This page has been archived and commenting is disabled.
Reflections On Venezuela's "Economic Miracle"
Submitted by Andrew Syrios via The Mises Institute,
Back in 2013, Salon took a quick break from criticizing a caricature of libertarianism to let David Sirota write an embarrassing article praising socialism in what turns out to be a fantastic case study in both the dangers of socialist economics and of course, speaking too soon.
The article was titled “Hugo Chavez’s Economic Miracle” and it was certainly not the only one of its kind to come out at the time. It may seem like twenty-twenty hindsight to criticize such foolishness, but it might be instructive as well. However, looking at Venezuela now as compared to the country Sirota saw in 2013 and thought provided an economic alternative to American capitalism (a truly free market was never discussed) serves as a good example of what Nicolás Cachanosky calls “the bait-and-switch behind economic populism.” Or namely, that government policies focused highly on consumption and lowly on investment will show good economic signs at the beginning, only to be followed by an inevitable decline and likely disaster.
Sirota’s article at least begins by lamenting Chavez’s rather poor record on civil rights (like shutting down a TV station that was critical of him) and noting “a boom in violent crime.” This may somehow be an understatement as Venezuela ranks second in the world in murders per capita at a terrifying rate of 53.7 per 100,000 citizens annually! (So much for socialism alleviating crime.) He finally does arrive at his case for this “economic miracle” that Venezuela was experiencing under Chavez (which, I should note, makes up only one paragraph of his entire article),
…according to data compiled by the UK Guardian, Chavez’s first decade in office saw Venezuelan GDP more than double and both infant mortality and unemployment almost halved. Then there is a remarkable graph from the World Bank that shows that under Chavez’s brand of socialism, poverty in Venezuela plummeted (the same Guardian data reports that its “extreme poverty” rate fell from 23.4 percent in 1999 to 8.5 percent just a decade later). In all, that left the country with the third lowest poverty rate in Latin America.
How much of this was due to Venezuela being an oil-rich nation is debatable. But it’s also very much worth observing that these positive (and underreported) trends existed throughout Latin America, including in countries such as Colombia that have moved in the opposite direction economically. According to the World Bank, Between 2005 and 2013, Colombia’s poverty rate (as opposed to extreme poverty) fell from 45 percent to 30.6 percent, Peru’s fell from 55.6 percent to 23.9 percent, Uruguay’s from 32.5 percent to 11.5 percent, Paraguay’s from 38.6 percent to 23.9 percent, and Ecuador’s from 42.2 percent to 25.6 percent. Venezuela, for its part, fell 43.7 percent to 25.4 percent, which seems to be about average. The same could be said for GDP and Venezuela’s infant mortality rate also only ranks in the middle of the pack.
And of course, all of this was prior to Venezuela’s recent economic crisis.
The fall in the price of oil has certainly harmed Venezuela, but then again, the rise in oil prices during the last decade certainly contributed to its “economic miracle.” However, Venezuela’s problems were starting to become apparent before the drop in oil prices. Back in October of 2014, just before the price of oil sank, Venezuela ran a 17 percent budget deficit and was dealing with a variety of shortages. Furthermore, while every major oil exporter has been hurt by the low oil prices, they have all weathered the storm much better than Venezuela.
It appears that the drop in gas prices simply exacerbated, and more accurately, exposed the problems caused by Chavez’s (and his successor Nicolás Maduro’s) extreme populist policies. As Nicolás Cachanosky notes in his review of Rudiger Dornbusch and Sebastián Edwards work on Latin American populism, regimes that follow such policies go through four economic phases. In stage I,
The populist diagnosis of what is wrong with an economy is confirmed during the first years of the new government. Macroeconomic policy shows good results like growing GDP, a reduction in unemployment, increase in real wages, etc. Because of output gaps, imports paid with central bank reserves, and regulations (maximum prices coupled with subsidies to the firms), inflation is mostly under control.
This is the stage Venezuela was in when Salon saw fit to publish Sirota’s article in 2013.
But then comes Stage II when “bottleneck effects start to appear” and “the underground economy starts to increase as the fiscal deficit worsens …” In Stage III, “Shortage problems become significant, inflation accelerates, and because the nominal exchange rate did not keep pace with inflation, there is an outflow of capital (reserves).”
This is exactly what’s happening in Venezuela today. Venezuela’s projected inflation for 2015 is a whopping 64 percent! The country with the second highest rate in South America is Argentina at 10.9 percent. The CIA Factbook lists Venezuela’s budget deficit at 29.4 percent and Moody’s downgraded Venezuela’s credit rating to the lowest rating possible for a country not in default. And there is serious talk of that coming to pass as well.
The government has instituted price controls to fight inflation and predictably, massive shortages have forced Venezuelans to turn to the black market for ordinary daily goods such as milk and toilet paper.
Venezuela’s unemployment rate shot up from 5.5 to 7.9 percent in January of 2015 and is likely to rise further. Even as it stands now, it is the third highest rate on the South American continent (excluding Central America). And as one would expect, poverty has started to rise again as well.
After Stage III comes Stage IV, which Cachanosky describes as follows,
A new government is swept into office and is forced to engage in “orthodox” adjustments, possibly under the supervision of the IMF or an international organization that provides the funds required to go through policy reforms. Because capital has been consumed and destroyed, real wages fall to levels even lower than those that existed at the beginning of the populist government’s election. The “orthodox” government is then responsible for picking up the pieces and covering the costs of failed policies left from the previous populist regime.
Whether it comes to that is still yet to be seen. But what this economic crisis does highlight is that short-term success should never be taken as proof of a long-term solution. And this is particularly true when it comes to quasi-socialist and extreme populist governments. In the long-run, countries that follow these policies have a consistent track record, which is basically the same as what we’re witnessing now in Venezuela.
We’ll have to see if Salon writes a follow up.
»
- 15132 reads
- Printer-friendly version
- Send to friend
- advertisements -
Hugo's daughter, on the other hand, thought things were just great!
Hugo may well have been taken out by the syndicate with a fast acting cancer, afterall he did survive coup. Chavez's leadership skill and charisma far exceeded that of Maduro.
Socialism fails!?
DOH!
Why are there high taxes on tobaco and alcohol? Because society wants to discourage those activities.
What happens when Socialists/Communists confiscate wealth? They discourage those activities. And then "Liberals" are surprised at the lack of wealth. Seems like Einstein's definition of stupidity.
"Why are there high taxes on tobaco and alcohol? Because society wants to discourage those activities."
Don't kid yourself. Taxes are high on those products because it's a captive market. Government doesn't care about your well being - they're only interested in the revenue. For proof, look no further than recent proposals to tax electronic cigarettes which demolishes the argument that they're only concerned about your health.
The reason people accept peacefully the high taxes, is that they believe is discourages those activities, so they cannot claim not to understand basic economics.
The point is, people are so propagandised that they fail to apply this to taxation on wealth creation and strong family and subsidies for single motherhood
Lol at those unemployment rates. 5%, 7%
Half of venezuelans work by selling junk, clothes or groceries from improvised street stands. These used to be illegal.
http://img.yoyopress.com/uploads/buhoneros-630x300.jpg
Minimum salary is around 1 dollar a day.
Populists, whether left or right, always shit the bed when they are in charge. What do the people want? Money and stuff! When do they want it? RIGHT FUCKING NOW DAMMIT! So, you end up with "government policies focused highly on consumption and lowly on investment [that] will show good economic signs at the beginning."
And now we know why Democracies don't work...
Democracy is 3 Wolves and 2 sheep voting on what's for dinner.
What US do? Is even worst.
1. Economy based on debt.
2. Kicking the can down the road.
3. Nobody wants to take responsibility. Always blaming others.
All the graphs here at ZH? Already shown how all US parameters declining.
And yet? Nobody wants to address that. It's always fun to poked on other country problems.
Viewing from the outside? You're on a TITANIC sinking ship. And yet, you laugh at other sinking BOAT.
We, the one that view it from the outside? Have our jaw drop!! seeing you're not even try to find a life raft!!
What a stupid crock...
Ideologues are blind. Human hubris. EVERYONE claims to have THE "solution." A simple test for longevity is whether sustained growth is necessary- if it is then the eventual failure is certain.
You're spot-on on your critique here. The West/Capitalism has pilfered from the ROW and now no longer has enough market AND input to support the exponential growth that it requires*.
* See my first paragraph which indicates it's not a unique trait for the West/Capitalism to operate as such (read the Glubb paper I linked elsewhere here).
The US is declining but it is not worse than Venezuela.
Are you measuring in the amount of smoke currently billowing or the potential size of the detonation?
Lots of folks over the years here on ZH have advocated that hitting the bottom SOONER rather than LATER is the only way to get to resolution (get to "the other side") sooner. If going by that metric then, yes, the US IS worse.
I've stated repeatedly that anything, given a short enough time frame, can be seen as a success.
Also, sorry Misses, but ALL empires, regardless of ideology or leadership COLLAPSE:
http://www.newworldeconomics.com/archives/2014/092814_files/TheFateofEmp...
Yes, even Mises prognostications can be seen as successful, until... (perpetual growth on a finite planet, not only is it a BAD idea, it violates physics!)
The effects of a limited planet should manifest as scarcity of natural resources and associated high prices. Whatever crisis there is, is not caused by lack of natural resources.
Aye, as though we're actually operating in some such discovery model/process?
A "lack of natural resources," if you re-read what I wrote, has to do with it being of a sufficient enough quantity to push growth. But, yes, the greater weight is being given to the fact that demand is dropping like a hot potato due to over-saturation (which led to impossibly high debt levels). If you were to magically remove the constraints on demand it is most definitely certain that we'd encounter shortages of natural resources: I will still contend that the current demand destruction is heavily influenced by the knowledge that the time would come in which this wall would be hit- better to nip it in the bud now rather than see China and India continue to go full force?).
No one will get an objection out of me that Socialism isn't a viable model for the allocation/distribution of things. On the other hand, I will NOT take it on blind faith that Capitalism is viable either: especially since we've been operating under the premise of such and, well, here were are (the US hasn't plummeted because we have the greatest masterminds of the Big Con- and being able to control the world's trade currency isn't any small thing either [of course, this was part of the Big Con]).
I appreciate the engagement in a rational discussion here. (unlike the junkers who haven't a sufficient enough number of their own brain cells to engage with)
The inflation number is way, way off. Maduro said this week that the government estimate was 85% for this year. That is the the goverment's numbers - the same government that stopped releasing the inflation numbers last December.
The most conservative other estimate is 175%. Add to that that they are burning through reserves at a rate of $2 billion a month, and with no more Chinese or IMF loans coming, and only $2 billion or so currency reserves (the rest is in gold), they are in big big trouble.
I confess to taking a measure of satisfaction, given their bluster. But there is going to be a real humanitarian crisis there, and that I wish on nobody.
How The U.S. Government "Covers Up" 72% Inflation Before Your Very Eyeshttp://www.zerohedge.com/news/2015-10-23/how-us-government-covers-72-inf...
Wonder what the number will be by the time of obvious collapse?
c'mon, regardless of your views on populism and/or socialism, using a country that has been meddled with in every way for the last 20 years by the zionazis is a very poor example of what the article is trying to assert.
The attitude is quite similar to those that watch the regular TV programs about stupid crimes or stupid relationships, seeing how fucked up others are makes you feel better about yourself.
Sorry, but that old imperialist domination argument only carries so far. To get to the root of the problem you have to ask why it was so easy to dominate them in the first place. Ask that question down south and you'll get stone cold silence. Nobody want to admit that they're the authors of their own misfortune. Much easier to blame outsiders, a game played by both the left and right, although the left makes a virtual fetish of it.
Vestiges of colonialism, the Catholic Church and large indigenous populations have more to do with their plight than any interference by Uncle Sam and his pals. That shit's just icing on the cake.
Venezuela is next in line to dollarize, the fix is in. But they gotta do it voluntarily... (after a lot of pain & suffering that's self-inflicted).
Maybe things would have turned out differently if the U.S. hadn't murdered Chavez and done other criminal acts, known and unknown.