Not communism (II):Worsening inflation caused Venezuela’s economic recession

[The Ghoul]

I mentioned in a previous article: Neither "Dutch disease" nor "abnormal trade" can explain Venezuela's current economic recession and hyperinflation.
Not communism: The real cause of hyperinflation in Venezuela

The root of Venezuela’s economic problems lies in the failure of domestic economic policies and the resulting inflation, which is embodied in Venezuela’s deteriorating domestic inflation, which eventually evolves into super inflation. Deteriorating inflation is the root cause of a series of domestic economic problems in Venezuela and further leading to economic recession.

Deteriorating inflation has a huge impact on Venezuela's economic growth.

Venezuela’s GDP growth rate reached a high point of 5.6% in 2012, and has since turned into a continuous decline. At the same time, 2013 was the year when Venezuela’s CPI turned to a rapid rise, reaching 40.6% that year, breaking the previous average (2002). －The average CPI of Venezuela in 2012 was 23.3%).In the five years from 2012 to 2016, there was a sharp contrast between the decline in GDP growth and the rise in CPI. We can even think that during this period of Venezuelan economy, for every 10% increase in CPI, the GDP growth rate will drop by 1%.

It can be considered that the rapidly rising inflation has brought three significant effects to Venezuela's economy and government fiscal system.

• 1.Through the Olivera-Tanzi effect, the government's fiscal revenues and expenditures have deteriorated.

Oliveira-Tanz effect refers to the fact that due to the significant time lag between government revenue (nominal currency revenue) between the time of collection and the time of expenditure, rapid inflation can lead to a significant decrease in the actual purchasing power of fiscal revenue, which in turn causes fiscal revenue and expenditure facts The deficit or expansion of the deficit. For example, if prices rise by 50% within half a year, if fiscal revenue in the first half of the year is arranged for expenditure in the second half of the year, its actual purchasing power will drop by 25%. In this way, the government will have to increase nominal fiscal expenditure in order to maintain the actual effect of fiscal expenditure.

• 2.Promote the shift of output and employment to the underground economy, further eroding the government's tax base.

With the slowdown and decline of export revenue and fiscal revenue, the Venezuelan government has continuously strengthened its artificial control of the foreign exchange market and prices, and price distortions abound in the domestic economy. Rising inflation has further stimulated people to engage in speculative activities.
Tax evasion and irregular employment have become regular behaviors of ordinary people in Venezuela. In this economic environment, government taxation and fiscal pressure will inevitably increase day by day.

• 3.Hinder export growth.

The Venezuelan currency, the Bolivar, has been depreciating continuously on the foreign exchange black market since 2003, but the depreciation of the official exchange rate has been seriously lagging behind the market exchange rate. The rise in domestic inflation has caused a real appreciation of the domestic currency on the one hand, and a shortage of foreign exchange on the other. Faced with the shortage of foreign exchange, the Venezuelan government has continuously strengthened the control and rationing of foreign exchange resources, which objectively led to the further deterioration of expectations of devaluation and domestic inflation.


The economic history of many Latin American countries since the 1970s has repeatedly shown that high inflation is the main manifestation of macroeconomic instability and the most important factor hindering economic growth and recovery. The high inflation rate in Venezuela after 2013 is the root cause of the country’s economic disaster.

Opinion Source:International Economic Review/2017/No. 6

[Poker Player]

I have given you a merit because even though I think your arguments are quite (communist) garbage, you argue well and have worked your posts.

"Dutch disease" is a garbage concept because it assumes that what happens in the economy is like a disease that comes along and you have not been able to do anything about it. In Holland, and in Venezuela, they could have done things differently, like in Sweden, for example. Nobody forced the Bolivarian communist Chavez to focus his economy on oil and spend and spend as if there was no tomorrow on populist measures.

And now you say in this thread that hyperinflation caused the economic crisis. No. They go hand in hand. To take measures of communist populism, like Chavez's famous "expropriate it" is what has led to both the economic crisis and hyperinflation, which go hand in hand.

[hugeblack]

Dutch disease is the beginning of falling for many economies and is not very clear. Many economies begin to grow when a wheel of an economy begins with the movement and then the effect of full closure begins as the whole country is based on the designated economy.
Unfortunately many governments are afraid of collapse and therefore comes late and slow.

[Hydrogen]

I mentioned in a previous article: Neither "Dutch disease" nor "abnormal trade" can explain Venezuela's current economic recession and hyperinflation.

....

Venezuela's President Threatens Toyota, GM

Dec. 27, 2009

Venezuelan President Hugo Chávez, beset by a recession that is hurting his popularity, has turned his sights on international car companies, threatening them with nationalization and pledging to ramp up government intervention in their local businesses.

The populist leader has threatened to expropriate Toyota Motor Corp.'s local assembly plant if the Japanese car maker doesn't produce more vehicles designed for rural areas and transfer new technologies and manufacturing methods to its local unit. He said other car companies were also guilty of not transferring enough technology, mentioning Fiat SpA of Italy, which controls Chrysler Group LLC, and General Motors Co.

The president ordered his trade minister, Eduardo Saman, to inspect the Toyota plant. He said if the inspection shows Toyota isn't producing what he thinks it should and isn't transferring technology, the government may consider taking over its plant and have a Chinese company operate it.

https://www.wsj.com/articles/SB10001424052748704039704574615990386867578

The above is what led to venezuela's current economic downturn.

Venezuela's government used intimidation and harassment tactics on corporations making up the backbone of venzeuela's economy. With disastrous results.

Discussing oil is a smokescreen.

Many in the united states today dream of a post corporate economy but none would look so far as venezuela to see what it looks like.