Venezeula’s economic and social collapse shows that Bernie Sanders is another “useful idiot”
Back in 2011, Sen. Bernie Sanders wrote an essay on income inequality in the United States which finished with the words
These days, the American dream is more apt to be realized in South America, in places such as Ecuador, Venezuela and Argentina, where incomes are actually more equal today than they are in the land of Horatio Alger. Who’s the banana republic now?
The answer is Venezuela. This week, that country, which has the largest proven oil reserves in the world, defaulted on its sovereign debt. This was the latest stage in the country’s economic collapse.
Don’t blame oil prices
This isn’t because oil prices have ‘collapsed’ recently. As
It is true that low oil prices would hurt Venezuela’s economy. But here’s the thing: we don’t currently have low oil prices. We had abnormally high oil prices in the decade leading up to 2014/15. Oil prices have not “collapsed”. They have merely reverted to a level which is more in line with the long-term average. More precisely, they are back (in real terms) to where they were in 2004, about the time when Venezuela mania started. And they are still noticeably higher than they were in the two decades before then.
Perhaps more important, though, the problems that we commonly associate with Venezuela, especially shortages of basic essentials like food and medicine, predate the drop in oil prices. Take this description:
“…of milk, eggs, sugar and cooking oil there was no sign. Where were they? … Welcome to Venezuela, a booming economy with a difference. Food shortages are plaguing the country at the same time that oil revenues are driving a spending splurge … Milk has all but vanished from shops… eggs and sugar are also a memory.”
This is from a Guardian article, published in 2007 – when oil prices were about to reach their historic all-time peak. Or this one, from a year before the drop in oil prices:
“…food shortages in Venezuela have not only peaked but they have lasted longer than ever. … Venezuela’s central bank … has been publishing a scarcity index … [It] puts this year’s figure at [a level which] is similar to countries undergoing civil strife or war-like conditions.”
Venezuela’s economic collapse is the result of its socialist economic policies. The very same system of economic command and control that so impressed Sen. Sanders in 2011, has brought what was once Latin America’s most prosperous country to the brink of economic ruin and social collapse.
To see this a little more clearly, here is a collection of recent news stories helpfully collected by the Liberty Review.
Step 1 – Ruin the economy
From the New York Times
Venezuela was once one of Latin America’s economic powerhouses…A growing number of Venezuelans are going hungry in a food shortage and dying from treatable ailments in squalid, ill-equipped hospitals…Until political prisoners are released, the prospects for a restoration of democratic rule are very dim…Inflation has soared to an estimated 700 percent, while people in this oil-rich nation are left digging through piles of trash for scraps of food.
From the New York Times
President Nicolás Maduro of Venezuela made a baffling announcement…saying that his government intended to yank the 100 bolívar note from circulation…Venezuelans, who have endured months of chronic food and medicine shortages, mobbed banks and A.T.M.s in a desperate attempt to offload their stacks of the highest denomination bill, which has become so devalued it is now worth roughly 3 cents in American dollars…the Maduro government…has spent years…imposing arbitrary currency controls that have made a once prosperous economy one of the world’s most dysfunctional…Venezuela was expelled from the regional trade bloc Mercosur in early December.
Venezuela only has $10.5 billion in foreign reserves left, according to its most recent central bank data. For the rest of the year, Venezuela owes roughly $7.2 billion in outstanding debt payments. In 2011, Venezuela had roughly $30 billion in reserves. In 2015, it had $20 billion. The trend can’t persist much longer, but it’s hard to know exactly when Venezuela will run completely out of cash…The thinning reserves paint a scary financial picture as the country faces a humanitarian crisis sparked by an economic meltdown. Venezuelans are suffering massive food and medical shortages, as well as skyrocketing grocery prices. Massive government overspending, a crashing currency, mismanagement of the country’s infrastructure and corruption are all factors that have sparked extremely high inflation in Venezuela. Inflation is expected to rise 1,660% this year and 2,880% in 2018, according to the IMF.
From Real Clear World
Socialist economic policies and government corruption have destroyed a once-thriving economy sitting on the world’s largest oil reserves…Index of Economic Freedom…looks at the economic freedom of countries throughout the world. In that period of time, Venezuela’s score has declined the most out of any country, going from 59.8 to 27.0 (on a scale of 1-100). It is now in second-to-last place, right behind Cuba and better only than North Korea…The World Health Organization estimates that there are shortages for 75 percent of necessary medications and medical supplies such as antibiotics, vaccines, and scalpels. Blackouts resulting from a crumbling energy infrastructure are a daily occurrence. The death of newborns has become a common phenomenon…All the while, Venezuelan government officials have been using oil revenues to line their own pockets.
From the Washington Post
Venezuela, which was once Latin America’s richest country, has become an unwilling test site for how much economic and social stress a modern nation can tolerate before it descends into pure anarchy…Venezuelans have struggled with mounting shortages of food, medicine and other consumer goods, as well as triple-digit inflation that has rendered the national currency, the bolivar, worthless…President Nicolás Maduro, an economically illiterate former bus driver…also closed Venezuela’s borders with Colombia and Brazil, on the theory that traders were hoarding currency in those countries…the president is doing his best to blame the United States for the fiasco…Venezuelans no longer believe such nonsense. A survey released this month by pollster Alfredo Keller showed that only 1 percent said the United States was to blame for the country’s crisis, while 76 percent blamed Mr. Maduro and the regime founded by Hugo Chávez…Only 19 percent said they still supported the regime.
From Foreign Policy
A fleet of rundown Venezuelan oil tankers carrying some 4 million barrels of oil and other fuels is wallowing in the Caribbean Sea. Not because of bad weather, or mechanical problems, but because Venezuela’s state-owned oil company, Petróleos de Venezuela SA, doesn’t have the cash to get them to their final destinations.…it’s doubly bad news for Venezuela, a country in dire economic straits and full-fledged crisis, with a political impasse, looting, dangerous food and health supply shortages, and massive protests. Venezuela is massively reliant on oil exports to bankroll government services. But the cash-strapped country can’t even find the money to service the vessels that carry its exports…Venezuela, once Latin America’s most powerful petrostate, is on the brink of collapse after decades of economic mismanagement.
…drivers lined up at filling stations amid a worsening shortage of fuel. While Petroleos de Venezuela SA says the situation is normalizing and blamed the lines on transport delays, the opposition says the company has had to reduce costly fuel imports as it tries to preserve cash to pay its foreign debt…As the company’s crumbling refineries fail to meet domestic demand, imports have become a financial burden because the country buys fuel abroad at market prices only to sell it for pennies per gallon at home…“It’s unbelievable that this is happening in an oil producing country”…The hunt for gasoline is just the latest headache for consumers after years of severe economic contraction and triple-digit inflation have produced shortages of everything from bread to antibiotics.
Venezuela’s socialist President Nicolas Maduro announced on Sunday a 50 percent hike in the minimum wage and pensions, the fifth increase over the last year…“In times of economic war and mafia attacks…we must protect employment and workers’ income,” added Maduro, who has now increased the minimum wage by a cumulative 322 percent since February 2016…critics say his incompetence, and 17 years of failed socialist policies, are behind Venezuela’s economic mess. They say the constant minimum wage hikes symbolize Maduro’s policy failures…Venezuela’s inflation hit 181 percent in 2015, according to official data, though opponents say the true figure was higher. There is no official data for 2016, but…inflation was more than 500 percent in 2016, while the economy shrank 12 percent.
General Motors said it has been forced to stop operating in Venezuela on Wednesday after one of its plants was illegally seized by local authorities. The seizure, in the country’s industrial hub of Valencia, comes amid a deepening economic and political crisis that has sparked weeks of deadly street protests…The auto giant did not provide any details about its plant being seized, other than saying it “was unexpectedly taken by authorities, preventing normal operations.” It said other assets, “such as vehicles,” had also been stripped from the site…Venezuela’s car industry has been in freefall, hit by a lack of raw materials stemming from complex currency controls and stagnant local production, and many plants are barely producing at all. Venezuela’s government has taken over factories in the past. In 2014 the government announced the “temporary” takeover of two plants belonging to U.S. cleaning products maker Clorox Co.
From The Week
Venezuela cannot wake up from its socialist nightmare …across the country, people are starving. Venezuela, a beautiful, oil-rich country, once one of the wealthiest nations in the Southern Hemisphere, is only sinking further into economic devastation and chaotic, corrupt authoritarianism…Meanwhile, the economy keeps rotting. Venezuela has topped Bloomberg‘s Economic Misery Index, a benchmark whose title is self-explanatory, for three years running. The economy shrank by 18 percent last year, with unemployment at 25 percent, and inflation slated to be 750 percent this year and 2,000 percent the next…there are outbreaks of scabies, a disease easily prevented with basic hygienic practices; hospitals are running out of even basic drugs. Caracas is the murder capital of the world. Corruption has infected the country wholesale even as it has created a new class of kleptocratic oligarchs linked to the security services …The whole of Venezuelan society is breaking down at a fundamental level…It is truly heartbreaking…And I blame socialism…And now it’s Venezuelans, especially the poorest and more marginal among them, who are paying the price for this madness.
Step 2 – Wreck living standards…
From the Washington Post
With inflation spiraling out of control, food and medicine supplies dwindling and violent crimes on the rise, women as young as 27 are seeking out surgeons to avoid unwanted pregnancies. A study by PLAFAM, the biggest family planning clinic in the country, estimates that about 23 percent more Venezuelan women are being sterilized today as compared to four years ago, said the clinic’s director, Enrique Abache. “The financial crisis is one of the main causes for this,” he explained. Years of government mismanagement have fueled what is now a full-blown humanitarian crisis in a country where infant mortality has almost doubled in recent years…mothers often spend whole days searching for milk powder or diapers. Those who can’t find them are simply forced to go without.
From the Japan Times
Julio Noguera…spends his evenings searching through the garbage for food. “I come here looking for food because if I didn’t, I’d starve to death,” Noguera said as he sorted through a pile of moldy potatoes.“With things like they are, no one helps anyone and no one gives away meals.” Across town, unemployed people converge every dusk at a trash heap on a downtown Caracas sidewalk to pick through rotten fruit and vegetables tossed out by nearby shops. They are frequently joined by small business owners, college students and pensioners — people who consider themselves middle class even though their living standards have long ago been pulverized by triple-digit inflation, food shortages and a collapsing currency…Nearly half of Venezuelans say they can no longer afford to eat three meals a day, according to a recent poll.
From the Miami Herald
An apparently malnourished African elephant in a Venezuelan zoo — her ribs showing through her sagging skin — has become the latest symbol of the deep economic crisis in what was once one of Latin America’s most prosperous nations…Ruperta is suffering from diarrhea and dehydration after zoo officials only had squash to feed her for several days. According to the newspaper, when neighbors tried to bring food to the elephant over the weekend, the donations were turned away by zoo officials…in a nation where a grinding economic crisis is forcing many to skip meals and go hungry, Ruperta’s fate has touched a nerve…Román Camacho, a local reporter who broke the story, said a whistle-blower within the park service alerted him that Ruperta had grown so hungry that she collapsed last Thursday …Also last year, a horse at a local zoo was reportedly butchered by hungry Venezuelans.
From Investors Business Daily
Want to lose weight fast?…Just move to Venezuela. There, the new Socialist Diet has caused the population to lose millions of pounds in 12 months. Unwillingly, of course…A new study of Venezuela’s stunning decline under Hugo Chavez’s socialist model…reports that the average Venezuelan lost 19 pounds in the last year.Today, the 2016 Living Conditions Survey finds, 32.5% of Venezuelans eat only once or twice a day, up from 11.3% just one year ago. And 93.3% of all people don’t earn enough to buy sufficient food…Bring socialism to your country, and you bring misery. It’s the one thing that socialism produces an abundance of…formerly middle-class Venezuelans scavenge for food — some even stooping to dumpster diving and eating formerly beloved pets just to stay alive — socialists allied with Maduro have changed nothing…rule of law has been rejected for the rule of one tyrant. Children aren’t spared; they’re dying by the hundreds from curable diseases, a lack of medicine, electricity outages and no incubators for newborns.
From the New York Times
Kevin Lara Lugo…died on his 16th birthday. He spent the day before foraging for food in an empty lot, because there was nothing to eat at home. Then in a hospital because what he found made him gravely ill.Hours later, he was dead on a gurney, which doctors rolled by his mother as she watched helplessly. She said the hospital had lacked the simplest supplies needed to save him on that day last July…Inflation has driven office workers to abandon the cities and head to illegal pit mines in the jungle, willing to subject themselves to armed gangs and multiple bouts of malaria for the chance to earn a living. Doctors have prepared to operate on bloody tables because they did not have enough water to clean them. Psychiatric patients have had to be tied to chairs in mental hospitals because there was no medication left to treat their delusions. Hunger has driven some people to riot — and others into rickety fishing boats, fleeing Venezuela on reckless journeys by sea. But it was the story of a boy with no food, who had gone searching for wild roots to eat but ended up poisoning himself instead, that seemed to embody everything that had gone wrong in Venezuela.
Struggling to feed herself and her seven children, Venezuelan mother Zulay Pulgar asked a neighbor in October to take over care of her six-year-old daughter, a victim of a pummeling economic crisis…”It’s better that she has another family than go into prostitution, drugs or die of hunger,” the 43-year-old unemployed mother said…With average wages less than the equivalent of $50 a month at black market rates, three local councils and four national welfare groups all confirmed an increase in parents handing children over to the state, charities or friends and family…the trend highlights Venezuela’s fraying social fabric and the heavy toll that a deep recession and soaring inflation are taking on the country with the world’s largest oil reserves…most economists pin the responsibility on socialist policies introduced by former president Hugo Chavez, which his successor Nicolas Maduro has doubled down on…Two-thirds of 1,099 households with children in Caracas, ranging across social classes, said they were not eating enough in a survey released last week by children’s’ rights group…In some cases, parents are simply abandoning their kids. Last month, a baby boy was found inside a bag in a relatively wealthy area of Caracas and a malnourished one-year-old boy was found abandoned in a cardboard box in the eastern city of Ciudad Guayana, local media reported…There are also more cases of children begging or prostituting themselves
…new data capturing the woes of the once well-heeled South American nation is shocking: According to new results from an annual national survey, nearly three-quarters of respondents reported losing an average of 19 pounds between 2015 and 2016…Shortages of food, medicine, and many basic items abound in what was once the richest country in South America per capita in the 20th century. Malaria is ravaging a country that was the first in the world to eliminate the disease in its populated areas. Now there’s evidence that the economic chaos is translating into a malnutrition crisis…Alejandro Velasco, a scholar of Latin American history at New York University, believes Chávez’s model of socialism…”strangled the already meager productive apparatus of Venezuela,” he explained during an interview in January…Chávez’s spending regime also left the country acutely vulnerable to emergency. Ricardo Hausmann, director of the Center for International Development at Harvard’s Kennedy School, notes…that Chávez’s government was “over-spent and quintupled the public foreign debt.”
From the BBC
Venezuelan President Nicolás Maduro has devised a “rabbit plan” to counter the economic war he says is being waged against his government by “imperialist forces”. The president urged crisis-hit Venezuelans to breed rabbits and eat them as a source of animal protein. Venezuela is facing record levels of child malnutrition amid persistent food shortages.
Step 3 – …but not for the elite
From Fox News
On more than one occasion the late Venezuelan president Hugo Chávez declared that being rich is bad, often adding “Rich people attack me for saying that, but I claim it is bad.” His favorite daughter, however, may disagree. According to the Miami-based Diario Las América, Venezuelan media sources will soon publish materials showing that María Gabriela Chávez has bank accounts in the U.S. and Andorra with assets totaling nearly $4.2 billion. If the claim is true, Chávez’s daughter would be the richest person in Venezuela…
From the New York Post
Venezuela is no longer a country with a government, institutions and a civil society. It’s a geographic area terrorized by a criminal enterprise that pretends to govern, with a civil society made up of two sets of people: accomplices and victims. More than 30 million of the latter…The Hugo Chavez-led looting spree began in 2000…More than $1 trillion has disappeared…Loving parents are putting their children up for adoption because they have nothing to feed them; the elderly are starving; patients with treatable conditions are dying in hospitals that lack basic medicine like insulin and oxygen, where vital equipment has been pilfered and emergency rooms operate without electricity…Meanwhile, those in power can focus on what they do best: looting the country’s natural-resource wealth and manufacturing and trafficking illegal narcotics. In fact, Maduro just upped his game by appointing Tareck el-Aissami, a drug kingpin, as vice president.
From the Washington Post
Formerly a stable, sophisticated, middle-income country awash in oil wealth, Venezuela has experienced a dizzying downward spiral over the past two years. Today, Venezuela’s is arguably the world’s worst-run economy.Food shortages are pervasive, and food prices are rising fast — a deadly combination that has left millions unable to find enough to eat…Why doesn’t the army rebel?…we have the genuinely shocking answer: Far from rebelling, Venezuela’s armed forces actively profit from their countrymen’s hunger. This year, President Nicolás Maduro granted the armed forces virtually unlimited authority over the nation’s food imports and distribution. Domestic food production is down sharply in the wake of a botched land reform program, meaning imports now account for most of the nation’s food. But putting the military in charge of this delicate domain has led to an explosion of corruption, as well-connected officers mercilessly prey on every part of the distribution chain, from the initial contracts and the foreign currency needed to fund them to storage, transportation and distribution…A government that bills itself as radically pro-poor in fact drips with contempt for the poor.
Step 4 – The people flee the People’s Republic
How serious is Venezuela’s crisis? Bad enough that, in 2016, Venezuelans became the top US asylum-seekers…Venezuelan asylum claims increased by 150 per cent from 2015 to 2016. Though Venezuela does not publicly circulate emigration information, estimates suggest that between 700,000 and two million Venezuelans have emigrated since 1999…Sometimes, from here, it can seem as though the entire population – fed up with shortages of medicine and food, with crime and with the political trajectory of the nation – wants to leave.
For Venezuelan exiles with money, Madrid has become a home away from home. They are increasingly turning to the Spanish capital as a place to invest as their home country falls further into economic chaos and the political mood turns more sour in U.S. havens such as Miami. The number of Venezuelans arriving in Spain rose more than 50 percent in 2015, according to the Spanish statistics office.
From The Economist
Every weekday morning, a queue of several dozen forlorn people forms outside the dingy headquarters of SAIME, Venezuela’s passport agency. As shortages and violence have made life in the country less bearable more people are applying for passports so they can go somewhere else…As desperation rises, so does the intransigence of Venezuela’s “Bolivarian” regime, whose policies have ruined the economy and sabotaged democracy. The economy shrank by 18.6% last year, according to an estimate by the central bank, leaked this month to Reuters…Inflation was 800%…In 2001 Venezuela was the richest country in South America; it is now among the poorest.
From the Associated Press
Venezuelans for the first time led asylum requests to the United States as the country’s middle class fled the crashing, oil-dependent economy. Data from the U.S. government’s Citizenship and Immigration Services show that 18,155 Venezuelans submitted asylum requests last yeara 150 percent increase over 2015 and six times the level seen in 2014 …The vast majority leaving are middle-class Venezuelans who don’t qualify for refugee status reserved for those seeking to escape political persecution, according to Julio Henriquez, director of the Boston-based nonprofit Refugee Freedom Program, which has been drawing attention to the trend. “The pace at which requests are increasing is alarming,” said Henriquez, whose group obtained the still-unpublished data in a Feb. 8 meeting between U.S. officials and immigration lawyers.
Step 5 – Stamp down on the People
From the Wall Street Journal
…cities around the country…have been hit hard by police, national guard troops and the regime’s paramilitary forces as the dictatorship of Nicolás Maduro tries to contain a wildfire of rebellion…The government is running out of money to buy imports, and since it has crippled domestic production, privation is growing more profound…Roving bands of government-sponsored militias terrorize civil society as they have for more than a decade …a 16-year-old girl politely informed Mr. Maduro that students in her school often faint from hunger…Mr. Maduro was pelted with stones as he left a military rally in Bolívar state…Meanwhile, Mr. Maduro is doubling down on centralized control of a shrinking food supply…Those who do not support the regime can be cut off.
From the Washington Free Beacon
The Venezuelan government justified the gun bans and confiscations by saying they were needed to combat the country’s violent crime and murder epidemic. However, statistics reported by the nonprofit Venezuelan Violence Observatory show the murder rate in Venezuela increased from 73 murders per 100,000 inhabitants the year the gun ban was instituted to 91.8 murders per 100,000 inhabitants in 2016…As protests and unrest increase in Venezuela, Maduro’s regime has created a landscape where civilians are disarmed but his supporters are not. The latest round of mass demonstrations in the streets of Caracas have already claimed five lives.
From Fox News
Along with basic food, medicine and even toilet paper, Venezuela now lacks the materials to meet to the soaring demand for new passports – making it almost impossible for those few Venezuelans with the monetary means of escaping the troubled Latin American nation to do so. While estimates of how many passport requests the socialist government received last year vary from between 1.8 million to 3 million, only 300,000 of the elusive documents were doled out. Everyday, hundreds of people line up outside the passport agency, known as Saime, in the capital of Caracas in the hopes of obtaining one. It’s an ironic, and yet sad situation, for a country that used to be one of Latin America’s wealthiest and one that was used to seeing people flock to, not away from…Adding to the overall misery are a drastic rise in violent crime – especially in the capital city of Caracas – rolling blackouts and widespread and often times bloody protests against the government…since Chávez took power in 1999 nearly 2 million Venezuelans have fled the country and hundreds of thousands are marking their time until they obtain the funds and the passport that will allow them to leave.
From the Miami Herald
Facing a bread shortage that is spawning massive lines and souring the national mood, the Venezuelan government is responding this week by detaining bakers and seizing establishments.In a press release, the National Superintendent for the Defense of Socioeconomic Rights said it had charged four people and temporarily seized two bakeries as the socialist administration accused bakers of being part of a broad “economic war” aimed at destabilizing the country…The government said bakeries are only allowed to produce French bread and white loaves, or pan canilla, with government-imported flour…The notion that bread could become an issue in Venezuela is one more indictment of an economic system gone bust. The country boasts the world’s largest oil reserves but it has to import just about everything else…President Nicolás Maduro launched “Plan 700” against what he called a “bread war,” ordering officials to do spot checks of bakeries nationwide.
Step 6 – Beg for help
From the Associated Press
Venezuela’s President Nicolas Maduro has asked the United Nations for “help” boosting medicine supplies as he struggles to combat crippling shortages…acknowledging that Venezuela needs outside help is a telling sign of how far the nation sitting atop the world’s largest petroleum reserves has fallen under Maduro…Venezuelans…have been suffering from widespread shortages and triple-digit inflation…OAS Secretary General Luis Almagro is pushing to expel Maduro’s government from the group for breaking the country’s democratic order and violating human rights. Maduro’s government disavowed a landslide loss to the opposition in legislative elections in 2015, and then suspended a recall campaign seeking to force him from office before the 2018 election.
At some point in the 20th century, the term “useful idiots” was coined for people in the rich west who extolled the virtues of communism. Sen. Sanders is one of the latest in this long and ignoble tradition.
John Phelan is an economist at Center of the American Experiment.