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Venezuela's Ongoing Economic Crisis

February 26, 2014
download (1)A few months ago, Carmen Dorobăţ and I wrote an article discussing Venezuela’s rapidly deteriorating economic situation. Since then, conditions in Venezuela have worsened, and in the last week political unrest has escalated quickly, with large protests of the Maduro government taking place in Caracas and elsewhere around the country. Maduro and his supporters have responded by violently cracking down on the protests and censoring media outlets covering the events. The protests do not appear to be guided by a specific ideological movement or set of political goals, but are instead a more general reaction to the country’s economic turmoil. As one protester explained, “I’m here because I’m tired of the crime, of the shortages, tired of having to stand on line to buy anything. I’m tired of the politicians of both sides.” In the last few years, Venezuela has become a classic and tragic case of Mises’ argument that systematic government intervention leads to socialism. The country has had a pseudo-socialist government for some time, but the logic of economic planning has gradually eroded what few economic freedoms there once were. In particular, the current system of price controls (which Maduro has expanded) has caused shortages of sugar, toilet paper, and many other essential goods. It is always easier and more tempting for government to increase control than relinquish it, and the increasing economic disorder resulting from the initial shortages has only resulted in more price controls, just as Mises predicted. Venezuela’s monetary policy has also played an important role in this process. Its rate of inflation has been rising rapidly, and is now 56% per year. Mises emphasized that price controls are governments’ natural response to inflationary price increases. When faced with the choice of stopping the printing press or expanding price controls, governments tend to choose the latter. As is often the case, bad monetary policy is driving the broader increase in socialist policies. Price controls and inflationary policy are both recipes for social disintegration, which is what the protests in Venezuela seem to be struggling against. It’s not clear to what extent Maduro’s government is actually threatened by these events, but we can only hope that the protests will help set Venezuela on the path to peace and economic and social freedom.

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