Best of the Week
Most Popular
1. US Housing Market House Prices Bull Market Trend Current State - Nadeem_Walayat
2.Gold and Silver End of Week Technical, CoT and Fundamental Status - Gary_Tanashian
3.Stock Market Dow Trend Forecast - April Update - Nadeem_Walayat
4.When Will the Stock Market’s Rally Stop? - Troy_Bombardia
5.Russia and China Intend to Drain the West of Its Gold - MoneyMetals
6.BAIDU (BIDU) - Top 10 Artificial Intelligence Stocks Investing To Profit from AI Mega-trend - Nadeem_Walayat
7.Stop Feeding the Chinese Empire - ‘Belt and Road’ Trojan Horse - Richard_Mills
8.Stock Market US China Trade War Panic! Trend Forecast May 2019 Update - Nadeem_Walayat
9.US China Trade Impasse Threatens US Lithium, Rare Earth Imports - Richard_Mills
10.How to Invest in AI Stocks to Profit from the Machine Intelligence Mega-trend - Nadeem_Walayat
Last 7 days
Silver Long-Term Trend Analysis - 18th June 19
IBM - Watson Deep Learning - AI Stocks Investing - Video - 18th June 19
Investors are Confident, Bullish and Buying Stocks, but… - 18th June 19
Gold and Silver Reversals – Impossible Not to Notice - 18th June 19
S&P 500 Stuck at 2,900, Still No Clear Direction - 17th June 19
Is Boris set to be the next Conservation leader? - 17th June 19
Clock’s Ticking on Your Chance to Profit from the Yield Curve Inversion - 17th June 19
Stock Market Rally Faltering? - 17th June 19
Johnson Vs Gove Tory Leadership Contest Grudge Match Betfair Betting - 17th June 19
Nasdaq Stock Index Prediction System Is Telling Us A Very Different Story - 17th June 19
King Dollar Rides Higher Creating Pressures On Foreign Economies - 17th June 19
Land Rover Discovery Sport Tailgate Not Working Problems Fix (70) - 17th June 19
Stock Market Outlook: is the S&P today just like 2007 or 2016? - 17th June 19
US China War - Thucydides Trap and gold - 16th June 19
Gold Stocks Bull Upleg Mounting - 16th June 19
Gold Price Seasonal Trend Analysis - Video - 16th June 19
Fethiye Market Fruit, Veg, Spices and Turkish Delight Tourist Shopping - 16th June 19
US Dollar Gold Trend Analysis - 15th June 19
Gold Stocks “Launch” is in Line With Fundamentals - 15th June 19
The Rise of Silver and Major Economic Decline - 15th June 19
Fire Insurance Claims: What Are the Things a Fire Claim Adjuster Does? - 15th June 19
How To Find A Trustworthy Casino? - 15th June 19
Boris Johnson Vs Michael Gove Tory Leadership Grudge Match - Video - 14th June 19
Gold and Silver, Precious Metals: T-Minus 3 Seconds To Liftoff! - 14th June 19
Silver Investing Trend Analysis - Video - 14th June 19
The American Dream Is Alive and Well - in China - 14th June 19
Keeping the Online Gaming Industry in Line - 14th June 19
How Acquisitions Affect Global Stocks - 14th June 19
Please Don’t Buy the Dip in Nvidia or Other Chip Stocks - 14th June 19
A Big Thing in Investor Education is Explainer Videos - 14th June 19
IRAN - The Next American War - 13th June 19
Boris Johnson Vs Michael Gove Tory Leadership Grudge Match Contest - 13th June 19
Top Best VPN Services You Can Choose For Your iPhone - 13th June 19
Tory Leadership Contest Betting Markets Forecast - Betfair - 13th June 19
US Stock Market Setting Up A Pennant Formation - 13th June 19
Which Stocks Will Lead The Cannabis Rebound? - 13th June 19
The Privatization of US Indo-Pacific Vision - Project 2049, Armitage, Budget Ploys and Taiwan Nexus - 12th June 19
Gold Price Breaks to the Upside - 12th June 19
Top Publicly Traded Casino Company Stocks for 2019 - 12th June 19
Silver Investing Trend Analysis - 12th June 19
Why Blue-Chip Dividend Stocks Aren’t as Safe as You Think - 12th June 19
Technical Analysis Shows Aug/Sept Stock Market Top Pattern Should Form - 12th June 19
FTSE 100: A Top European Index - 12th June 19
Gold Surprise! - 11th June 19
How Forex Indicators are Getting Even More Attention in the Market? - 11th June 19
Stock Market Storm Clouds on the Horizon - 11th June 19
Is Your Financial Security Based On A Double Aberration? - 11th June 19
What If Stocks Are Wrong About Interest Rate Cuts? - 11th June 19
US House Prices Yield Curve, Debt, QE4EVER! - 11th June 19
Natural Gas Moves Into Basing Zone - 11th June 19
U.S. Dollar Stall is Good for Commodities - 11th June 19
Fed Running Out of Time and Conventional Weapons - 11th June 19
Trade Wars Propelling Stock Markets to New Highs - 11th June 19
Best Travel Bags for Summer Holidays 2019, Back Sling packs, water proof, money belt, tactical - 11th June 19
Betting on Next British Prime Minister Tory Leadership Betfair Markets Forecast - 10th June 19
How Can Stock Market Go Up When We’re Headed Towards a Recession? - 10th June 19
If You Invest in Dividend Stocks, Do This to Double Your Returns - 10th June 19
Reasons for the Success of the Dating Market - 10th June 19
Gold Price Trend Analysis - Video - 10th June 19
US Stock Markets Rally Hard – Could Another Big Upside Leg Begin? - 10th June 19
Stock Market Huge Cosmic Cluster Ahead: Buckle Up! - 10th June 19
Stock Market Higher To Go? - 10th June 19
The Gold Price Golden Neckline… - 10th June 19
Gold Price Seasonal Trend Analysis - 9th June 19
The Fed Stops Pretending - 9th June 19
Fed Rate Cuts Soon; Bitcoin Enthusiasts Join Wall Street in Bashing Gold - 9th June 19
1990s vs. 2010s - Which Expansion Will be Better for Gold? - 9th June 19
Gold Price Trend Analysis, MACD, Trend Channels, Support / Resistance - 8th June 19
Gold Surges Near Breakout - 8th June 19
Could Gold Rally Above $3750 Before December 2019? - 8th June 19
5 Big Lies About Precious Metals Investing Exposed - 8th June 19

Market Oracle FREE Newsletter

Gold Price Trend Forecast Summer 2019

Inflation, Shortages, and Social Democracy in Venezuela

Economics / Inflation Nov 29, 2013 - 06:42 AM GMT

By: Matt_McCaffrey

Economics

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.

This article first appeared in the International Business Times.

Note: The views expressed in Daily Articles on Mises.org are not necessarily those of the Mises Institute.

Matt McCaffrey is a post-doc in Liberal and Integrative Studies at the University of Illinois, Springfield. He received his PhD in economics from the University of Angers. Send him mail.

See Matt McCaffrey’s article archives.

Carmen Dorobăț is a PhD candidate in economics at the University of Angers, and Instructor at the Bucharest Academy of Economic Studies. See Carmen Dorobat’s article archives.

© 2013 Copyright Matt McCaffrey All Rights Reserved Disclaimer: The above is a matter of opinion provided for general information purposes only and is not intended as investment advice. Information and analysis above are derived from sources and utilising methods believed to be reliable, but we cannot accept responsibility for any losses you may incur as a result of this analysis. Individuals should consult with their personal financial advisors.


© 2005-2019 http://www.MarketOracle.co.uk - The Market Oracle is a FREE Daily Financial Markets Analysis & Forecasting online publication.


Post Comment

Only logged in users are allowed to post comments. Register/ Log in

6 Critical Money Making Rules