When chatting with a young socialist or just a run-of-the-mill Bernie Sanders supporter, one realizes that they don’t have much to say about how well socialism is working for Venezuela. The country in theory should be doing very well, with it’s enormous oil reserves and centrally planned economy. The government can sell the oil and distribute the profit fairly among all of its citizens, leaving everyone living in a socialist paradise. That hasn’t happened, though, has it?
The International Monetary Fund is now estimating that Venezuela’s inflation could leap to over 2300% in 2018. The socialist utopia’s central bank became so embarrassed in 2015 that they halted the publishing of official inflation data, but the IMF believes consumer prices are rising at an exponential rate, currently in triple digit rates of inflation.
What comes along with inflation is what we are seeing in the streets of Venezuela. As prices rise, people scramble for food and resources. However, because the value of the currency continues to fall, no one wants to produce more food and resources and trade them for increasingly worthless Venezuelan Bolivars. This leads to a massive shortage, which only forces prices higher and higher at an exponential pace.
But how did this happen? With all of the oil, one would think that Venezuela would be able to supply its people with whatever they wanted. Well, they would have been able to, were it not for central planning.
The manner in which an economy produces and distributes resources is called “economic calculation”. In a free market economy the price system directs millions of people to use these resources in the most efficient ways. Each consumer by either buying or abstaining from buying sends a tiny message to the producer. Millions of consumers can tell a producer if a product is too expensive, or is of a poor quality that doesn’t meet the standards of the consumer. Producers see either a profit or a loss; a profit means they are serving the consumer well, while a loss means they are failing to serve the consumer.
The price system mechanism of the free market is replaced in a socialist economy with central planning and government control. Let’s be clear about our definitions here. Socialism is not “caring about people”. Socialism is state ownership of the means of production.
Governments operate wholly differently from businesses. Governments can go further into debt, can print their own money, and can use their own police to enforce rules on consumers. Governments also do not see profits and loss the same way that businesses do.
Some would argue that this gives government an advantage, because they do not have to worry about profit in order to provide goods to citizens, but remember that it is the market signals of profit and loss that direct businesses to use resources efficiently in a manner that best serves consumers. Without these signals, there is no incentive to properly manage resources, and huge shortages occur. This has been seen throughout history when socialist economies fail to feed their own people, and it is being seen today.
As Ludwig von Mises pointed out nearly 100 years ago in Economic Calculation in the Socialist Commonwealth, economic calculation is impossible without a functioning price system which includes profit and loss. Because governments do not use resources efficiently (because they can’t) they are forced to print money in a feeble attempt to supply their citizens with basic goods necessary for life. This increased money printing leads to higher prices, which are met with even more money printing, aiming the economy towards a death spiral. Prices rise, government tries to help with money printing, and prices rise even more.
Had governments been able to manage resources properly, money printing would not have been necessary, and goods and services would be widely available to consumers. This is not possible in a socialist economy.
Ultimately, citizens become panicked and rush to stores to buy whatever they can while they can. The society dissolves into chaos, and government is left with the decision to either free its people and its economy, or use force to maintain its control. As people riot in the streets, with stores being looted and black markets popping up, government sends in its police forces to try to preserve order.
Free speech and the free press are shut down. The government is so embarrassed about the chaotic state of its country that it tries to shut down the media. Reporters are jailed. The borders are locked down, keeping witnesses of the failures of socialism inside. Left-wing American media tries to push the story under the rug. No one wants to acknowledge what is happening – government failing.
This is all happening in real time in Venezuela today, and yet Bernie Sanders and his followers are silent. Central planning, heavy government controls, subsidization of industries, and the lack of market forces have led the average Venezuelan to where they are today – fighting over loaves of bread. THIS is socialism, and it must be called out and made to be an example of where our own country could end up if socialist intellectuals have their way.
Tim Preuss is the host of the Tim Preuss Podcast, available Monday-Friday on iTunes, the Liberty Radio Network, Talk America Radio, and everywhere else. More of his work is available at PreussPodcast.com.