Why does economic education matter?
Look no further than the ongoing crisis in Venezuela, where the Washington Post is reporting that food shortages are so bad that people are attacking food trucks when they make deliveries.
It all started when Hugo Chavez and his successor, Nicolas Maduro, tried to formulate public policy while ignoring economics. For a while, it seemed to work: enormous oil reserves during several years of very high oil prices concealed the institutional mess underlying the populist dream.
But now, with the collapse of oil prices, we’re left facing reality: a government cannot attempt to control prices and print money without creating inflation, shortages, and—as we’re seeing right now—chaos.
Trying to Disguise Disaster: Inflation
Venezuelan government has been printing currency in response to an inability to pay its debts. This has created triple-digit inflation. Milton Friedman and others periodically said that “inflation is the cruelest tax,” and indeed the Venezuelan government is effectively confiscating whatever wealth Venezuelans still have by inflating away the value of the currency.
Attempting the Impossible: Price Controls
To stop the effects of inflation without ceasing to print money, Venezuelan government has also been trying to control prices of many goods while also regulating what ordinary people can import. In this case, the government has held prices below market value, and that has created shortages. It makes sense: the amount of stuff people wish to buy at the artificially low prices will be greater than the amount of stuff people wish to sell. As CapX explained last year:
This is the reality of price fixing and currency controls. If the price of motorcycle parts is set by the government, and imports are strictly regulated, vendors have no options when demand rises – they cannot increase their supply, and nor can they set their prices to the correct level. At best, this leads to queuing in the streets. At worse, it leads to dead motorcyclists.”]
The Consequences of Hiding from Reality
And indeed, we’re now seeing long lines of increasingly desperate people…and riots as that desperation comes to a head. Frequently, as we’ve seen in Venezuela, government officials blame the shortages on greed and conspiracy when they should be looking in a mirror.
This ongoing disaster is a tragic reminder that ideas have consequences. In this case, we have a front row seat to the suffering of living, breathing, flesh and blood human beings–people like you and me, with hopes and dreams and families they love and who love them.
One of the saddest moments of this tragedy is when we realize that we have a pretty good idea of how it could have been avoided.
Photo Credit: Carlos Diaz via Flikr (https://www.flickr.com/photos/carlosdiazme/15388306277/) under CC by 2.0 (https://creativecommons.org/licenses/by/2.0/)