that he was starting to eat with less gusto.

    Your post about Smidge caused me to send my wife to the vet with the instructions for them to figure out what was wrong with the beast or give me the name of somebody who could.

    They did blood work, and found he has a thyroid problem. His T3 or T4 is supposed to be 6-8, but his was 2. He is on meds, and he is starting to get back to his old self.

  • They did blood work, and found he has a thyroid problem.

    As chronic canine health problems go, that’s not a bad one to have. Relatively cheap and easy to control. Over the years we’ve had a number of dogs who were low thyroid. It’s pretty common among Samoyeds. I suspect it’s a survival characteristic in the dry, cold Siberian winters.

  • steve Link

    Has Venezuela ever had a peaceful, prosperous period? Not a student of the area. I am inclined to believe that some countries just kind of suck.


  • walt moffett Link

    Venezuela’s and for that matter, Greece, problem is that as Thatcher put it, they ran out of other peoples money. The oil glut’s reduction in revenue means there is a lot less to go around, Greece finds its creditors demanding some effort to repay, and so on.

  • Has Venezuela ever had a peaceful, prosperous period?

    It was the richest country in South America with the strongest economy until Chavez took over. Equal? No. Lots of poor people. Yes.

  • TastyBits Link

    In a credit backed monetary system, Thatcher is wrong. Money is not the problem. Credit creation is, and it can occur for a lot longer than Lady Thatcher or any of her acolytes can fathom. I would be grateful if any conservative, libertarian, or Republican could tell me what the magic ratio is – 10:1, 60:1, 100:1, 1000:1, infinity:1.

    The Greek banks are insolvent, and they should have been allowed to fail long ago. The problem is that this would have caused a cascading failure in the other European banks that had unwisely lent money to the Greek banks. When they knowingly invested in the unsound Greek banks, they failed to understand that if everybody was doing the same thing, everybody would lose.

    They were all counterparties to the hedges (CDS’s, “insurance”) everybody took out to protect their investment, and when the Greek banks failed, they would be reimbursed. They failed to understand that everybody was doing it as well, and they would pay out more to reimburse the other investors than they would be reimbursed. They should have hired street hustlers as CEO’s.

    All of Greece’s bailouts have been foisted upon it in order to avert the collapse of the European financial system. Greece is not the only country where the European financial scammers were outscamming themselves. Portugal, Italy, Ireland, and Spain are in the same position, and they hold some of the Greek trash. When Greece falls, they fall, and then, the European banks “all fall down”.

    (The French banks were quite slick. They dumped their trash into the Greek banks for the rest of Europe to pick up the tab.)

    Let us circle back around to Lady Thatcher and her thesis. Europe is having no problem creating currency. It is having such an easy time creating currency that it has imposed negative interest rates to get it out the door faster.

    Since most of those quoting Lady Thatcher also denounce Lord Keynes, “free-stuff”, and most government backed social programs, could somebody please explain how this philosophical tenet comports with the US government backing the credit created by non-governmental entities for free or at a substantially subsidised rate?

    I guess this is some special exception to socialism – “free-market” socialism, “capitalist” socialism, “we have our heads shoved up our asses” socialism.

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