How Venezuela Came to Be

Now that Venezuela is completely ruined, Steve Kates rightly wonders why there has been no explanation as to how it all came about.

I add that the complete lack of insight is most glaring in respect of socialist and communist cheer squad members such as John Pilger and Lee Rhianon, who collectively wrote this guff back in 2008:

“Dear President Chavez, “We, the undersigned citizens of Australia, would like to extend a warm invitation for you to visit our country. We have watched developments in Venezuela with great interest. We have been impressed by the effort your government has taken to improve the living standards of the majority of Venezuelans. [TMR: In 2008, Venezuela’s GDP per capita was at the same level as it was in 1970 and significantly less than it was in the late 1970s – think about that] “We have also noted the moves that your government has begun to make to create a society based on popular participation in all spheres of society — from the workplace up to the national government.”

“Every country has its own traditions and culture and has to find its own solutions, but what Venezuela has been able to achieve in so little time will be a source of inspiration and ideas for many in Australia”.

Regular TMR readers may remember my article ‘Venezuela has Completely Run Out of Other Peoples’ Money‘ which goes some way to explaining how the mess came about – and why it should matter to Australia, where 50% of people pay no net tax.

It’s a harrowing account of how a perfectly functional country became tired of living within its means and allowed envy, socialism and, eventually, totalitarianism and starvation to take root. I thought that this had already made it to the Cat when I wrote it in September last year. Turns out it didn’t – so I have reproduced it below.

The corollary to the story comes in the form of another article I wrote which I will also put up later in the week. But for now, if you haven’t read it already, here’s the story of how Venezuela completely ran out of other peoples’ money:

Venezuela Has Completely Run Out of Other Peoples’ Money

For those who haven’t been following the dire situation in Venezuela, it serves as a timely reminder of what happens when extreme socialism takes over. This is the sad story of how Venezuela came to be and why it matters for Australia and every other developed nation in the world.

General background

Venezuela has had an up and down economic history to say the least – with its fortunes largely hinging on the price of oil to the tune of about 50% of its GDP:

venezuela_historic_inflation_vs-_oil_revenue-1

To help fill in some more data, here’s a chart showing Venezuela’s inflation rate going back to the 1960s:

untitled

(NB: Venezuela’s inflation rate is currently around 773%).

Unsurprisingly, Venezuela’s GDP per capita (adjusted for inflation) has been similarly erratic over the years:

untitled2

There are some interesting things to note from the above graphs:

  • Venezuela’s GDP per capita suddenly tanked between 2000 and 2003. What happened?
  • During the 2005-2014 oil boom, Venezuela’s inflation rate was significantly higher than during the previous boom of the 1970s.
  • During the tail end of the latest oil boom (2013 and 2014), Venezuela’s inflation rate soared over 50% and approached 75%. How could inflation be so ridiculously high during the good times? And what would it be when the next trough came along? (NB: at present, the best guess is about 1,600%).
  • From 2000-2014, Venezuela’s GDP per capita never reflected the unprecedented amount of oil money that was flowing into its economy. In fact, GDP per capita was only occasionally at the levels Venezuela experienced shortly before the 1973 oil boom (induced by the Arab oil embargo) – and considerably worse for large periods of time during the early 2000s. Where did all the money go?
  • During the last global oil correction/crash, Venezuela’s inflation rate hit a peak of around 100%. During the current downturn, the rate has so far reached 773% (with plenty more to come) – to the point where Venezuela is fighting South Sudan for the title of worst inflation rate in the world… and winning.

In other words, there was clearly something making (what appeared to be) a great situation an ordinary one between 2000 and 2013 – and a difficult situation a complete catastrophe from 2013/14 on.

Send in the clowns

In 1998, world oil prices had been depressed for some time (relative to the artificially created highs experienced during the 1970s and early 1980s) and were sitting at a 25 year low: 

world-oil-prices-1970-2008

Venezuelans had been living within their means for the better part of the last 15 or so years, which was something fewer and fewer were willing to do. This was despite the fact that 50% of the country’s GDP came from oil and that global oil prices were low. Hugo Chavez fed on this sentiment and persuaded enough people that his brand of socialism would solve their problems. He was subsequently elected to power in December 1998.

Among countless other insane policies, Chavez’s methods included putting workers in charge of their own ‘co-operatives’ and having citizens’ assemblies dictating how local governments spent government funds:

Since Chávez was elected in 1998, over 100,000 worker-owned cooperatives—representing approximately 1.5 million people—were formed with the assistance of government start-up credit, technical training, and by giving preferential treatment to cooperatives in state purchases of goods and equipment… As of 2005, approximately 16% of Venezuela’s formally employed citizens were employed in a cooperative. However, a 2006 census showed that as many as 50% of the cooperatives were either functioning improperly, or were fraudulently created to gain access to public funds.

Additionally, several thousand “Communal Councils” (Consejos Communales) were created. In these Communal councils, citizens form assemblies to determine what will be done with government funds in their local area. Groups are made up of 150-200 or more families in urban areas, and starting at around 15-20 families in rural areas, and their decisions are binding to local government officials. 21,000 of these groups were created in 2007, and 30,179 by 2009. As of 2007, about 30% of state funds were directly controlled by communal councils, with a goal of eventually having them control 50%.

The lunatics were now officially in charge of the asylum.

Chavez also thought it would be great to take properties away from companies ‘Zimbabwe style’:

The housing market in Venezuela shrunk significantly with developers avoiding Venezuela due to the massive number of companies who have had their property expropriated by the government.

He also foolishly tried to ‘beat the market’ and play voodoo with the world oil price – despite what happened to Venezuela’s economy after the last time this was done in 1973:

Chavez also played a leading role within OPEC to reinvigorate that organisation and obtain members’ adherence to lower production quotas designed to drive up the oil price. Venezuelan oil minister Alí Rodríguez Araque‘s announcement in 1999 that his country would respect OPEC production quotas marked “a historic turnaround from the nation’s traditional pro-US oil policy.”

As the world oil price launched into the exosphere and Venezuela’s oil revenue went with it, extreme leftists around the world were hailing Chavez as a genius.

Send in some more clowns!

By 2008, members of Australia’s very own left intelligentsia were falling over themselves to declare Chavez and Venezuela as the new black:

“Dear President Chavez, “We, the undersigned citizens of Australia, would like to extend a warm invitation for you to visit our country. We have watched developments in Venezuela with great interest. We have been impressed by the effort your government has taken to improve the living standards of the majority of Venezuelans. [TMR: In 2008, Venezuela’s GDP per capita was at the same level as it was in 1970 and significantly less than it was in the late 1970s – think about that] “We have also noted the moves that your government has begun to make to create a society based on popular participation in all spheres of society — from the workplace up to the national government.”

The letter was signed by various leftist academics, union leaders, Greens and activists, including Phillip Adams, former CFMEU boss Andrew Ferguson, Lee Rhiannon and John Pilger. Thank God nobody sensible ever listens to them. In any case, rather than take up their invitation, Chavez preferred to die. But his economic policies live on under the spud-featured socialist’s successor Nicolas Maduro, who recently announced that electricity would be cut by four hours per day across much of his blighted nation.

There was also this:

In 2008 a collective of our snowfield socialists – including the ABC’s Phillip Adams, propagandist John Pilger, the Greens’ Kerry Nettle and Kevin Rudd’s nephew Van Thanh Rudd – begged Venezuelan strongman Hugo Chavez to come teach Australians a lesson:

“Every country has its own traditions and culture and has to find its own solutions, but what Venezuela has been able to achieve in so little time will be a source of inspiration and ideas for many in Australia”.

Those not suffering from chronic idiocy simply shook their heads.

It is not possible to manipulate and beat a global market and what goes up, must come down. More to the point, economically speaking: what goes up artificially often comes down much harder than it otherwise would have if there wasn’t any funny stuff to begin with.

It was only a matter of time before history repeated itself for Venezuela. Only this time, the outcome would be amplified as Venezuela had Chavez’s socialism on its side.

End game

By the time of Chavez’s death in 2013, the chickens (not real ones that Venezuelans could eat) were well and truly coming home:

In 2013, according to the Global Misery Index Venezuela ranked as the top spot globally with the highest misery index score. The International Finance Corporation ranked Venezuela one of the lowest countries for doing business ranking it 180 of 185 countries for its Doing Business 2013 report with protecting investors and taxes being its worst rankings. In early 2013, the bolívar fuerte was devalued due to growing shortages in Venezuela. The shortages included necessities such as toilet paper, milk, and flour.

It is interesting to note how this level of misery was achieved in 2013 – while Venezuela’s oil revenue was still at unprecedented levels.

Now, in September 2016, the end game is well and truly taking shape:

A new study finds Venezuela on the brink of famine, with an alarming fifteen percent of citizens saying they can only feed themselves with “food waste discarded by commercial establishments,” while nearly half say they have had to take time off work to search for food.

The More Consulting study found that three out of every four Venezuelans (72 percent) was unable to feed themselves an optimal diet of breakfast, lunch, and dinner. 24.2 percent say they rarely eat protein, living off of local tubers like yuca and malanga and some fruit. More than half of Venezuelans (52.3 percent) buy their foods through the black market, from private individuals who have stocked a surplus of an item they need.

53.9 percent of Venezuelan respondents said they had gone to bed hungry, 48 percent say they have been forced to take time off work to scrounge for food.

Sounds highly productive doesn’t it? As for President Maduro’s response:

Inflation has reached 700% as the country continues its recession, and basic food and medicine are in severely short supply. Many Venezuelans spend their days queueing for hours at supermarkets, but often go home empty-handed.

The crippling economic situation handed MUD an overwhelming victory in December’s [2015] parliamentary elections, giving many Venezuelans hope for change. But Maduro’s ruling socialist government has blocked any attempt by the opposition to legislate effectively, leaning on the supreme court to veto every major measure passed in the assembly.

And then there’s this:

During a broadcast this weekend promoting new socialist food distribution policies, Venezuelan president Nicolás Maduro jokingly referenced a popular nickname for the nation’s dire food shortages, telling a crowd, “Maduro’s diet gets you hard – no need for Viagra!”

Venezuelans have increasingly referred to the nation’s nutritional emergency, in which nearly 90 percent of residents do not have access to three meals a day, as “Maduro’s diet.”

Sadly, escalating violence and entrenched poverty are all that is left for Venezuela until it completely reforms its political and economic system:

Venezuela is the socialist nightmare of our time. It is kept out of the media in the same way that the famines in the Ukraine were kept out of The New York Times in the 1930s. The socialists who mis-report the news do not wish to see their dreams exposed no more than they would like to live in the countries they hide the details about.

Here’s the latest episode: SCENES FROM THE VENEZUELA APOCALYPSE: “COUNTLESS WOUNDED” AFTER 5,000 LOOT SUPERMARKET LOOKING FOR FOOD.

Capitalism works. Nothing else does. This is the lesson from Venezuela that none of the fools who follow Bernie Sanders or the Greens ever seem to understand.

The only question left is how many lives will be needlessly impoverished and lost in the process?

Venezuela has shown yet again what happens when you take too much money out of the hands of those who earn and give it to those who could and should contribute, but do not. With around half of Australians currently paying no net tax, Venezuela’s story is something we cannot afford to arrogantly dismiss.


Footnote

Getting recent and reliable data on Venezuela’s economy is a treacherous task. For example, it would have been interesting to analyse Venezuela’s current and historical debt levels, rather than simply saying that debt to GDP was somewhere around 50% in 2014.

But… you know…

Venezuela’s economic distress is so acute that the central bank stopped releasing regular statistics for the first time ever, threatening to increase borrowing costs further as the nation faces $10 billion of financing needs.

The central bank’s decision to hold back a preliminary report on economic growth, public spending and foreign-currency distribution scheduled for Dec. 31 [2013] was the first of its kind since it began publishing the data in the 1990s. The bank, which also stopped reporting annual inflation in November, issued a report on monthly price changes that blamed an “economic war” for rising costs as a shortage of dollars leads to empty shelves in supermarkets across the country.

 

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26 Responses to How Venezuela Came to Be

  1. Rossini

    It is not possible to manipulate and beat a global market and what goes up, must come down. More to the point, economically speaking: what goes up artificially often comes down much harder than it otherwise would have if there wasn’t any funny stuff to begin with.

    Sydney/Melbourne house prices……when foreign buyers are forced out!!!!!!!!

  2. H B Bear

    Doris Bagshawe, Phatty Adams and the Pilge will be right next time. Just wait and see.

  3. Ooh Honey Honey

    Yeah and also, did I miss the reaction to Turnbull saying “It’s not right that Australians don’t have enough natural gas, so make them have natural gas!” to the companies selling natural gas to the Japanese. I mean how Chavez was that?? Like “Arrest the people queuing for bread!”
    It was the Chavezest.

  4. cui bono

    Getting rid of the tax free threshold would be a good start. Everyone needs to learn that the ‘free stuff’ comes from somewhere.
    To think we used to laugh at the ‘cargo cult’ in New Guinea……

  5. Dr Fred Lenin

    I have always said , communism and socialism die without other peoples money .look at fauxfacs their own propaganda organ. Dying from lack of readers ,even though they spout the party line you will never get them to spend their own money their support for film flannerys clinate scam after abbott defunded them , it was dead within one year through lack of funds . Interesting thing lots of caring progressives in Paris and New York they were put on a spot regarding taking a ” poor refugee” into their own homes and using their own money to keep them . Not one of the miserable hypocrites offerd help in any shape or form ,making feeble excuses . I bet those fellow travelers adams.pilger brown (. Rhiannon ha ha ) would not lift a hand or give a dollar the keft are the scum of society vermin a waste of oxygen .

  6. john constantine

    If only Venezuela could copy the Australian policy of beating the economic cycle by mass importation of unskilled house renters from the third world, and borrowing money to service these client herds with brand new government Departments of Caring and Helping.

    Looks like Venezuela will just have to go back to the foundation socialist policy of ‘on the spot’ death penalties for unsound behaviour like hoarding food and doing disrespect of the system.

  7. JC

    Excellent post Marcus.

    The WSJ has a piece in it today which talks about people going hungry and kids taken to hospital malnourished.

    https://www.wsj.com/articles/venezuela-is-starving-1493995317

    Look at the pic of the child. It’s heartbreaking and that disgusting excuse of a human being, Senator Rhiannon supports this. We ought to send the disgusting swine to live there.

  8. JC

    @leerhiannon Rhiannon, u deplorable sack of shit. Venezuelans are literally starving and u supported this. https://tinyurl.com/nxe9wmr #auspol

  9. Fisky

    I can’t believe the Left still have the right to free speech after this disaster. They should not be allowed to spread their poison, ever.

  10. cynical1

    Evil Americans interfering.

    Because oil.

    Usual stuff from the Pilger and co ratbags.

  11. JC

    I can’t believe the Left still have the right to free speech after this disaster. They should not be allowed to spread their poison, ever.

    Incredible isn’t it that someone like Rhiannon isn’t looking at jail time for literally supporting mass starvation. The idea this evil piece of shit is in the senate is a travesty of the modern age.

  12. JC

    Fisk

    Put up the last of names again who supported this starvation. It would be good to see their names up here. Lord I wish voodoo dolls and pins worked.

  13. Squirrel

    Nothing like that could ever happen here because we are far too wise to become reliant on the export of a handful of commodity products to a handful of buyers (who could never, ever have an economic bust or downturn, or find alternatives for what they buy from us) as the basis for paying our way in the world.

  14. jupes

    This is rubbish marcus.

    We all know that Trump is to blame.

  15. David Brewer

    The “human river” of Venezuelans on the Simon Bolivar bridge to Colombia to buy food and medicine.

    Somehow or other they managed to do a survey last August, which found that 57 per cent of Venezuelans wanted to leave the country including 69 per cent of young people.

    No sanitary napkins for 5 months because the Maduro government refused an import licence for the raw materials.

    80% of bakeries in Tachira state have no flour to make bread.

  16. Tel

    Put up the last of names again who supported this starvation. It would be good to see their names up here. Lord I wish voodoo dolls and pins worked.

    There’s was a short list on Breitbart:

    http://www.breitbart.com/national-security/2017/05/04/ten-influential-public-figures-praised-venezuelas-descent-socialist-hell/

    Noam Chomsky
    Sean Penn
    Oliver Stone
    Jesse Jackson
    Michael Moore
    Jeremy Corbyn
    Diego Maradona
    Naomi Campbell
    Joseph Stiglitz
    Danny Glover

    Follow the above link for full details, bits of video, etc.

  17. Tel

    Bob Murphy stumbled across an interesting quote on Bernie Sanders official website (Friday, August 5, 2011) :

    These days, the American dream is more apt to be realized in South America, in places such as Ecuador, Venezuela and Argentina, where incomes are actually more equal today than they are in the land of Horatio Alger. Who’s the banana republic now?

    https://www.sanders.senate.gov/newsroom/must-read/close-the-gaps-disparities-that-threaten-america

    A little awkward but I doubt he ever gets called on it by his supporters.

  18. JC

    Thanks Tel

    I sent this letter to the Stig at his Culumbia University email address. Let see what comes back

    Dear Professor Stigliz.

    I read with interest recently that you have praised the government of Venezuela and their economic actions. Since reading that, I have been wondering if you were still as praiseworthy , particularly after a recent news report in the Wall Street Journal discussing and showing pictures of emaciated babies lacking food and the ravaging hunger there for lack of even basic food.

    Also I was wondering, seeing you’d be a comparatively rich person, whether you’ve sent any donations to charities that are helping in that hunger ravaged nation.

    Any regrets, Professor?

    Kind regards

  19. Ray

    There is a widely held misconception that exports drive economic growth. This is not so.

    What exports provide is foreign currency which can be used to purchase imports which then contribute to domestic consumption. Imports also allow local producers to concentrate upon output in segments where we have a comparative advantage and hence assist in driving industrial efficiency.

    Unfortunately, it is too easy to succumb to the fallacy of export led economic growth and Venezuela is a prime example. When a country’s terms of trade are significantly positive, there is a strong incentive to convert those surplus foreign earnings into local currency. Under a floating exchange rate mechanism which applies in Australia, a huge inflow of foreign money would simply result in an appreciation. Yet in a fixed exchange rate mechanism which applies in Venezuela, the currency cannot adjust such that the central bank must intervene to buy all the foreign currency inflows, thus injecting a significant amount of extra money into the local economy. The increased volume of money chasing an unchanged volume of goods and services in the local economy will simply add to price pressures and that is why inflation in Venezuela has been so high.

    Of course, the Venezuelan government has done its best to deliver the worst possible outcome by pursuing significant devaluations of the currency. In 2010 the currency was devalued from 2.15 to 4.3 Bolivar to the USD, then in 2013 a further devaluation was engineered to 6.3 and last year yet another devaluation took the Bolivar down to 10.0 to the USD. Which means, of course, another 465% in inflation just from the devaluation.

    There are three ways a country can handle a resources boom such as experienced by Venezuela. First, use the bonanza earned from oil exports to purchase imports, either consumption goods or capital goods. The former would raise consumption and hence the standard of living immediately, the latter would increase long term economic growth and hence the standard of living over a longer time frame. Second, place the surplus oil income into a sovereign wealth fund and invest that money offshore to be drawn down in the future when oil revenues begin to fall. In both cases, surplus oil revenues do not hit the domestic market and so do not result in inflation. Naturally, like most resource rich countries, Venezuela chose neither of these approaches. As a result, they merely imported inflation.

    Ultimately, a country is as wealthy as the amount of consumption its population can sustain over the long term. Exports are a valuable source of consumption because they generate foreign currency which can be used to purchase imports. Outside of this, exports have no intrinsic value. Producing oil or any other commodity in excess of your demand for imports is a dangerous game in economics.

  20. littledozer

    The Australia-Venezuela Solidarity Network’s (AVSN) invitation to Chavez to visit Australia in 2007 is therefore generating a lot of interest. Those who have signed the invitation to Chavez so far include: Senator Kerry Nettle (Australian Greens), Warren Mundine (ALP National President 2006), Wayne Berry (ALP Speaker in the ACT Legislative Assembly), John Pilger (independent journalist and film-maker), Gavin Marshall (ALP Senator, Victoria), Dr Meredith Burgmann (ALP President of the NSW Legislative Council), Jack Mundy (environmentalist), Lee Rhiannon and Sylvia Hale (Greens NSW MLCs), Sam Watson (Murri activist), Simon Cocker (secretary, Unions Tasmania), Dave Robinson (secretary, Unions WA), Reverend Alex Gator, Tim Gooden (secretary, Geelong Trades Hall), Phillip Adams (broadcaster and Republican of the Year 2006) and many more.

  21. Splatacrobat

    Venezuelans Forced to Eat Flamingos to Survive Socialist ‘Maduro Diet’

    The other thing wrong with socialism is eventually you run out of other people’s Flamingos.

  22. mundi

    If you look at those who priased all this, its always the same thing:
    They praise the concept of the claims (no poverty, free stuff for everyone, everyone equal etc. etc.)

    Classic case of left caring about intentions rather than outcomes.

  23. classical_hero

    Have a good look, since that is where we are heading at the current rate.

  24. rickw

    “Every country has its own traditions and culture and has to find its own solutions, but what Venezuela has been able to achieve in so little time will be a source of inspiration and ideas for many in Australia”.

    Given Australia’s trajectory, we seem to have been inspired by Venezuela even without a visit from the fat paratrooper.

  25. YV-noob

    “Venezuela’s GDP per capita suddenly tanked between 2000 and 2003. What happened?”

    Two things happened, actually.

    First there were one or two general strikes, the toughest one being being in 2002, stopping the whole economy, oil industry included. Cannot remember the exact year of the other one. During the strike of 2002, the government sacked most of the oil industry white collar payroll, save for those that kept working and the blue collar personnel. That lead to…

    The failed coup of April 2002. The government got toppled for ~2-3 days, before it was reinstated. In the aftermath, they purged the military of non-loyal elements, established a very strict currency control, import licences, kicked of price controls…

    Many companies, specially the small ones, could not take the hit of being stopped for a week. Many big companies laid off people too, offering “cajitas felices” or in local parlance “redundancy packages”.

  26. PhilJourdan

    The Venezuelan crises is nearing its crescendo, but it has been going on a long time. Even before Maduro. In 2011, my wife went to visit friends and relatives, and took some stuff not found down there (pancake batter, peanut butter, etc.) in her luggage. It was confiscated as contraband. This was not cases and cases, just a suitcase with some items in it (and the suitcase was the standard rollerboard carry on).

    Even while your fellow countrymen, and Sean Penn, were gloating over Chavez, Venezuela was dying. They were eating their seed corn. Seed corn will last you a winter (a few years in a country’s case), but when it is gone, you have nothing to plant new crops with. So the starvation began.

    Zimbabwe did not go from the breadbasket of Africa to a starving nation over night. It took time, and the consumption of their seed corn.

    Besides the fact that Socialists do not understand there are limits to OPM, they also do not understand that once the seed corn is gone, no amount of rationing, new laws, brutal crackdowns, or jailing of ordinary folks will get it back. The critical point comes long before the problem shows itself to the public.

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