While some Americans are flocking to the notion that socialism is a cure for all that ails the U.S., they should really take a moment and look at Venezuela to see socialism in practice. The people of this once-rich nation sitting on the largest known oil reserves in the world are now starving and dying. Socialism has destroyed Venezuela’s economy, its infrastructure, and its society.
Venezuela: How the most oil rich nation on earth was brought to the brink of collapse
This is what happens when an economy and a society disintegrates due to economic mismanagement and populist folly
Venezuela’s president, Nicolas Maduro, took a highly risky decision this week. Not debasing the currency. Not rigging an election. Not ordering the arrest of opponents. He’s done all that already and survived.
No. What Maduro did was to announce plans to rein in fuel subsidies. “Gasoline must be sold at an international price, to stop smuggling to Colombia and the Caribbean,” he explained in a televised address.
Normally, ending such distorting subsidies is precisely what economists would recommend. But in a country like Venezuela it’s a political gamble with the highest possible stakes.
Removing the subsidy will instantly hit millions of working Venezuelans. And fuel has been one of the few costs that has remained relatively stable amid the country’s hyperinflation of recent years.
A similar hike in domestic fuel prices by former president Carlos Perez in 1989 ignited mass riots and brutal repression in the capital city in an incident known as the Caracazo, or “Caracas smash”.
It was followed by an attempted coup.
So making fuel more expensive is not a decision any Venezuelan leader would take except in the most extreme circumstances.
The reality is that Venezuela is more or less out of options. Prices are estimated to be rising at a rate of 3 per cent every day, giving an annual inflation rate of more than 40,000 per cent and an International Monetary Fund official has warned the rate could reach 1,000,000 per cent by the end of the year.
That would be one of the most disastrous episodes of hyperinflation in history, up in the pantheon with Zimbabwe’s currency collapse in the late 2000s under Robert Mugabe, and Germany’s descent into monetary hell in the 1920s.
The explosion of prices, combined with a slump in oil production, means that in real terms the country’s economy is expected – by the IMF – to contract by almost a fifth this year, following two previous years of shrinkage.
The Latin American state is in the grip of an humanitarian crisis. Thanks to the dysfunction of the economy and the price system, there are chronic shortages of food and medicine. Three-quarters of Venezuelans have lost an average of 11kg of bodyweight. Doctors report children dying of malnutrition. Malaria cases have spiked due to a collapse in treatment. Emigration has surged. So has crime.
This is what happens when an economy and a society disintegrates.
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