It’s really quite remarkable the number of European – and a few American too – leftists standing around with the “What, Who, Me?” look on their faces as we survey the rubble of Venezuela’s economy. It was only a few short years ago that the Bolivarian revolution was a shining guide to what the more progressive movements could and should aspire to. Greece’s Syriza, Spain’s Podemos, parts of Britain’s Labour Party (Jezz Corbyn and Owen Jones for a couple), even a couple of Beltway Bandits. At which point we should possibly measure the actual outcome of all this progressivism.
Which is, not good:
Venezuela’s inflation rate is likely to top 1,000,000 percent in 2018, an International Monetary Fund official wrote on Monday, putting it on track to become one of the worst hyperinflationary crises in modern history.
Hyperinflation has no strict definition but above 50% per month is the usual yardstick.
Socialist President Nicolas Maduro often blames Venezuela’s poor economy on an economic war that he says is being waged by the U.S. and Europe.
IMF economist Alejandro Werner says that if the prediction holds, Venezuela’s economy will contract by 50 percent over five years.
Well, no, the only war going on here is government policy against its own people. Venezuela’s against Venezuelans that is. I’d also suggest that the decline in GDP is going to be very much larger than 50%.
In a blog post on the fund’s website, Alejandro Werner, head of the IMF’s Western Hemisphere department, compared hyper-inflation in the Opec nation to that in Germany in 1923 and Zimbabwe a decade ago.
Germany in 1923 actually had an excuse, the reparations demanded after WWI. Similarly Hungary’s hyperinflation, the result of WWII and the Soviet takeover in the aftermath. Zimbabwe not so much, that was purely home grown idiocy, as with Venezuela:
We expect the government to continue to run wide fiscal deficits financed entirely by an expansion in base money, which will continue to fuel an acceleration of inflation as money demand continues to collapse.
That’s actually the end stage of modern monetary theory, just keep printing money to spend. Not that any MMT peep will admit it, that’s different. Because reasons.
There is an interesting economic footnote here. Which is really about hyperinflation in general. Note that the IMF says money demand is decreasing. This is our old MV = PQ idea. But if prices are soaring then how can demand for M be falling? Because that V has increased. The velocity of circulation has increased that is.
For what happens in a hyperinflation, is in fact a useful enough definition of it, is that everyone knows money will be worth less tomorrow. This afternoon even. So, there’s a mad frenzy to spend it now, upon anything at all. The same being true of the next person who has just sold the wheelbarrow they didn’t have any money to cart around in. Thus money is used many more times very much more quickly, reducing the need for there to be quite so much of it. But that in itself increases the inflation rate in a self-perpetuating spiral. I don’t know of anywhere that has ever beaten a hyperinflation without the introduction of a new currency. Presumably for this very reason. It’s really not hyperinflation, it’s hypervelocity of money.
Still, at least this gives us a useful question to tease progressives with. So, just what is it about Venezuelan economic policy which you so admire?