Not worth much. Credit, public domain, via National Numismatic Collection, National Museum of American History at the Smithsonian Institution

For a socio-economic system which has never actually managed to work anywhere it has been imposed socialism still manages to gain an awful lot of adherents. Perhaps people are misreading that definition of lunacy – it’s not that you should keep doing it, it’s that expecting a different result is the lunacy.

Do note something important here, Voluntary socialism works just fine. All human families work this way for example, from according to ability, to according to need. Property is held in common and so on. There’re any number of other examples – workers’ co ops can work just fine and they’re socialist organisations. It’s trying to impose the system upon people that doesn’t work. For this is the sort of thing that happens:

Venezuelan consumer prices rose 488,865 percent in the 12 months ending in September, a member of the opposition-run congress reported on Monday, as the OPEC nation’s hyperinflation continues to accelerate amid a broader economic collapse.

Specifically here the Bolivarian socialists insisted that they knew what prices should be better than the markets did. This isn’t a reasonable assumption. Thus when they set prices at what they thought they should be that economy collapsed. Well, we told you so – and I most certainly did, I can point to pieces from 5 and 7 years ago stating this would all end in tears:

Venezuela’s annual inflation rate will surge to 1.37 million percent by the end of the year as the government fails to cover a widening budget shortfall by printing money, according to a report from the International Monetary Fund published Tuesday.

And there’s the failure of modern monetary theory. Which is pretty good for just the one economic screw up, to kill off two economic theories. And half a million rising to one and a half million percent inflation rates does kill off whatever economic theory has been followed.

The thing about MMT being that the theory is right in many instances. Sure, governments spend before they tax, yes, a sovereign government with its own printing presses need never run out of money. It can indeed run out of money that’s worth anything of course, as those hundred trillion dollar bills in Zimbabwe show us. Or the current performance of the Bolivar fuerte (that second word of the description now being a sick joke).

However, where it all goes wrong is in thinking that there’s anything new here. It’s just monetisation of fiscal policy, something that has been tried many a time. Henry VIII tried it for example and his daughter, Elizabeth I, spent most of her reign trying to rescue matters – largely successfully. Where it fails is in human motivation. Sure, it is possible to increase taxation so as to reduce the inflation stemming from government money creation. And then which government does in fact increase taxation so as to do so? That’s just not the way that political incentives work.

Spending more money is politically popular. It gains votes. Taxation is not popular, it loses votes. So, which will politicians on the stump do? Right, they’ll spend and they’ll not tax. So, inevitably, telling them they can spend as much as they like will lead to inflation.

Which is what has happened every other time people have monetised fiscal policy.

And yes, you, you MMT advocate you there at the back. Great, so you wish to refute the above. OK – what is the correct taxation rate in Venezuela today to stop this inflation?

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Spike
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Yes, socialism has failed in Venezuela (and the Soviet Union, Cuba, North Korea, and everywhere else it is tried). But there remains a dictionary full of untried adjectives. Socialism imposed on people doesn’t work, though voluntary socialism within a family does. Hence “democratic socialism.” We will impose socialism only once voluntarily put in power (by a majority promised a lot of free stuff). I don’t care whether socialism is democratic, whether the bolívar is a “strong” bolívar, or whether the inflation rate is 1000% or 1,000,000%. Wages might rise in pace with prices, and the main casualty is using that… Read more »