The entirety of Venezuela’s ruling class is standing around with “Who, me?” looks on their faces as the country is plunged into darkness, the power system and the grid entirely fail to deliver electricity at all. The point being that yes, it’s you. The Bolivarian socialists have caused this. This is not the result of some attack by foreign capitalist pig dogs, is not some random occurrence that can strike anyone. It’s a direct result of their own previous economic policies.
They froze prices, d’ye see? That made electricity incredibly cheap, sure it did. That price was frozen, inflation took off up into the upper stratosphere, the real price of electricity falls to some tiny fraction of the cost of production. What happens then? Well, as there’s no money in the electricity generation or distribution system then no money gets spent on the electricity generation or distribution system. No maintenance, no upgrading. All this at the same time as a price of spit increases demand for that electricity.
For those first couple of pages in every economics textbook are in fact correct. Those supply and demand curves do describe reality. The reality that Bolivarian socialism is so desperate to deny the existence of:
Venezuela was almost entirely without power on Friday night amid a blackout that the Maduro government blamed on sabotage and which wrought chaos across much of the country. Communications went down, water pumps failed and transport ground to a halt as Venezuela was plunged into darkness at around 5pm local time (9pm UK) on Thursday night. The power cut was believed to have hit up to 23 of the country’s 24 states, though with mobile networks and internet largely out of action, the situation in some areas was unclear.
So, why did this happen?
All sounds reasonable enough but the real, underlying, cause is explained here: In the 2000s, after Hugo Chávez came into office, investment in new electric capacity in Venezuela dried up, particularly after he nationalized the grid in 2007. But demand for power kept soaring after the government froze electricity rates in 2002 and began subsidizing consumption. More and more people bought air conditioners, TVs, and so on. Today, Venezuela’s per capita rate of electricity use is one of the highest in Latin America.
And that’s it really. It’s necessary to charge enough for electricity to pay to keep the lights on. Don’t charge that much then you’ve not got the money to keep the lights on. Thus, ineluctably, they go out.
And just for any who still think that Venezuela has something that even approximates to an economic policy, a reminder. Price systems have a purpose. They balance supply and demand–they are not just inventions of those who would deprive the workers of their rightful. And any economy which doesn’t use the price system to allocate resources will fail, just as the Bolivarian economy there in Venezuela is failing. We can have socialism, sure we can, we can have social democracy, we can have capitalism even, but what we can’t have is the duo of an economy that functions and the absence of markets and prices.
We’ve much the same being said in painful detail here:
In Chavista Venezuela it is not just running water that is no longer available, but electricity too. Inadequate investment and a lack of maintenance has collapsed the electricity grid, plunging much of the country into darkness for prolonged periods of time. Electricity used to be partially privately-owned, part state-owned, but in 2007 former President Hugo Chavez expropriated the assets of the largest private power producer, Electricidad de Caracas. Chavez merged all electric companies into one big state monopoly, the Corporación Eléctrica Nacional (CORPOELEC).
Power cuts due to underinvestment and poor management began in 2009 and have increased in both frequency and severity over time. In 2016 public sector employees were put on a three day week in order to preserve power. While $50 billion was supposedly invested in the sector in recent years, there is little to show for it aside from 130 houses worth €72 million in Spain recently confiscated by Spanish police from Venezuela’s Deputy Minister of Energy and Mines. Such corruption, also in the form of power stations paid for but never built, clearly contributed to the failure of the system. Of Venezuela’s installed electricity capacity, 50% of the system does not work and 75% of the infrastructure is obsolete. The electricity grid is hopelessly inadequate and completely unable to meet demand.
Key turbines have been allowed to deteriorate and some power installations have actually exploded due to lack of maintenance.
Prices matter that is.
Congratulations to Bolivarian socialism therefore. Their habit of making prices nice and cheap for everyone has meant that there’s nothing for anyone. Which is just what happens when you start messing with markets.