Venezuela's Crisis: What's Oil Got To Do With It?

During this turbulent history, oil production waxed and waned, following state directives rather than market incentives, yet booming oil prices in the early 2000s allowed for large cash windfalls. But eventually, after 2005 all revenues from it began to be rerouted by the government into Chavez’s lavish social missions, which covered everything from free health clinics to neighborhood basketball courts.

It is this period that most commentators see as one of great Venezuelan prosperity. But this prosperity was illusory, a mere veneer for the consumption of capital that was occurring. Capital goods—especially those in the oil industry—were being misused and depleted through central planning. For a while, this created an apparent wave of prosperity and development that Joseph Stiglitz called “impressive” at the time and that Mises had long before likened to burning one’s own furniture to heat up the room. But as soon as capital wore out, the façade collapsed and the centrally planned mismanagement of the resources was revealed. No matter how rich in resources the country still is, those resources were and still are used inefficiently and wastefully. Alternatively, Switzerland is very poor in mineral resources—or any natural resources, mind—and has not been plunged into an inflationary crisis. 

Chavez not only failed to eradicate poverty, as he claimed, but he laid the country squarely down the path of socialism and all its disastrous effects were merely magnified by Maduro. The latter is, contrary to its Western critics, not inept, but rather a committed and consistent socialist dictator, who only escalated and tightened, in a good socialist fashion, government control over everything from currency and prices to political dissent and free speech. This, and falling world oil prices, certainly sped up the disintegration of the Venezuelan economy but did not cause it.

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