Venezuela has been in the news recently. I’m not going to go into the political aspects, but I am interested in the demented economic policies of Chavez, and his successor Nicolás Maduro. I wrote about this in a post just over three years ago:
Chávez, unlike the vast majority of economists, believes in price controls. They sound wonderful but as economist Thomas Sowell always says about a particular policy, you have to ask a very simple question: And then what? Unfortunately history shows that they do not work. The Roman emperor Diocletian introduced price controls, which resulted in a decline in supply, which combined with the increased demand led to massive shortages. These shortages led the emperor to denounce the hoarding of food. This is exactly the kind of demagoguery which Chávez also likes to engage in; political leaders can always find someone else to blame for the bad consequences of their own policies.
Venezuela is said to have the highest inflation rate in the world I have heard the figure of 305%. When you get very high inflation shops do indeed try to hoard because there is more valuable than holding cash. Price controls and inflation are a deadly combination, leading to massive shortages. Figures released by the Central Bank of Venezuela show that low production, price controls, and restricted sale of foreign currency have hit supply. Shortage soared 5.8%, from 22.2% in December to 28% in January, the highest level ever recorded
Now, I would like to claim a special insight in being able to foresee the economic problems that would beset the South American economy. But any student of first-year Economics would have been able to write that post. Well, when I say any I am not being strictly accurate. That darling of many Guardianistas Seumas Milne might not agree. Educated at the elite Winchester private school and Baliol College, Oxford, where he read Philosophy, Politics and Economics, Milne has been a cheerleader for the economic policies of Chavez and Maduro for many years. I went to a state school and then Hull University, but I seem to have a better grasp of economics. But then again as that other public-school educated boy George Orwell said:
There are some ideas so wrong that only a very intelligent person could believe in them.