How do you turn the country with the largest proven oil reserves into a walking time bomb? Just follow Venezuela’s three step plan: overspend, under-invest, and use the printing press to cover the difference.
From the Washington Post:
The first step was when Hugo Chávez’s socialist government started spending more money on the poor, with everything from two-cent gasoline to free housing. Now, there’s nothing wrong with that — in fact, it’s a good idea in general — but only as long as you actually, well, have the money to spend. And by 2005 or so, Venezuela didn’t.
People who knew what they were doing were replaced with people who were loyal to the regime, and profits came out but new investment didn’t go in.
Even triple-digit oil prices, as Justin Fox points out, weren’t enough to keep Venezuela out of the red when it was spending more on its people but producing less crude. So it did what all poorly run states do when the money runs out: It printed some more.
Thanks to this tri-fecta of bad ideas, Venezuela’s economy has been spiraling for years. The country had to fix its exchange rate and introduce currency and price controls. The government has tried to control shortages through a mix of subsidies and rationing.
The problem with that idea is that it’s not profitable for unsubsidized companies to stock their shelves, and not profitable enough for subsidized ones to do so either when they can just sell their dollars in the black market instead of using them to import things. That’s left Venezuela’s supermarkets without enough food, its breweries without enough hops to make beer, and its factories without enough pulp to produce toilet paper. The only thing Venezuela is well-supplied with are lines.
Chavez and Maduro have fallen into the same rookie errors familiar to anyone who has played Sim City or the like. You start with a bunch of cash and big dreams, no one likes you and the place isn’t growing. So you try some largesse. You build anything and subsidise everything, you find one industry so good you pump all your time and resources into it…
A couple of hours later, you’re in the crapper. You’re borrowed to the hilt, can’t cut any spending without riots breaking out, the price of oil has plummeted, things are falling down, and some aliens have probably attacked. In a game, this is the end. In real life, there is always the magic pill that is printing money…
If past hyperinflations are any guide, this will keep going until Venezuela can’t even afford to run its printing presses anymore — unless Maduro gets kicked out first.
If there’s one thing we’ve learned from educational technology, its the power of games. My phone plays host to games that impart language and coding, and that’s just what I’m interested in. There’s no reason it can’t be extended to governance. To learn the relationship between revenue and expenditure at least…
As usual, I really encourage you to read the entire Washington Post article about Venezuela on the precipice.