Tuesday, January 19, 2016

Venezuela Has Declared a State of “Economic Emergency”.

Rachel Cunliffe, Deputy Editor of CapX, writes:

Venezuela has announced a state of “economic emergency”.

The 60-day state of economic emergency called on Friday, which comes on the heels of a 120-day state of emergency declared in September, gives President Nicolas Maduro the power to ‘fix’ the economy by intervening more heavily in companies and in the currency markets.

If you have ever wondered how a country with more oil that Saudi Arabia could be reduced to poverty, this is the answer. The regimes of Chávez and Maduro wasted and misspent the money made in the oil boom, while extending the reach of government control. With nationalisation came price controls, which fixed the costs of basic goods like fuel and flour at well below market rate. Simple economics kicked in. When the mandated price of something is lower than it costs to produce, people stop producing it. And when they can make more selling it outside official channels, a lively black market springs up as supermarket shelves remain empty.

It isn’t long until you’re left with a full-blown smuggling crisis, with armed gangs exporting staple goods into Colombia, where they can sell them at the market rate.

In short, Venezuela has been a tragic test case for how extreme state intervention can destroy an affluent nation.

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