Tremendo rollo

papelsoft2My take on the toilet paper crisis in a post that proved very difficult to write, over at the Transitions blog. The value added:

Venezuela actually can’t afford to lavish on its citizens like other petrostates, but it tries to anyway. There isn’t enough oil revenue to finance both political subsidies and a functioning economy, and now that there is nobody left to borrow from, the problems are coming home to roost.

In almost cyclical fashion, strengthening local manufacturing could be a solution to this, but then again there are the heavy regulations and lack of adequate investment. So now, without being able to purchase goods from abroad, the few local manufacturers that exist are left to pick up whatever slack they can. But even while performing at full capacity, it isn’t enough to meet demand.

The Venezuelan economic model of excessive meddling is creating a mess. By keeping prices artificially low and imposing price controls on everything, they’re completely undermining the domestic economy to gain short lived political payoffs. Black markets occur when the formal economy isn’t functioning — and it hasn’t been for a while. Just between April and May, prices shot up an astonishing 6.1 percent.

In theory, importing things isn’t necessarily bad, as long as you have the currency to pay for it. The chavista economic model — export oil, import everything else at subsidized prices, regulate every step of the productive process, and forget about local manufacturing — works as long as you have an enormous flow of petrodollars. But even though the price of oil is high, it’s not enough to finance the needs of 28 million Venezuelans.

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