Guest Post: Inflation, Shortages, And Social Democracy In Venezuela

Tyler Durden's picture


Submitted by Matt McCaffrey via the Ludwig von Mises Institute,

The economic turmoil in Venezuela has received increasing international media attention over the past few months. In September, the toilet paper shortage (which followed food shortages and electricity blackouts) resulted in the “temporary occupation” of the Paper Manufacturing Company, as armed troops were sent to ensure the “fair distribution” of available stocks. Similar action occurred a few days ago against electronics stores: President Nicolás Maduro accused electronics vendors of price-gouging, and jailed them with the warning that “this is just the start of what I’m going to do to protect the Venezuelan people.”

Earlier this month, in another attempt to ensure “happiness for all people,” Maduro began to hand out Christmas bonuses, in preparation for the coming elections in December. But political campaigning is not the only reason for the government’s open-handedness. The annual inflation rate in Venezuela has been rapidly rising in recent months, and has now reached a staggering 54 percent (not accounting for possible under-estimations). Although not yet officially in hyperinflation, monetary expansion is pushing Venezuela toward the brink.

In such an environment, paychecks need to be distributed quickly, before prices have time to rise; hence, early bonuses. This kind of policy is nothing new in economic history: Venezuela’s hyperinflationary episode is unfolding in much the same way Germany’s did nearly a century ago.

Consequently, Venezuela’s economic policy is proving to be another example of Ludwig von Mises’s argument that economic intervention, if left unchecked, leads to complete socialism. The ever-expanding price controls testify to the fact that governments always search for new scapegoats in the market instead of admitting the failure of their own policies, and that it is always easier to increase government control than reduce it.

Maduro clearly knows the ropes when it comes to anti-market propaganda; like his predecessor, Hugo Chávez, he has placed blame for soaring prices on speculators and the “parasitic bourgeoisie.” But no witch-hunt for “price-gougers” will stop the eventual collapse of the economy that will result from further monetary expansion combined with crippling price controls. Inevitably, as Mises argued, “once public opinion is convinced that the increase in the quantity of money will continue and never come to an end, and that consequently the prices of all commodities and services will not cease to rise, everybody becomes eager to buy as much as possible and to restrict his cash holding to a minimum.”

As we speak, Venezuelan shoppers are queuing outside seized stores trying to spend their rapidly depreciating currency, and the economy is marching steadily toward a dénouement when bolivars (Venezuela’s currency) will be useful for little more than kindling.

Venezuela has in fact been fueling the fire of economic disaster for quite some time. The socialist programs of Chávez’s administration squandered the country’s scarce capital in wasteful production. As chronic shortages set in, the government turned to price, capital, and foreign exchange controls to keep the economy afloat, each of which led to further chaos. Currently, Maduro’s administration is planning to extend the controls to all commodity prices, in yet another doomed effort to fix the country’s dire economic problems, but new controls will only make things worse. The only way to truly prevent soaring prices is to stop the printing press and give the reins of the economy over to the market by eliminating price controls. The nationalization of private businesses and establishment of total price controls will not cover up disastrous monetary policies, but only prolong and aggravate their effects. They merely add to ever-higher price increases and ever-lower supply of consumer goods and more capital consumption, further eroding the country’s economic foundation.

Venezuela’s dire straits might seem far removed from the problems faced by other nations, and it is easy to believe that hyperinflation is impossible “here.” Yet as Mises warned, the seeds of disaster are sown from the beginning of government intervention in the market, although “the first stage of the inflationary process may last for many years.” But the final stages of economic collapse occur far more quickly: as Peruvian-Spanish writer and political commentator Alvaro Vargas Llosa points out, “going from 60 percent [inflation] to 1,000 percent is a lot easier than going from 3 percent to 40 or 50 percent.” As disturbing as the thought is, the difference between the U.S. and other Western economies and Venezuela is merely one of degree, not of kind.

After all, Chávez carried out his Bolivarian Missions through a program of nationalization, subsidies, and affordable healthcare. This is a familiar refrain in Western economies.

Venezuela’s problems are more easily visible and have escalated more quickly because its capital stock has been largely depleted by an unbridled 15-year commitment to socialist economic policies. Other states such as the US still rely on large capital stocks accumulated in years of freer markets. Therefore, Western economies may not see their toilet paper disappear from supermarket shelves, yet, but rising prices and numerous bankruptcies indicate that the tendency is the same. This cements once again Mises’s idea that no country will find a stable “middle-of-the-road” economic policy. All movements lead toward one extreme: markets or socialism. Mixed economies are just pit-stops in between. The games all central banks play with the purchasing power of money may be more subtle, but they are ultimately just as harmful as conspicuous socialism.

Some have argued that the crisis in Venezuela will most likely “undercut Chavismo’s viability” as a political program. Yet the critical issue is not a political one, but the economic fact that Venezuela is frantically squandering its resources, consuming its capital, and impoverishing its people. If Maduro’s policies persist, and if after the seemingly inevitable collapse the legacy of chavistas loses its viability — “vaccinating” Venezuelans against a return to such destructive regimes — it will be the only good thing to come out of these tragic events.

Although the odds are against it, let us hope other countries learn something from this episode before they too approach the brink of economic disaster.

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Fri, 11/29/2013 - 16:24 | 4200349 Kreditanstalt
Kreditanstalt's picture

Who is going to be wiling to PRODUCE stuff when his salary bill, prices and, ultimately, profits are being dictated under duress through government 'democratic violence'? Would you?

Fri, 11/29/2013 - 16:28 | 4200363 debtor of last ...
debtor of last resort's picture

Other formes of violence will take care of that.

Fri, 11/29/2013 - 16:33 | 4200369 ZerOhead
ZerOhead's picture

The good news is that the toilet paper shortage will soon be solved... albeit with a cheaper single ply although rather colorful substitute...

Fri, 11/29/2013 - 16:42 | 4200390 Colonel Klink
Colonel Klink's picture

I'd rather not wipe my ass with the faces of those to founded the country on solid principles.  Please let me know when Woodrow Wilson, Bernanke, Yellen, or Obama appear on the currency.  Then I'd be more than happy to.

Fri, 11/29/2013 - 16:47 | 4200398 TeamDepends
TeamDepends's picture

Why do these pukes always have to stick their arms out like that?

Fri, 11/29/2013 - 17:02 | 4200430 Colonel Klink
Colonel Klink's picture

It's the special club handshake kind of thing.

Fri, 11/29/2013 - 17:09 | 4200443 TheRedScourge
TheRedScourge's picture

As Twain said, "History doesn't repeat itself, but it often rhymes.". Thatcher also said "They would rather the poor be poorer so long as the rich were less rich", and as we are witnessing once again, economic reality would be happy to oblige.

Fri, 11/29/2013 - 17:15 | 4200460 Colonel Klink
Colonel Klink's picture

So when does the "Obama youth" movement begin?

Fri, 11/29/2013 - 17:27 | 4200485 TeamDepends
TeamDepends's picture

Brother, it has begun!  The Black Panthers are but one group who can run around and do as they please under the watchful eye of Eric Holder.

Fri, 11/29/2013 - 17:03 | 4200433 HoleInTheDonut
HoleInTheDonut's picture

This new guy Maduro is just not working for me.  At least Chavez looked liked a military thug.  When I see Maduro I think "high school dropout" or "C student".

Fri, 11/29/2013 - 17:07 | 4200441 Colonel Klink
Colonel Klink's picture

So in other words, like Bush Jr.

Fri, 11/29/2013 - 19:38 | 4200714 bigkahuna
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I was just thinking that this guy looks like Saddam. He could be in trouble.

It might be the little dictator mustache and the drab green - but he looks like Saddam in that pic.

Sat, 11/30/2013 - 02:13 | 4201413 Colonel Klink
Colonel Klink's picture

He better not start trading oil in something other than dollars.  I've heard that puts you on the immediate hit list.

Don't wanna get "Gdaffi'd"

Fri, 11/29/2013 - 20:17 | 4200798 fxrxexexdxoxmx
fxrxexexdxoxmx's picture

If Zero's grades had not been sealed you would have seen his F grades. Except the courses he passed because of his white half.

Fri, 11/29/2013 - 17:52 | 4200536 WmMcK
WmMcK's picture

We've a while for Wilson ($100k) to make his return. I'm first.

Fri, 11/29/2013 - 20:18 | 4200799 August
August's picture

The talented Mr. Wilson is already portrayed on the $100,000 FRN.

Maybe they'll be back in circulation again soon.

Fri, 11/29/2013 - 20:04 | 4200774 tunnelvizn
tunnelvizn's picture

Soon to be replaced with a single "plyer" system

Fri, 11/29/2013 - 17:07 | 4200444 Colonel Klink
Colonel Klink's picture

Not me, I stopped producing/being productive 4 years ago.  It was my only way of fighting back.  Starve the beast!

Fri, 11/29/2013 - 18:44 | 4200620 mick_richfield
mick_richfield's picture

I'm trying, but it's hard.

I came to this life to make things.

Fri, 11/29/2013 - 19:34 | 4200705 Colonel Klink
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I still do stuff, it's usually just for betterment of myself now.

Fri, 11/29/2013 - 18:16 | 4200565 Zero Point
Zero Point's picture

The black market will pick up the slack.

I wonder if they'll be using USD, gold and silver or btc as opposed to truckloads of bolivars?

Fri, 11/29/2013 - 21:27 | 4200938 rubiconsolutions
rubiconsolutions's picture

Coming soon to a theater near you.

Sat, 11/30/2013 - 11:16 | 4201776 FredFlintstone
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Civic duty, of course.

Fri, 11/29/2013 - 16:24 | 4200350 Professorlocknload
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All will be equally poor.

Fri, 11/29/2013 - 17:08 | 4200449 Colonel Klink
Colonel Klink's picture

At least I'm poor voluntarily!  Makes it easier to stomach.

Fri, 11/29/2013 - 21:34 | 4200953 Iam_Silverman
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"At least I'm poor voluntarily!"

Define poor.  Apparently you have a computer and internet access.  More than some folks I know.

Sat, 11/30/2013 - 02:17 | 4201417 Colonel Klink
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Poor, as in I have NO income.  I still have money and a great life.  Not everything fun in life take a lot of money.  Many simple pleasures are free.

Sat, 11/30/2013 - 11:15 | 4201772 FredFlintstone
FredFlintstone's picture

I am interested in this concept. How do you go about getting a spouse onboard?

Sat, 11/30/2013 - 13:00 | 4201896 Colonel Klink
Colonel Klink's picture

No spouse, no kids, no need to worry abou that for me.  It's hard to get someone else to change their normalcy bias.  My guess is small steps, getting them to self-educate on the matter is the easiest way.  Once their eyes open to what's coming, they come to their own conclusions pretty quick.

Fri, 11/29/2013 - 16:29 | 4200358 krispkritter
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Some countries never learn.  Thankfully I live in the US and this could never happen here.

Fri, 11/29/2013 - 16:30 | 4200365 Kreditanstalt
Kreditanstalt's picture

I realise you're being facetious, but North America is blessed too with collective "bargaining" "rights", taxes, "minimum wages", payroll deductions, import duties, rampant price fixing & a MASSIVE social wefare system to support...not a hell of a lot of difference.

Fri, 11/29/2013 - 16:44 | 4200392 Skateboarder
Skateboarder's picture

Not to mention the first world false dignity of labor.

Fri, 11/29/2013 - 17:25 | 4200481 knukles
knukles's picture

Look who remembered their Red Pills this morning!

How far down the reality rabbit hole can you go before complete unadulterated depression and suicidal thoughts?

Fri, 11/29/2013 - 17:33 | 4200497 Skateboarder
Skateboarder's picture

Even to the last second of your breath, you define yourself not by what you have or what you have done, but by how you treat others around you.

Fri, 11/29/2013 - 18:19 | 4200568 TheGardener
TheGardener's picture

You forgot you sarc tag. You define yourself how you treat yourself and keep up your conviction.

Messing about with the `others` is just self justifying how you failed or not, or worse socialist take over of other peoples suffering for your own benefit.

Fri, 11/29/2013 - 21:51 | 4200971 Iam_Silverman
Iam_Silverman's picture

"Messing about with the `others` is just self justifying how you failed or not, or worse socialist take over of other peoples suffering for your own benefit."

Condensed version:

Or, just trying to get laid or borrow money.

Fri, 11/29/2013 - 18:49 | 4200624 mick_richfield
mick_richfield's picture

Not quite, Mithrandir.

You are what you do.

How you treat others is part of what you do -- not all of it.

A lot of people in this time will tell you that you must treat others well.

I don't think that's quite right.

I think you should treat others as they deserve to be treated.

And yourself likewise.

Fri, 11/29/2013 - 19:37 | 4200712 Skateboarder
Skateboarder's picture

Perhaps the both of you have read this past its intention. I said how you treat people. I never said anything about nice.

Let me give you an example. I had a great college friend a few years ago. We skateboarded together and built ramps and shit. Over time, I got second-class treatment before our time together came to an end. I stopped taking calls. Over time he had called once in a while, but this year the messages are exploding. He really does miss me. The cold shoulder always works. ;)

Fri, 11/29/2013 - 20:20 | 4200803 fxrxexexdxoxmx
fxrxexexdxoxmx's picture

It is harder to find people who understand that. I get tired of looking.

Fri, 11/29/2013 - 16:50 | 4200410 NOTaREALmerican
NOTaREALmerican's picture

As does almost every other country on the planet.

What other system is there to keep the top 50% from eating the bottom 50% alive?

Fri, 11/29/2013 - 18:53 | 4200631 Anusocracy
Anusocracy's picture

Getting rid of government.

Government is, first and foremost, a tool of the rich. It always has been, even if a bunch of clueless morons call it democracy.

Fri, 11/29/2013 - 16:31 | 4200368 Winston Churchill
Winston Churchill's picture

Uber Schleswig ?

Fri, 11/29/2013 - 23:30 | 4200440 Fight-Club
Fight-Club's picture

I advise all to be aware of the potential impact of Venezuala's collapse.  While almost anything can happen, the chances that oil production is cut off is high.  An ensuing political stalemate may evolve between China (who has rights to most of Venezuela's production), Russia (who provides arms), and the US, (which may be compelled to assist a rebel counter-revolution if misery spreads like Syria, and missiles (purchased) from Iran are targeted at the US.).  

Fri, 11/29/2013 - 16:40 | 4200383 Yen Cross
Yen Cross's picture

  In the U.S. you buy votes with obama phones & EBT cards. In Venezuela you buy votes with THIS...

Fri, 11/29/2013 - 16:44 | 4200395 Colonel Klink
Colonel Klink's picture

That's pretty much what you buy votes in Amurika with, it's just more colorful and rectangular.

Fri, 11/29/2013 - 18:56 | 4200634 mick_richfield
mick_richfield's picture

Votes don't matter, to people who can create money.

If I gave you the task of controlling all politics in America in 20 or 30 years -- and gave you the ability to create trillions of dollars -- don't you think you could do that?

And if you still needed to buy votes after that time, I would have you eaten.


Fri, 11/29/2013 - 16:47 | 4200400 debtor of last ...
debtor of last resort's picture

12 mega rolls = 48 regular rolls. That's a nice fucking piece of inflation.

Fri, 11/29/2013 - 16:53 | 4200416 Yen Cross
Yen Cross's picture

  LMAO! Nice posts fellas. Greenies for the both of you.

Fri, 11/29/2013 - 16:44 | 4200391 MeelionDollerBogus
MeelionDollerBogus's picture

doesn't sound right. Venezuela is not ruled by corporations. America is. America is forking over all the cash to corporate oligarchs. Venezuela is not. That's not "degree" that's direction.
Venezuela is socialist. America is Fascist. They aren't the same.

Fri, 11/29/2013 - 16:46 | 4200396 Colonel Klink
Colonel Klink's picture

No but the results are the same for the population.

Do NOT follow this link or you will be banned from the site!