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Economic conditions continue to deteriorate in Venezuela. It will get worse.
(cross-post from my other blog, Outrun Change, on August 12.)
8/5 – Miami Herald – Hunger haunts Venezuela, especially its children – Severe hunger is widespread in the country, causing children to pass out in class, killing some with malnutrition, leaving others vulnerable to malaria and mange due to lack of medicine.
Article has best description of why collapse of oil price hit the country so hard. Domestic production of most products collapsed about three years ago due to the intentional policies of the government. That left the country importing about $500 million of stuff a month in order to feed, clothe, and medicate the population. When oil prices collapsed, the government didn’t have the currency to import more than a fraction of what was needed. So between the country barely being able to produce anything combined with the lack of ability to import anything, there obviously is massive, wide-spread suffering, courtesy of deliberate government policy.
7/12 – Wall Street Journal – Venezuelan President Puts Armed Forces in Charge of New Food Supply System – This will not turn out well.
The Defense Minister and the military will now be in charge of transportation and distribution of basic food supplies. They will also be in charge of, don’t laugh, increasing production.
Military officers already run the largest bank in the country, one television station and several companies who import most of the food.
The president also ordered nationalization (confiscation) of a Kimberly-Clark production plant because it couldn’t produce anything more because it ran out of raw materials. It is as if having the military run the production line will create raw materials out of thin air.
7/30 – CNBC – Venezuela calls for mandatory labor in farm sector – The government issued rules which allow it to force people to work on farms for up to 60 days. Reasoning is that forced labor on farms will increase production of foodstuffs and thus curtail the massive food shortages in the country.
No details on which workers will be moved into forced labor or how this will work.
Forced labor. On what will ultimately be collectivized farms.
This has been tried before. Never turns out well.
Oh, article only credits the fall in oil prices as the cause of all the suffering in the country. Nationalizing energy companies is only mentioned in the context of when the government revenue collapsed.
8/8 – Matt O’Brien at The Washington Post – Venezuela’s death spiral is getting worse –Columnist says the economic deterioration in Venezuela is now in a reinforcing loop and has turned into a death spiral. Yes, you read the source of the article right – this appeared in The Washington Post.
Article points out that the government was running deficits even when oil was at $110.
Cause of the collapse is identified as exclusively man-made. The steps in the collapse, as outlined by the author with my comments:
Inflation
To conserve cash the government controlled oil company stopped maintaining its equipment. We usually call this eating your seed corn. Guess what? Production has dropped.
Price controls
Businesses were told what prices they are allowed to sell items.
Shortages
Guess what always happens next? When a business sells an item for less than what it paid for it, the business will not sell anymore items. When there is a negative margin on an item there’s nothing for overhead or salaries for the worker’s salary for the owner. No business can survive that way after all its cash is used up. As result, businesses stop selling.
Nationalization
When businesses won’t produce, simply nationalize them. The government can figure out some way to find resources that are not available and print money to pay production costs. That won’t work well, because bureaucrats, military officers, and soldiers know less about running a business than the people who were running it before nationalization.
Article says things will get far worse. I agree.
8/8 – Against Crony Capitalism – Venezuela is stuck in a doom loop that’s become a death spiral – This article pointed me to the previous article.
A massive lesson from Venezuela that few people have learned, yet everyone ought to have known for a long time:
Deny the marketplace free prices and shortages and general economic dysfunction are the inevitable result. Deny prices completely and sooner or later one will have complete collapse.
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