A socialist paradise? Although Hollywood elites and left-wing intellectuals enjoy depicting Venezuela as such a place, the reality of the situation is that the country is experiencing complete misery because of the federal government’s endeavors.
With the government spending astronomical amounts of money on social programs, instituting price controls, production quotas and immense bureaucracy and printing vast sums of money, the Venezuela central bank published a report late last week announcing that price inflation has increased close to 50 percent since last September.
The consumer price index (CPI) for last month was 4.4 percent higher than the CPI for August and 49.4 percent higher than the one for last year – the complete inflation rate for last year was 20.1 percent.
Public officials are not taking the blame for the massive inflation levels. Instead, leaders are laying the blame for rising prices and shortages on speculators. Are they really to blame, though? Nope. The blame should be solely placed by the government’s failed economic and social policies.
One of the culprits for the nationwide food shortages is price controls. For decades, price controls have been tested and have failed each time. In each instance, there have always been shortages, riots and a loss of water, food and other essential items. Why does this happen? It’s simple: price controls distort the allocation of resources.
Another element of shortages is production quotas. The Venezuelan government has imposed production quotas on all ingredients, including the nation’s primary food item, rice. Since companies are mandated to produce only a certain amount of a good then this leads to, again, a distortion in the marketplace and even a motive for the producer to exit the marketplace because the firm won’t be earning a profit.
In addition, to pay for all of Venezuela’s socialist programs, the money has to come from somewhere. When the government can’t tax or borrow money any more it turns to the printing press.
An interesting point that should be made is that the United States has performed all of the above: price controls, production quotas and inflation.