What a busy few months in politics. I was preparing to write a column about President Obama’s State of the Union address, the loss of the Massachusetts senate seat held by Ted Kennedy for over 40 years to a conservative Republican and what will become of President Obama continuing to pursue the agenda that has him dropping in the polls like a rock. But then I read about Venezuela. You were probably tired of hearing about the State of the Union anyway right?
Earlier this month Hugo Chavez doubled the value of the Venezuelan currency, the bolivars, from 2.15 to the dollar from to 4.30 to the dollar. Doing so has in effect cut in half the money in the pockets of the citizens his policies are supposed to be helping.
In order to combat the problems this devaluation of the currency is causing, Chavez is threatening to fine or arrest anyone who adjusts their prices. So merchant’s options are somewhat limited, they can leave their prices at current levels, which will create shortages, or they can disobey and increase inflation, as well as face fines or arrest.
To make matters worse, less than a week later Venezuela was struck with nationwide power outages. The outages were a result of serious drought leaving water levels extremely low in a country that gets 70 percent of its electricity from a hydroelectric dam. Power in Caracas was restored after two days of chaos in a city with already high levels of crime, but the rest of the country continues to have power outages.
Venezuela has survived on its oil wealth since Chavez took power in 1999, running deficits when oil prices were well over $100 a barrel. When oil prices fell in late 2008, Venezuela took a hit, and this was on top of the million barrels less Venezuela produces today than it did ten years ago. This isn’t because Venezuela is running out of oil, but because Chavez has nationalized the oil industry in Venezuela, kicking out foreign and industry experts and replacing them with his own incompetent people.
It may seem silly to blame Venezuela’s many problems on Socialism, but I’ll go ahead and try to make a case for it anyway. The trouble with the devaluation of the bolivars can be tied directly to the mismanagement of the economy and the mismanagement of the oil industry. Were Capitalism allowed to work properly, the oil would be flowing at a much higher rate, and Venezuela would not have run a deficit during the oil boom of the last decade.
As for the rolling power outages, while Socialism can hardly be blamed for a drought, it can be blamed for the lack of diversity in Venezuela’s power system. If a power market existed, other interests could have competed with the hydro-electric market — thus diversifying the power system and putting less dependence on just one type of power. With a nationalized power industry it is mismanagement by the government that caused the shortage, not the drought.
Venezuela may very soon join so many other failed Socialist states in the dust bin of history in the near future. If nothing else, Socialism is running Venezuela into the ground. Sure, when Capitalism fails it creates some discomfort, Socialism is about to show us what a real collapse should look like.
