Venezuela’s economic implosion is complex, and it’s easy to get lost in the weeds. Earlier I explained why economists are so worried about default. And it’s true, failing to pay foreign debt could have genuinely catastrophic implications. There are lots of good reasons the government is frantic to avoid it.
But it’s important to hilar finito. It’s easy to get the idea that the basic problem is not-enough-dollars: oil prices fell, and there just aren’t enough dollars coming in, that’s why you can’t find food in the shops.
That would be the wrong lesson to take from all this. Venezuela’s problem isn’t too little income, it’s too much waste.
Let’s go back to our analogy: yes, we’re like a credit card holder who borrowed too much, saw his income fall, and is now very close to missing the next minimum payment. That would send his credit rating down the toilet and the repo man knocking.
Venezuela is like a house where all the heaters are going at full blast and all the windows are broken.
All of that is true, as far as it goes. But it doesn’t go far enough.
We have to prod deeper. Why did we get into so much debt? What was all that money for? Where did it go? Where is it still going?
Extending the Analogy
Venezuela is like a credit card holder who lives in a very cold country. Sweden, maybe, or Canada.
When you look closely at his bank account, you realize a crazy proportion of his spending is going on heating oil. It’s like 60% of his budget: way, way more than normal.
Then you go to his house, and you notice all the heaters are going at full blast. And all the windows are broken, letting all the heat out again.
So yeah, our guy is frantic. He knows he’s about to miss a big credit card payment, and he knows it’s bad. He’s desperate to pawn something, anything, to avoid that happening. He’s sizing up his wife’s wedding ring. The family jewels. Anything.
But notice what he’s not doing. He’s not mending the freakin’ windows!
Last month, Maduro half patched-up a couple of the broken windows in one of the rooms of the house with some duct tape and a bit of cardboard.
It makes no sense to spend all your money on heating oil if you’re going to let all the heat out. Not only do you end up broke, but the house is freezing!
The broken windows in our case are exchange controls, price controls, and subsidised gasoline and electricity: senseless policies that use up jaw-dropping portions of the nation’s income for, in essence, no benefit at all.
Everybody has been telling the government it needs to fix those damn windows. It’s a relatively minor expense. A trivial expense, compared with what they’re spending on heating oil. Even people who spent years and built careers out of enabling the government’s craziness are now beseeching it to quit screwing around and mend the damn windows already.
Last month, Maduro half patched-up a couple of the broken windows with some duct tape and a bit of cardboard. He did a piss poor job. The windows he worked on still let tons of heat out, though maybe a little less than before. And all the other broken windows he just didn’t bother with. That’s what the famous announcements we spent three years waiting for amounted to.
Now, you could get conspiratorial and say “well sure, they keep the windows open because one of the people in the house likes the breeze and is benefiting from keeping them drafty.”
But it only takes a second’s reflection to realize that that’s nonsense. Even if there is one enchufado in the house who likes it a little cooler than everyone else, accommodating that person by busting every window in the house wide open with the heaters on at full blast is just idiotic. There are tons of ways they could satisfy that person without making life intolerable for everyone else. They could give him his own room and keep the windows open there, while shutting off that one heater. They could crank up the air-conditioner in one room only. They could easily meet all of that person’s desires without bankrupting the whole household.
But they don’t.
And that, in the end, is what makes Venezuela’s collapse so maddening and so hard to fathom. All of it is self-inflicted. None of it is necessary. Not even if their overwhelming priority is to keep a handful of enchufados growing enormously rich.
Even if that’s what they’re mostly devoted to, even if corruption is their top priority, they could still do it in ways that don’t screw up everyone else’s ability to get by with a minimum of dignity and comfort. And it would be better for them, because it would help ensure they could keep stealing for longer.
But they don’t. For some reason, they don’t.