The year was 2006, and the table was set for a party. A coronation of sorts; Hugo Chavez had succeeded in overcoming six years of instability which included multiple electoral challenges, a national strike, an attempted coup. Those had been acts of resistance; because the would-be (soon-to-be) dictator’s onslaught was of unprecedented accumulation of power which included a stacking of the courts, a complete reform of the legislature (eliminating one whole chamber of the congress), full usurpation of the central bank and the oil industry and a mega-election which saw the socialists in full control of Venezuela’s apparatus of power – at all levels.
Oil prices had spiked from roughly $10 bpd in 1998 to $70 bpd – with output remaining roughly the same at 3m bpd. What did Hugo Chavez do with his seven-fold increase in national income and his limitless power? He threw a party. Social “Missions” they were called, redistributive schemes for this or that new entitlement ballooned the size of government as twelve new para-government organizations began to provide benefits in food and health care and housing and care for the elderly (in exchange for a little loyalty? Sure, he was ‘El Comandante’ after all). And why not? Was it sustainable? Well, nobody ever asks how long the euphoria will last when the party is raging, do they? Or which drink it is that will push them over the edge into blackout. They sure don’t think about the morning-after.
During that period, Chavez brought down poverty from 71% to 41% (to arrive at last at 32% in 2013, the year that Chavez died). Of course, the term “reduced poverty” is economically and politically fraught; because poverty is rarely about money. And redistribution works super well, until it doesn’t anymore – that is to say while there is still something to redistribute, while high oil prices cover a multitude of egregious sins. Chavez’s reign of irresponsibility sure provided for a fun party, and I was there for much of it as witness to the madness, but the hangover? Extraordinary and bizarre like a slow motion train wreck when you pull your car to the side of the road because you just have to watch; the blood and fire and screaming demanding spectators of the most morbid kind: 97% poverty, a collapsed public infrastructure, wanton hunger causing 19th century famine conditions, the return of once-vanquished diseases and an exodus of 3,000,000 bread-refugees. The phones don’t work, neither does the internet or the electricity or the sewage or public water systems. Astonishing corruption, extreme violence (Caracas is the most dangerous city in the world), tremendous inequality (the kingpins are doing just fine). Of course, if they’d had unlimited supplies of money their communist project would have worked well enough. It might have even been benevolent (at least for most people. Just be careful what you say, what you write!!). The beatings only start when the money runs out. It’s about scarcity. But alas, they didn’t – have unlimited pockets that is – and Venezuela failed.
What am I getting at? What was it that brought the failure? Sure, bad ideas and stupidity (and in Venezuela’s case exacerbated by communism) but the fundamental, the root problem? – loose fiscal and worse monetary policy. Boring, right?
Careening recklessly towards the abyss. I’ve been having a struggle with myself over two over-arching narratives which are mutually exclusive, in fact are in serious conflict with each other. The first narrative comes from the Angus Deatons and Steven Pinkers of the world who speak of a “great escape”. Globalists who highlight that “We’re better off than at any time in history”. Those who ask each other on prime-time talkshows from air-conditioned studios in New York, “Even if you could choose, at what other period would you live than now?” Which brings me to the second narrative, because the answer to this question from most of the denizens of West Africa, of Bangladesh and Pakistan and Indonesia is ANY OTHER TIME! Sure the statisticians say that they have exited extreme poverty, the World Bank’s widget counters holding creepy little parties in lightless rooms on Pennsylvania Avenue to celebrate this or that ‘milestone’ – But do they know that, the actual escapers? Do they feel it, those crouching over dusty patches of earth beside a desiccating lake? Because they are the unprotected, who are forced to deal with the repercussions of environmental degradation and oceanic pollution and incompetent ‘services’ from bloated governments and tremendous inequality and the rising criminality of a world that is more dangerous than ever; a world which has returned to the Victorian Atlas where the great cities are google-mapped and the interiors increasingly un-charted, ungoverned – hic sunt dracones.
Back to the globalists – because they too are living the party – they do after all control the FED spigots and drink expensive whiskey with stolen money in Washington and Brussels and Tokyo while writing books about a “Great Escape” and doing dodgy math involving third-world struggles for prosperity and opportunity and meaning. Oops, did I say that? I meant basic subsistence – one dollar became two, lets throw a party! Because they are the last to feel the pinch; as the first to get access to the newly minted money. But a pinch is coming, oh my is a pinch coming; to be sure, the party may last a little longer than Hugo’s – unencumbered (mostly) by Venezuela’s communist baggage (Expropriate It!!!). But it is the same loose fiscal and monetary policy; people who think debt is a “medium term problem” (code for somebody else’s problem; in the U.S., code for ‘the other party’s problem’). Never mind its my problem, because I have a little boy. And he’s already got an albatross around his skinny little neck, though he doesn’t know it.
‘Quantitative Easing’ (sounds like what it is, industrial strength Metamucil); massive global budget deficits to provide services in diminishing returns to people angrier and more demanding – because people don’t want ‘services’, they want responsibility and restraint. $15,000,000,000,000 in new debt during the last two administrations, that is $46,000 per American. $200,000,000,000,000 in global debt; an unpayable mortgage upon not only our children’s future, but their children’s and the children after them. A global Ponzi scheme; but who has the courage to say so?
In Venezuela when the party finally ended, it came with the shock of a collapse in oil prices; something foreseen by any decent economist. When the buzz of the party-goers wore off, they realized that no businesses were functioning, that there was no foreign exchange in the banks, that the oil industry’s output had collapsed by 60% (due to no investment at all – even in maintenance of wells which tend to dry out) and that malinvestment had resulted in skewed priorities which sucked even good money away from the few rational citizens doggy paddling to keep their heads above while the cyclone raged around.
I’ve been recently criticized that I often identify problems but rarely propose solutions. Guilty as charged, I supposed. It’s most often easier to point out what is going wrong; and I don’t pretend to be one of those pedantic globalists who flies around the world lecturing people from expensive hotels where the Ubers dare go. Things are complicated and it’s often even hard to identify the ruin within ourselves, let alone for foreigners living in a strange place. However I will make an exception in this case. Because it’s an easy solution (if difficult to implement). We must live within our means; for a hangover cured with more booze means you’re an alcoholic, to continue the metaphor. We can’t indebt ourselves out of debt. We must return to savings-fueled growth; stop the FED from manipulating our interest rates through loose monetary policy; allow interest rates to float, encourage individual savings again; and balance our budget (with the aim at beginning to pay back our debt).
When you get caught digging yourself into a hole, the first lesson is PUT DOWN THE SHOVEL. That is it, that is all.