The Independent Institute

 
        

When Government Fails—Venezuela Edition



Whenever Venezuela comes up in the news the story is rarely good. From massive civil unrest, to rampant shortages, to hyper-inflation, to stories of squatters, the country is probably not on the top of many people’s “places I’d like to visit” list.

While we may look at the situation in Venezuela and think, “wow, living there would be awful,” the fact of the matter is that these conditions are reality for more than 30 million people who call the country home.

Some people look at the conditions in Venezuela and point to oil prices as the source of many of its problems. The Venezuelan government, led by President Nicolás Maduro, blames opposition leaders for the nation’s many issues. (He also blames Spiderman. No, really. You can read about it here.)

But the villain in this situation is obvious to anyone with an understanding of basic economics. The maleficent actor here is the Venezuelan government. Who is responsible for inflation? The government, who is printing money so fast that inflation has reached triple digits. Who is responsible for the squatters (and as a result, the shortage of rental housing)? As I discussed in a previous post, it’s the government, who fails to protect even the most basic private property rights. Who are the protestors rallying against? The government.

The shortages are also the responsibility of the Venezuelan government. In an effort to control commodity prices, the government has put a cap on the price retailers can charge for particular products. While such prices may be attractive to consumers, they are too low for producers to earn a profit. This causes many would be suppliers to drop out of the market. The end result is surging demand and less supply.

The losers in all of this are the people of Venezuela. With the money in their hands constantly losing its value and a lack of basic goods, they are forced to wait in unfathomably long lines to get basic necessities. Even here the government is interfering. People are only allowed to get in the queues for food on certain days, as dictated by the last few digits on their ID cards. Once in line, people mark their wrists with their number in line in an attempt to avoid arguments over position.

People can’t find enough toilet paper. Women were shocked in July to find that the price of tampons and other sanitary supplies jumped 1,800%. This price increase meant that the average Venezuelan woman would need to spend a third of her monthly wages on feminine care products. After two days of backlash, the government ordered the products be removed from store shelves.

This is not to mention an increase in crime as a result of the shortages and ultimately higher prices of even the most basic goods. Black markets now provide a variety of goods to desperate customers. According to one source, the difference between the market price and the “official” price set by the government is more than 560% for many goods. If someone wants to buy meat or poultry, they better be prepared to fork over 1000% more than what they would have to pay in a free market.

Venezuela is but one of many cases where we see the consequences of bad ideas, bad policies, and unconstrained government. It’s important to recognize that, while we see the shortages, sky-high prices, and black markets as a problem of “other countries,” our own government engages in many of the same activities. Minimum wages, rent controls, other price manipulations, and the printing of mass quantities of money generate the same kinds of consequences in the U.S. as they do in Venezuela or elsewhere. The difference is one of degree, not of kind.

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