One of these days we’re going to see some good news for the people of Venezuela, but that day is not today, my friends. On top of the rest of their woes, inflation has been rapidly growing as the nation implodes under the burdens of socialism. Last year we were seeing figures approaching 100%. Then it was in the multiple hundreds. By this spring the inflation rate was in the thousands. But now, according to the IMF, Nicolas Maduro’s inflation rate is threating to reach one million percent.
Is that even possible? That’s the question being asked by Matt O’brien at the Washington Post. The answer is… sort of. But it’s complicated.
And nobody knows how much worse this is going to get. That, at least, is what Johns Hopkins professor Steve Hanke, one of the world’s foremost experts on hyperinflation, told me. “You cannot forecast the course and duration of hyperinflations,” he said, and it’s “irresponsible” for the IMF to even try. That’s because hyperinflation is more a political phenomenon than an economic one, to the extent that it’s about governments choosing to continue to print money even after it has started to kill their currencies, so it can last a lot longer than you’d think.
Part of the problem is that this kind of self-destructive behavior by the government isn’t always self-destructive for the government. In fact, the opposite. Regimes that are going through hyperinflation, you see, will often try to deny that it’s happening by setting an official exchange rate that says it’s not, an exchange rate to which only party leaders and their corporate cronies have access.
So O’brien’s conclusion is that Venezuelan inflation isn’t really at one million percent, but if the government hangs on long enough without any dramatic changes in policy being made, it could reach that point. What are the limiting factors which might end the slide? If the hyperinflation is to be stopped it will require the people of the country to simply abandon the currency and “dollarize” combined with some sort of barter system or the government will run out of the ability to keep printing more money.
That second option involves a curious factoid I hadn’t been aware of. Venezuela doesn’t print their own money. They outsource that job to a foreign printer, and Maduro is quickly approaching the point where he won’t have sufficient real money to order more worthless bolivars. Running out of new currency won’t do anything to stabilize the economy but it would, in theory at least, stop the advance of hyperinflation.
The one point in the linked article where the author falls flat is his discussion of how things got so bad in Venezuela to begin with. He describes it as follows:
How has Venezuela gotten to this point, though, where we’re debating whether its inflation rate is about to reach either “only” five figures or seven? Well, the Chavista regime’s spending plans have been so extravagant, and its management of its state-owned oil company so inept, that it hasn’t had enough petrodollars to pay its bills even when oil was $100 a barrel — so it really doesn’t now that the shale revolution has sent crude prices down so much. Which is to say that it’s always had to print a little money, but now it has to print a lot. The result has been a downward spiral that has sent prices on an ever-faster upward trajectory, to the point that, going by black-market rates, Venezuela’s currency has lost 99.9997 percent of its value in the past 6½ years.
I’ll readily acknowledge that those two items were definite factors in Venezuela’s economic woes. O’brien blames “the Chavistas” rather than calling out Nicolas Maduro by name, but his administration is predominantly composed of former Hugo Chavez loyalists. They spend a lot of money and falling oil prices and “inept management” of the state-owned oil company has been bad. But that’s laughably far from the entire story.
Maduro’s government isn’t just “inept” in running the oil industry. It’s completely corrupt and people who have escaped the country tell horror stories of how the government blatantly robbed the petroleum profits. But they also destroyed the nation’s agricultural industry. Farms located on rich soil sit dormant because the government sets the prices they can charge for their produce, bankrupting most of the farmers. And in order to do any business to begin with there are always bribes to be paid. Any dissent or protest of these policies is met with violence by the government.
In short, what really destroyed Venezuela’s economy (and the lives of most citizens) was socialism. For some reason, we still have too many people in the media who seem unwilling to speak those words aloud. But these are the wages of socialism on display and this is how socialism always ends… eventually. It’s just happening so fast in Venezuela that you might miss it if you blink.