Living in a Socialist Economy

Posted on February 16, 2007
Filed Under Public Policy |

This story on Bloomberg had the standard issue dryness for what is really a fascinating story unfolding in Venezuela. This is what the economist interviewed for the story had to say about Chavez’ plan to control inflation by lopping 3 zeros off the currency.

He has a funny understanding of the problem,'' Alberto Bernal, a Latin America economist with Bear Stearns & Co., said in an interview.Cutting a number of zeros from the bolivar is irrelevant in the end.”
Allow me to translate into non-economist speak for those among us not so fortunate to hold a degree in economics:

“This guy is a fucking nut case”
Now for the not-so-funny part of the story. If you want to see a real life example of what happens in a centrally managed socialist economy where incentives to produce are stamped out and people lack the will to invest and invent, look at Venezuela. Once you have done that, think about what is happening in that country every time some politician (on either side of the aisle) talks about windfall profits taxes (oil companies), price controls (energy), and limits on executive compensation. I’m not suggesting that we should live in the wild wild west, but in each of the above cases history teaches us that bureaucracy is the hobgoblin of all that is good about capitalism and that the after effects of disastrous policies long outlive the policies themselves.

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