Images of citizens waiting in lines to get basic goods – toilet paper, flour, milk – throughout supermarkets in Venezuela abound across the internet. Such surreal imagery is the norm in present-day Venezuela. From the 1950s to the late 1990s, Venezuela was Latin America’s most economically and politically stable country. Fast-forward to the present, and Venezuela is not only undergoing an unprecedented economic collapse, but it is also on the verge of becoming a failed state.
Understanding Venezuela’s Shortage Crisis
How could a country that was once so prosperous fall to such lows? Basic economics dictates that goods do not just vanish out of thin air. To comprehend the phenomenon of shortages in Venezuela, a cursory analysis of the economic measures passed by Hugo Chvez’s regime and his successor, Nicols Maduro, is needed.
The main culprit in Venezuela’s economic tragedy is government intervention, specifically price controls implemented during the Chvez and Maduro administrations. These controls have been the underlying factors behind the rampant scarcity of basic goods in Venezuela.
Venezuela’s Current Price Control Experiment
Emboldened after an unsuccessful coup attempt against his government in 2002, Hugo Chvez initiated a series of interventionist measures with the aim of preventing capital flight. These measures included expropriation of key industries, exchange controls, and price controls.
Despite the harmful nature of these policies, the flow of petrodollars thanks to high oil prices could give Venezuelan businesses the luxury of importing basic goods and raw materials as a short-term, fallback measure. Even with high oil prices, shortages of price controlled goods began to slowly pop up in 2006 due to the exchange and price controls.
This post was published at Ludwig von Mises Institute on Aug 16, 2016.
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