Sunday, December 6, 2015

Viva or Hasta La Vista, Venezuela?

Venezuela is holding National Assembly elections today. At stake are all of the 167 seats in its legislative body.

The big question is whether the people of Venezuela will reject the ruling United Socialist Party of Venezuela which has been in power for the last 17 years.

During that time Venezuela has become an economic basket case under the leadership of socialists Hugo Chavez and Nicolas Maduro.

Inflation is rampant. The most basic necessities are not available in stores. A country with the largest oil reserves in the world  (yes, it passed Saudi Arabia on that score in 2012) is running a government deficit of 14% of GDP proving once again that the problem with socialism is that you soon run out of spending other people's money.

Despite the large oil reserves, Venezuela is actually producing 25% less oil than it did when the socialists took power. Even worse, oil exports (critical for the hard currency to buy imported goods for its people) are only 50% of what they were in 1999.


Economic mismanagement. No protection of private property rights. Massive subsidies for oil locally to keep those Venezuelan voters happy. Therefore, there is less to export and sell.

The price of gasoline for locals? 1.5 cents per gallon. Of course, you can get to the grocery store very cheaply if you can afford a car but it is unlikely anything will be on the shelves when you get there.

Credit: Kyodo/Landv via
NPR detailed "The Nightmare of Grocery Shopping in Venezuela" in a recent article.
Empty shelves, like these at a supermarket in Caracas, are a common sight in Venezuela. People can shop only on designated days at government-run stores. They're limited in what they can buy and must undergo fingerprint scanning to prove their identity.
A friend of BeeLine recently emailed this first hand account of what has happened to the cattle and beef industry in Venezuela since the Socialists gained control of the country.

Capitalism Explained In 2015   "You Have 2 Cows"
When I was a kid, I used to proudly wear around a T-shirt explaining different economic systems using ‘two cows’ as a metaphor.
It started off like this:
Socialism: You have two cows. Give one to your neighbor.
Communism: You have two cows. The government takes both and gives you some milk.
Fascism: You have two cows. The government takes both and shoots you.
I started thinking about this last week when I was in Caracas, because it turns out that Venezuela is a real life example of the two cows metaphor.
It started back in 2001 when the then-President of Venezuela, Hugo Chavez, introduced a law that called for the redistribution of land.
According to their ‘Bolivarian socialism’ pipedream, it was immoral for any single person or company to own too much land. So the government started confiscating people’s private property.
And any property owner who resisted was imprisoned. It makes for the perfect entry on that T-shirt I used to wear:
Venezuela: You have two cows. The government steals your land and imprisons you.
Needless to say, the law had an enormous impact on the Venezuelan cattle industry.
Cattle obviously require a lot of land; and running a profitable cattle operation often means having thousands of acres or more.
So when the government started seizing people’s lands, beef production in Venezuela collapsed. Duh.
They went from being entirely self-sufficient in terms of beef production in 1998, to, within a few years, becoming the second largest beef importer in the world. 
Of course, now they have an even bigger problem.
Venezuela’s currency is in freefall, and foreign reserves are dwindling.
So not only has beef production collapsed, but now the country can no longer afford to import beef either.
Beef imports to Venezuela are down over 80% this year compared with 2014.
And what little beef does enter the country is subject to the government’s severe price controls.
This has caused massive shortages and empty grocery store shelves-- textbook consequences that any high school economics student could predict.
Prosperity isn’t achieved by government price controls, redistribution policies, and bureaucratic regulations.
It’s achieved through freedom. By giving people the opportunity to work hard and take risks. And letting the market determine prices and the allocation of resources.
That’s supposed to be what capitalism is. In fact, that was the last entry on the T-shirt:
Capitalism: You have two cows. Sell one and buy a bull.
Sadly this is no longer the case.

Let's hope the people of Venezuela can take their country back. It will not be easy no matter how the people voted.

If they can, Viva Venezuela!

If they can't, I am afraid it is Hasta la Vista Venezuela.

1 comment:

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