The Socialist Formula: Talk About Equality, Rob The Country Blind And Get Rich, Leave Poverty And Misery Behind.

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The Economics of Tyranny in Venezuela.

Venezuela is a human catastrophe. The evidence is brutally visible and can no longer be explained away by apologists for tyranny. So many people enamored with long-debunked theories had high hopes that for Venezuela — despite the enormous historical and empirical evidence to the contrary — the promise of socialism would work and would not lead to the loss of liberties or drive the once-prosperous nation into poverty. Looking back on the 20th century, we should turn to some of the most prominent thinkers who lived under similar conditions and dissected their experiences for us to learn from. Venezuela’s crisis is a good example of harsh lessons learned by one generation but forgotten by the next.

In 1944, Friedrich Hayek warned in The Road to Serfdom that tyranny inevitably results when a government exercises complete control of the economy through central planning. Over half a century later, beginning with Hugo Chávez’s revolution, Venezuela began its own road to serfdom by expropriating thousands of businesses and even entire industries. The more fortunate companies left before it was too late, while the businesses that remained were handed over to the Venezuelan military, under whose oversight they were neglected into ruins. In a typical demonstration of class warfare, the government publicly vilified these business owners as unpatriotic, greedy lackeys of American interests, claiming that Venezuela’s poverty had been a direct result of their existence.

Chavismo created an atmosphere of distrust in which no one felt safe enough to invest in Venezuela. More important, the courts were no longer the place to get redress. Since 1999, the Venezuelan judiciary had been systematically stacked with judges loyal to the executive. Twenty years after socialism took hold of the country, Venezuela has hit rock bottom on every possible development index. Today, 90 percent of Venezuelans are living below the poverty line and inflation rates exceed 1 million percent. Record numbers of children are dying from malnutrition, and nearly all of the country’s hospitals are either inoperative or in critical need of basic medical supplies. Frequent nationwide power outages have left, at times, up to 70 percent of Venezuela in darkness. Chávez’s socialist agenda purported to be in service of the entire nation, but as Hayek reminds us, “the pursuit of some of [the] most cherished ideals . . . [produces] results utterly different from those which we expected.”

A prime example of this divorce between intentions and actual consequences is price controls. In 2014, Venezuela’s new Fair Price Law capped the price of goods and services and established a sentence of up to 14 years in prison for those caught “hoarding,” “overcharging,” or “trafficking food.” There is ample economic history revealing the consequences of price controls, which disrupt the equilibrium price set through the interaction between supply and demand. The price ceilings in Venezuela’s case effectively led to long queues, empty grocery stores, and, ultimately, starving citizens. The government set prices artificially low, which resulted in a skyrocketing demand and the overconsumption of basic goods. On the other hand, producers started to make less because it had become unprofitable to sell their products within Venezuela. Instead, they began sending their goods abroad or to the black market, where sellers face prison time for their activity and usually need to pay kickbacks to continue operating. These risks are reflected in higher prices. The real-life consequences of Chavismo’s misguided policies are telling: Venezuelans lost an average of 24 pounds in the year 2017.


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