Watching Venezuela Implode

Keep in mind that you could probably decide on a dozen big government actions that exacerbated and then ruined their current situation.

Those two actions alone, printing money to fund massive government spending, and then imposing price controls to try to deal with the resulting inflation, were sufficient to cause the entire problem.

Other things may have accelerated the outcome, but they didn't change it. Once they went down this path, the result was inevitable. If they'd been otherwise perfect, this same outcome would have just taken longer.

Look back at the thread five years ago, and see who was predicting what.

Just wanted to say that I know *no one* except Goman who supported Chavez and Venezuelas path under him and his successor. And I'm in one of the most liberal areas of the country, I read editorials and letters to the editor and listen to people talk. It's going to be hard to convince me that that was a common left-wing position... From what I can see, it's about as popular as actual Communism.

Chairman_Mao wrote:

interesting examples to use as evidence of "constantly".

*shrug* They were the first few hits I got off of Google by searching for "nationalize x". There are a lot more, including at least two current Presidential candidates - Bernie Sanders and Donald Trump. You even see the same kind of rhetoric used to support the position. Do I need to go on?

Malor wrote:

Nationalizing isn't dangerous in the way that screwing with the money is, though. It's a *little* scary, and to be avoided, but inflation plus price caps? That's freaking doom.

Sorry, but I'm forced to disagree. An economy can survive hyperinflation, particularly if an alternative currency is available for use. Nationalization is far more insidious. It removes the incentive for people to start new businesses or grow their businesses, because they know that they could lose everything at any moment to the whims of the government.

Think about what the startup rate is like in Venezuela right now. Think about what expansion plans are like for the remaining businesses. Businesses that fail aren't replaced. Investing is essentially impossible. Because of this, the economy is unable to adapt to changing circumstances. The immediate effect isn't as noticeable, but long-term it's more destructive.

Robear wrote:

Just wanted to say that I know *no one* except Goman who supported Chavez and Venezuelas path under him and his successor.

New York U.S. Congressman Jose Serrano

Former U.S. President Jimmy Carter

Former Massachusetts Congressman Joe Kennedy

NPR

An open letter criticizing Bernie Sanders on his stance against Chavez

The Guardian in 2013

The Independent in 2013

truth-out.org in 2013

The New Yorker in 2013

DemocracyNow.org in 2013

Joseph Stiglitz in 2007

And that's just what I found in 20 minutes of googling.

I honestly wonder how much of what is happening in Venezuela has to do with Chavezism and how much has to do with the collapse of an undiversified economy. Consider the meltdowns of other petrostates. It certainly puts light to the effects such economic pressures have on just about any system. Oil ended Friday at $47.75 and most of the following economies are unsustainable anywhere under $80.

Saudi Arabia is busy exporting its discontent in the form of ISIS militants all over the world.
Iran is fighting a proxy war against Saudi fascists.
Russia is ruled by a smarter version of Donald Trump.
Yemen is in revolution.
Brazil is dismantling its government

And do we even need to mention Iraq and Libya?

No, I don't buy what you're selling Aetius. You've credited the work of obscure, often activist authors to major news organizations. You've posted obituaries as evidence of widespread support. And you really need to credit the authors - we've all heard of NPR, but Webster University or Dan Hellinger? Really? He's somehow a liberal thought leader?

My point stands. I'm not aware of a groundswell of support among Democrats or liberals in general for Venezuela's government or Chavez. It's just not there. In a country of what, 320 million, you can find support for *anything*, including flat-out Communism, anarcho-syndicalism, advocates for White Power racist secession states and everything in between, but that does not make their sentiments wide-spread or widely accepted, and the fact that you had to pad out your list with unknown commentators and far-left activist journos speaks to the weakness of your claim.

Funerary tributes by the far left do not a movement indicate.

Think about what the startup rate is like in Venezuela right now. Think about what expansion plans are like for the remaining businesses. Businesses that fail aren't replaced. Investing is essentially impossible. Because of this, the economy is unable to adapt to changing circumstances. The immediate effect isn't as noticeable, but long-term it's more destructive.

The threat of nationalization is probably low on the list of risks for entrepreneurs there. I'm sure it's ON the list, but 'can I sell things for enough money to buy replacement goods and turn a profit?' is absolutely at the top, the #1 concern. The little companies probably have almost nothing to fear from Maduro directly... they're too small for him to notice. It's the *big* companies that need to be scared of nationalization. But everyone, everyone has to deal with price controls.

Inflation, even very bad inflation, is usually survivable. Inflation plus price controls is death, because that destroys supply. Nobody can sell at a consistent loss for very long, so goods stop showing up, and people starve.

Aetius wrote:
Chairman_Mao wrote:

interesting examples to use as evidence of "constantly".

*shrug* They were the first few hits I got off of Google by searching for "nationalize x". There are a lot more, including at least two current Presidential candidates - Bernie Sanders and Donald Trump. You even see the same kind of rhetoric used to support the position. Do I need to go on?

Yes please.

I won't pretend to know this stuff as well as you or others here, and Robear elaborated nicely on my point, but it does seem to me that extremists like those in the article I've cited have supported nationalization for decades. It's nothing new and it's not likely to happen in this country anytime soon even if Trump is elected (unless he goes full Palpatine on Congress).

Chairman_Mao wrote:
Aetius wrote:
Chairman_Mao wrote:

interesting examples to use as evidence of "constantly".

*shrug* They were the first few hits I got off of Google by searching for "nationalize x". There are a lot more, including at least two current Presidential candidates - Bernie Sanders and Donald Trump. You even see the same kind of rhetoric used to support the position. Do I need to go on?

Yes please.

I won't pretend to know this stuff as well as you or others here, and Robear elaborated nicely on my point, but it does seem to me that extremists like those in the article I've cited have supported nationalization for decades. It's nothing new and it's not likely to happen in this country anytime soon even if Trump is elected (unless he goes full Palpatine on Congress).

That would make Paul Ryan Jar Jar Binks, right?

Paleoncon, the whole Venezuelan economy is down the drain. Not just oil. No cocoa export since ages, used to be a huge market and I am sure there are more examples like this. It's the dictatorship that's causing all of this and violence that is happening every day (also by the government).

And I see posts above that I really don't get anymore. Also find it hard to follow. Is it about Venezuela anymore? Seems more to derail the topic, whatever that seems to be about.

Sparhawk wrote:

Paleoncon, the whole Venezuelan economy is down the drain. Not just oil. No cocoa export since ages, used to be a huge market and I am sure there are more examples like this. It's the dictatorship that's causing all of this and violence that is happening every day (also by the government).

And I see posts above that I really don't get anymore. Also find it hard to follow. Is it about Venezuela anymore? Seems more to derail the topic, whatever that seems to be about.

I don't want to underplay the culpability of the dictatorship in Venezuela for their problems. I am certain that it plays a large part in it.

My point is that this may be a situation that has resulted from numerous inputs. It is undeniable, for instance, that a drop in the price of oil from over $100/barrel during the Bush Administration to a sustained price of just under $38 for the last 2 years has had a tremendous effect on the country's economy. Look at other countries whose economies are dominated by petrochemicals and the pattern is one of hyperinflation, social disruption, and even revolution. Nigeria's problems with Boko Haram, for instance, are severely underreported. As is the likely link between revolution and their economic downturn.

Ironically, it may very well be globalization and its partner hypercapitalism that is at least partially to blame for this. The combination extends the whole concept of "relative scarcity" to the point that it becomes nearly impossible for a developing country to properly diversify. If you are a developing petro state, 100% of your development is likely to be geared toward the energy sector. Global trade agreements will make it impossible to develop a manufacturing sector of your own as doing so would require domestic industrial protections that are outlawed by treaty obligation (why would your citizens buy shoddy local goods when superior Chinese or American goods could be had for a fraction of the price?).

Again, I am not at all exonerating the dictatorship whose role in this is likely substantial. I am, however, saying that there is probably ample blame to go around.

Just to counterpoint Paleocon's oilprice drop of doom point, before Chavez Venezuela was a fairly troubled, corrupt but nonetheless thriving country, with oil as low as $9 per barrel. We had industries, we produced our own food and exported the rest, we exported power to Brazil and Colombia. Yet after perceiving + $ 700 thousand millions the last 15-17 years we are up to our ears in debt, no infrastructure, no food, no power.

Feeank wrote:

Just to counterpoint Paleocon's oilprice drop of doom point, before Chavez Venezuela was a fairly troubled, corrupt but nonetheless thriving country, with oil as low as $9 per barrel. We had industries, we produced our own food and exported the rest, we exported power to Brazil and Colombia. Yet after perceiving + $ 700 thousand millions the last 15-17 years we are up to our ears in debt, no infrastructure, no food, no power.

That, to me, is a lot more interesting. And yes, I imagine, a dictatorship probably played a large role in the destruction of other industries.

f*ck with the money, and that's what happens. It's as inevitable as the sun setting. It's as inescapable as gravity.

The various exacerbating influences sped it up (and probably, in the case of the oil price, actively set off the crisis), but just the money printing and price controls would have done it. Those two things alone were sufficient to cause the entire problem.

This is what I said, five years ago:

The lesson from that, goman, is that if you f*ck with the money to steal wealth out of the economy, the economy gets poorer, and it continues to get poorer for a long time thereafter, due to destabilizing effects. The economy reorients itself to service the people who are being given the money.... people who have vouchers claiming that they've put wealth into the system, but who haven't actually contributed anything. Do enough of that, and the economy collapses.

Further, the economy becomes dependent on the money from nothing, and if the government STOPS printing, the immediate pain can be very dire. But if they DON'T stop, the underlying damage keeps accumulating, as the economy orients itself more and more to try to grab the cash from the money spigot, instead of producing real wealth.

And look where they are now.

That's about as exact a call as you get in economics.

Malor wrote:

f*ck with the money, and that's what happens. It's as inevitable as the sun setting. It's as inescapable as gravity.

The various exacerbating influences sped it up (and probably, in the case of the oil price, actively set off the crisis), but just the money printing and price controls would have done it. Those two things alone were sufficient to cause the entire problem.

This is what I said, five years ago:

The lesson from that, goman, is that if you f*ck with the money to steal wealth out of the economy, the economy gets poorer, and it continues to get poorer for a long time thereafter, due to destabilizing effects. The economy reorients itself to service the people who are being given the money.... people who have vouchers claiming that they've put wealth into the system, but who haven't actually contributed anything. Do enough of that, and the economy collapses.

Further, the economy becomes dependent on the money from nothing, and if the government STOPS printing, the immediate pain can be very dire. But if they DON'T stop, the underlying damage keeps accumulating, as the economy orients itself more and more to try to grab the cash from the money spigot, instead of producing real wealth.

And look where they are now.

That's about as exact a call as you get in economics.

Boom and bust cycles are just as inevitable in gold standard economies. In point of fact, they are often far more common and many times more severe.

Any system, when abused, can cause problems. It's not like one is perfect and the other utter trash. (However, it can be argued that in this case one is *better*, given the experiences of the 20th century compared to the 19th.)

Boom and bust cycles are just as inevitable in gold standard economies

You always get expansions and recessions, but those are normal. They're healthy. Recessions are how economies readjust to new circumstances, and our government's refusal to allow them is accumating catastrophic damage in the US economy. (why do you think everyone is getting poorer, and why the states never have any money to get anything done? The economy is rotting, because it's not being allowed to see the signals about what's working and what isn't.)

The major wipeouts, at least historically, have usually come from f*cking with the money, like in the late teens and 20s. This can definitely still happen in a gold standard economy; they can still print more money than they have gold, and cause artificial booms, which results in artificial contraction later. Gold standards are only as good as the entity adhering to the standard. And it's not even gold that's the important bit there, it's just ... a method by which money is constrained to the physical reality of the economy in some way. Hell, a lead standard would probably work too... although lead is consumed, so that might not be an ideal choice.

It's still imperfect. It's a leaky abstraction. But it's *less* imperfect.

Printing money to pay for government services, and then using price controls to try to deal with the resulting inflation, always results in hideous consequences. Consider: we've seen two attempts at doing this in the last ten years, Zimbabwe and Venezuela. Both economies self-destructed.

Meanwhile, all the other problems that manifested there (like bad governance, or commodity price crashes) have happened in other countries around the world, none of which imploded in nearly the same way. Russia, Iran, and Saudi Arabia are all terribly hurt by the low oil prices, but they're not disintegrating, they're just hurting.

We're at 2/2 on money printing. Maybe you should take that under advisement?

The worst country other than Venezuela and Zimbabwe is probably Greece, which is not doing well, and that kind of relates to a similar problem; that also comes down to excessive government debt accumulation. They came up with a different sneaky and semi-invisible way of running up huge debt. The consequences, while dire, haven't been quite as bad. Greece would be getting better now if they'd declared bankruptcy and started from scratch. Their choice to keep trying to service an unserviceable debt is not a good one.

Maybe they can pull it out, it's not guaranteed disaster in the same way, but I doubt it.

But printing money to fund spending, and price controls? Death. Every time. I don't think that has ever worked. The "banana republics" tried that.... and there's a reason the phrase is pejorative.

Malor wrote:

(why do you think everyone is getting poorer, and why the states never have any money to get anything done? The economy is rotting, because it's not being allowed to see the signals about what's working and what isn't.)

The near-collapse of unions, steeply rising health care and college costs that have far outstripped inflation and significantly reduced the amount of money available for other activities, and effective tax cuts contributing to record wealth inequality levels?

Printing money to pay for government services, and then using price controls to try to deal with the resulting inflation, always results in hideous consequences. Consider: we've seen two attempts at doing this in the last ten years, Zimbabwe and Venezuela. Both economies self-destructed.

Meanwhile, all the other problems that manifested there (like bad governance, or commodity price crashes) have happened in other countries around the world, none of which imploded in nearly the same way. Russia, Iran, and Saudi Arabia are all terribly hurt by the low oil prices, but they're not disintegrating, they're just hurting.

We're at 2/2 on money printing. Maybe you should take that under advisement?

As you stated, we are at 2/2 on money printing while implementing price controls in a weird and obviously doomed-to-fail way to cap inflation while increasing inflation.

We're at something like 2/200 for managing a fiat money supply.

Somewhat similar economy, not exactly a dictatorship? But maybe, different current results.

Angola to export bananas

Trying to lump Venezuela into A + B = C therefore this proves this type of economic philosophy is the type of simplicity that gives economics a bad name.

Well, guys, for the rest of your lives, things will get worse in the United States. Year, after year, after year, things will be just a little bit worse. We'll have mini-booms, the benefits of which mostly go to Wall Street, and major busts, where everyone hurts.

This will just keep happening. If any of you have older kids, watch how incredibly difficult it is for them to get their lives started.... unless they happen to be in the elite few that Wall Street or the software companies want.

This is because the wealth of the country is being bled away, transferred to Wall Street via the magic of fiat currency. You are being bled to death. Every year they take another percent or so. Do that enough times, and you're in serious trouble.

Economies are supposed to grow. Our growth is all on paper, and that paper mostly doesn't come to us.

We are doing the same things that Venezuela did, just not as much. Yet. We cover it up through a couple of layers of indirection, but we're still doing it; the government is spending loads of money it doesn't have, and the Federal Reserve is holding its borrowing costs to near zero by supplying however many phantom dollars from nothing that requires. Once you're on that path, you can't get off without dire pain, and dire pain is never politically acceptable.

And before you poohpooh this, you might consider just how accurate the call was on Venezuela, five years ago.

Can you really look at the United States, with its absolutely GIGANTIC budget deficits, and say we're not doing the same thing, dressed up a little differently?

Malor wrote:

And before you poohpooh this, you might consider just how accurate the call was on Venezuela, five years ago.

Can you really look at the United States, with its absolutely GIGANTIC budget deficits, and say we're not doing the same thing, dressed up a little differently?

Well, yes. First, many of us were predicting Venezuela's downfall at the same time, but disagreed with your doctrine on the causes (ie, I and others agree with studies that show that no country courts hyperinflation without a number of debilitating causes, and therefore fiat currencies are manipulated in these situations, rather than being the sole cause.

Secondly, there are hundreds of counter-examples to your claim, since most countries handle their currency in ways very similar to the US, and have not run into hyperinflation even during severe depressions. That's evidence against your claim that budget deficits and fiat money are causing these issues by themselves.

By claiming Venezuela as your evidence, you're falling prey to the Texas Sharpshooter fallacy. You can undo that by having your theory account for the hundreds of much more stable governments currently using fiat currency.

The corruption of Wall Street, viewed another way, shows how much damage a fiat economy can take and still continue functioning. If you use that as your example, you're inadvertently arguing that fiat money can survive things like large economic inequity and institutional corruption via deregulation, something that a commodity-based economy would fall apart under as scarcity kicked in.

Thanks to fiat money, we didn't go through a total collapse in 2007, and we still have time to fix things. (Whether we will or not is a different discussion.) Your examples (Venezuela and Zimbabwe) show that it's monetary policy that is most important, rather than fiat money. (Likewise, in a commodity standard, scarcity becomes the major trigger, with monetary policy extremely limited.)

Fiat monies were designed to avoid the problems of commodity monies, and reverting to that system will not fix the problems we see today. It will increase volatility in the economy, and decrease growth massively. That's *why* we went to fiat currency. It's not perfect, but it's better than commodity-based standards as they are usually discussed.

I have a question, that isn't completely related to Venezuela. In 2008, Iceland put hard clamps down on their money. They devalued their currency, nationalized banks, and froze assets. After several years of pain, they are finally starting to open everything up again. My question is, what would have happened in Venezuela if they had used the "extra money" they got when they devalued their currency to pay down debt (both personal and public) and increase infrastructure similar to what Iceland did? Or am I completely misreading the situation in both countries?

Malor, are there any countries on a commodity standard right now? If yes, are those countries doing super well? It seems like if fiat money is a huge penalty, and with the vast majority of countries on fiat money the handful that aren't should be cleaning up like gangbusters right now.

You keep saying that EVERY country is going to fail, and then when any particular country fails you say that that's proof you are right, but the fact remains that thus far your predictions have something like a 98% failure rate.

Every country will fail*.

Though I'd argue that failures of nation-states occur for a variety of complex reasons, as evidenced by the fact that they happened on a regular basis well before the introduction of fiat currency.

* Eventually

We all know that Malor is fixated on his single explanation. Great. Can we get back to Venezuela?

+1 for just to move on.

Hey, I said my piece.

One of the places folks my age have been talking about retiring is Ecuador. Apparently, the combination of a climate and a functioning health care system and the cost of living is pretty good for old folks who will never have the kind of capital necessary to retire in the United States. A couple of my coworkers have bandied this idea around a bit.

The concern I have is whether the proximity to Colombia and Venezuela with their own issues is likely to have a destabilizing effect on Ecuador? Are the problems they are encountering regional problems?

Paleocon wrote:

One of the places folks my age have been talking about retiring is Ecuador. Apparently, the combination of a climate and a functioning health care system and the cost of living is pretty good for old folks who will never have the kind of capital necessary to retire in the United States. A couple of my coworkers have bandied this idea around a bit.

The concern I have is whether the proximity to Colombia and Venezuela with their own issues is likely to have a destabilizing effect on Ecuador? Are the problems they are encountering regional problems?

Colombia is way safer than people have a perception of.

The whole drug war, cartels, narcos, paramilitary etc perception of violence is way overblown compared to the reality. Last I checked you were in way more danger statistically in Brazil than Colombia.

As for proximity of Ecuador to Venezuela. Its like China being proximate to India as in they might look close on a map but they are not by the actual terrain.

WASHINGTON — Latin American and Caribbean diplomats revealed their reluctance to take punitive measures against one of their own and declined Wednesday to support the head of the Organization of American States in his faceoff with the Venezuelan government.

OAS had an emergency meeting today, with the ultimate result that Venezuela's government just gets to keep doing what they're doing.

I read that as "We don't want to set a precedent that this organization can force a regime change in a member nation." Which is sad for Venezuelans but makes sense from a diplomatic point of view.