Friday, January 20, 2017

How Quickly Could a Venezuelan Economic Miracle Occur?

Victor Ward emails:
If Venezuela were to become a free market country, let's say on February 1, 2017, how quickly would things turn around?

I assume that there would be some lag time as investors and businesses sought some economic evidentiary assurance of the miraculous transformation.

But, there would also be those first-movers. And, once those first movers were able to enjoy their full profits, the country would enjoy an economic rebound never before seen as Venezuelan and foreign investors and entrepreneurs streamed into the country.

Based on your answer to a question I had about Kenya, it seems that turnaround could be very short.

Is "weeks to months" out of the question?

Thanks, Bob. I'll take your answer either over email or in the Alert or in your new service or on EPJ or on TL or during the next Circle.
RW response:

Hi Victor,

This is a great question, most people just don't understand how quickly free markets can correct a dire situation.

My answer is that things would start turning around in minutes and continue to improve day after day. You would have a fully operating economy within 2 to 3 months.

It needs to be understood that there is probably much black market activity going on in the Venezuela now and that activity would emerge from the shadows immediately become much more efficient. Every day after, you would see more and more business activity. Until you would have a vibrant economy within a couple of months.

It is remarkable on how unwilling people are to shed stifling controls that would result in rapid improvements.

That is why when it comes to economic policymakers I consider Ludwig Erhard the greatest. He was not afraid to rip down price controls in West Germany fully and all at once, against everyone's advice. His bold action resulted in the Great German Economic Miracle:

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