Posted by Curt on 6 May, 2016 at 1:00 pm. 1 comment.

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Richard Fernandez:

Adam Smith once observed that “there’s a lot of ruin in a nation”. A lot, but not an infinite amount.  Venezuela proves that given enough stupidity it is possible to run through even the biggest design margin. “From the 1950s to the early 1980s the Venezuelan economy was the strongest and most prosperous in South America. The continuous growth during that period attracted many immigrants.”  That prosperity was built on an extraordinary resource base. Venezuela was sitting on a bonanza of natural riches in which it was only necessary to reach out and harvest wealth.

Venezuela is a major producer of petroleum products, which remain the keystone of the Venezuelan economy. … A range of other natural resources, including iron ore, coal, bauxite, gold, nickel, and diamond … Venezuela utilizes vast hydropower resources to supply power to the nation’s industries.

Unfortunately riches on that scale attract what economists call the curse of plenty, after the observable fact that “countries with an abundance of natural resources, specifically non-renewable resources like minerals and fuels, tend to have less economic growth, less democracy, and worse development outcomes than countries with fewer natural resources.”

The problem is that easy money attracts the wrong kind of leaders and incentivizes the wrong kind of public behavior.  “Countries that rely on natural resource exports may tend to neglect education because they see no immediate need for it. Resource-poor economies like Singapore, Taiwan or South Korea, by contrast, spent enormous efforts on education.” The more reliant a country on found wealth the more vulnerable it is to the siren song of revolutionary firebrands and apocalyptic ideologies.

The resource curse duly gave Venezuela the expected succession of corrupt and incompetent governments.  But when the Venezuelans sought relief from the ordinarily corrupt governments in a Marxist named Hugo Chavez, they found it was possible to go from bad to worse.  A Marxist government, disastrous in itself, was supercharged by the culture of corruption and the availability of ready money. The joint effect was disaster.

Hugo Chavez and his successor Nicolas Maduro, with money to back them, were able to embark on a lavish program of insanity. Chavez controlled prices, showered Cuba with aid and borrowed billions from China while simultaneously destroying the ability of businesses to operate.  He believed there was an eternal stash on which he could lay his hands out to fund his programs.  The needle of ruin exceeded “a lot” and went on to indicate “you wouldn’t believe”.  When the smoke cleared there were shortages of everything and Venezuela’s finances were on the point of collapse.

To Chavez’s many dubious achievements Maduro added more. Today there is only enough power to work 2 days a week.  For the rest of the week, people are confined to their unlighted homes when they are not wandering the streets in search of food to buy.  “We can’t go on living like this,” a resident told CNN.

The food in the fridge is spoiling. The microwave oven sits unused. The television is dark and the stereo system silent. It’s sweaty and uncomfortable inside, thanks to government-imposed electricity blackouts meant to deal with chronic power shortages across the country.Even getting running water is a problem.

There isn’t even enough money to print debased money.  Venezuela’s fantastic inflation, slated to run between 600 -700 % this year requires bales of currency.  “Venezuela is scrambling to print new bills fast enough to keep up with the torrid pace of price increases … and with hard currency reserves sinking to critically low levels, the central bank is doling out payments so slowly to foreign providers that they are foregoing further business. Venezuela, in other words, is now so broke that it may not have enough money to pay for its money.”

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