The Deep Mystery Of Why Venezuela Is Failing

Last week in a post on the death spiral that is Venezuela's economy, I linked to a New York Times front page article ("Dying Infants And No Medicine") that described the disastrous state of that nation's healthcare facilities.  What I failed to mention was the usual cluelessness of Pravda in analyzing the causes of Venezuela's economic crisis.  In a lengthy article of several thousand words, here is all they say about how Venezuela came to its present economic extreme:

This nation has the largest oil reserves in the world, yet the government saved little money for hard times when oil prices were high. Now that prices have collapsed — they are around a third what they were in 2014 — the consequences are casting a destructive shadow across the country. Lines for food, long a feature of life in Venezuela, now erupt into looting. The bolívar, the country’s currency, is nearly worthless.  The crisis is aggravated by a political feud between Venezuela’s leftists, who control the presidency, and their rivals in congress.

Aha -- now we know!  The Venezuelans somehow forgot to "save money" when oil prices were high!  And now there's a "political feud" to boot!  The concept that Venezuela explicitly and aggressively pursued socialism and that that might have something to do with the problem -- that concept appears nowhere in the article.

If you think it is impossible to top the New York Times for economic cluelessness, I recommend to you this article from last week in Time magazine, "These 5 Facts Explain Why Venezuela Could Be on the Brink of Collapse."   OK, they say they are going to explain why Venezuela is in this mess.  Surely, they won't be able to do that without at least mentioning socialism?  Wrong!  Here's the entire text under the heading of "How Venezuela Got Here":

As Hemingway would say, Venezuela went bankrupt gradually, then suddenly. For years, the country has been deeply dependent on its vast oil reserves, which account for 96 percent of export earnings and nearly half its federal budget. That was manageable when oil was selling at more than $100 dollars a barrel. Venezuela has budgeted for oil at $40 per barrel for years now, but instead of saving the surplus when prices were higher, much of this emergency oil fund was either spent or stolen. Venezuela would now need oil prices to reach $121 per barrel to balance its budget—instead, they’re hovering around $50. Damage to Venezuela’s economy has been exacerbated by drought. About 65 percent of the country’s electricity is generated by a single hydroelectric dam that’s now in serious trouble.

Basically, it's the same non-explanation that we were fed by Pravda -- they failed to "save[] the surplus when prices were higher."  Oh, and of course Time adds in that there has been a big "drought."  Could the people at Time really be this dumb?  

Funny, but the economy of Texas is also heavily reliant on the oil business.  Texas has experienced the same decline in the price of oil as has Venezuela.  So how's the Texas economy doing?  Here's a brand new report out from Texas A&M University, with data through March 2016, well into the oil price decline.  A fair summary is that because of the oil price decline, the economy of Texas has gone from booming growth to much slower growth, with small negatives in some indicators.  For example, "real total private hourly earnings" were down 1.5% from March 2015 to March 2016; but the total number of jobs in the state was up over the same period, and the unemployment rate remained well below the U.S. national average (4.6% versus 5.0%).  Oh, and Texas had a huge drought from about 2010 to 2014.  Its economy boomed throughout that period.  

And of course, it's not just Texas.  Countries or states with high reliance on oil but a market economy do just fine when the price of oil declines.  Places like Norway and Canada come to mind; even Mexico!  Really, Time and the Times, can't you look around for some explanation that is even plausible?

Actually, the Time article above links to a prior effort in the same publication from December 2015, titled "These 5 Facts Explain Why Venezuela Is In Big Trouble -- Still."  It's unbelievable, but again there is no mention at all of socialism and its effects.  Fact #2 that "explains" why Venezuela is in "big trouble" is headed "Woeful Economy":

Let’s start with the economy, which is on course to contract by 10 percent this year. Venezuela must pay back $15.8 billion in debt between now and the end of 2016, but the country only has $15.2 billion in foreign reserves to make good on that. 7.3 percent of Venezuelan households are classified as living in “extreme poverty.” Working for the minimum wage in Venezuela means you can only afford a week’s worth of groceries per month—40 percent of people working in Venezuela make the minimum wage or less.  Come 2016, the country is projected to have an 18.1 percent unemployment rate. Inflation this year has already reached a staggering 159 percent; Venezuelans have taken to using their country’s currency as napkins. The only thing worse than not having the money to buy food and basic goods? Having the money and finding bare shelves in the supermarket.

Got that?  The economy is bad because the economy is bad!  Thank God we have read Time to find that out!  In case you're curious, the other four "facts" that "explain" why Venezuela is in big trouble are: #1 - "election fallout" (it's the "political feud" referred to by the Times); #3 - "petro-state in a cheap oil age"; #4 - "crime and no punishment"; and #5 - "a little help from my friends" (i.e., Venezuela over-borrowed during the good times and now the debt is coming due).  What about things like massive nationalizations, seizing businesses, price controls, currency controls, blowout government spending, redistributionism, and all the other elements of socialism?  Somehow, those things completely escape Time's notice.

So, if you are wondering how millions of young people can think Bernie Sanders and his policies are just fine, now you know.  Why would anyone associate the disaster in Venezuela with socialism?