Hoisted from teh Archives: Joseph Schumpeter on "Liquidationism"

I find myself wishing that Ricardo had given us some numbers here: How much in the way of resources has the government raised from society via its inflation? And how have those resource flows declined since the 2015 decision to monetize the fiscal deficit?: Ricardo Hausmann: The Venality of Evil: "Inflation in Venezuela... [at] 1,000,000% by year’s end... GDP... 45% below its 2013 level by the same time...

...How is it... that Venezuela can have a GDP contraction that dwarfs that of the Great Depression... while simultaneously generating hyperinflation of a magnitude seen only in Germany in 1923 or Zimbabwe in 2008-2009?... The government used the oil boom that started in 2004 to disempower society and enhance state control over production and the market, while borrowing massively in international markets. Although state control was detrimental to production, the government could shelter the public from its consequences through subsidized imports, which further damaged domestic production.... 2013, the government... had... [lost] access to international capital markets, triggering... recession..... 2014, the price of oil fell sharply, making the previous import level unsustainable and triggering a much deeper collapse..... Even members of President Nicolás Maduro’s administration pushed for a return to more market-friendly policies and for international financial support. Instead, Maduro’s government doubled down, deepening distortionary controls.... Clear by the end of 2015 that a major collapse was coming–and even that a famine was in the making. Nothing was done to prevent it. Offers of humanitarian assistance were refused. With imports, output, and tax revenues collapsing, the government opted to print the money needed to cover the fiscal deficit, triggering hyperinflation.

But while the “how” of the Venezuelan collapse is clear and was predicted ex ante, the “why” question is harder to answer.... Allan Drazen and Alberto Alesina suggested that economic stabilization might be delayed because two contending groups are trapped in a war of attrition; all understand that adjustment is necessary but expect the other group to bear the brunt of the cost. By delaying, they provide information to the other group about their willingness to withstand the pain. The process continues until one group capitulates.... But in a totalitarian regime such as Venezuela–and with Cuba calling the reform shots–it is hard to tell who is trapped in a war of attrition with whom. Ignorance is a weak explanation.... Plenty of one-time Chavistas pleaded for a change of policy.... Ignorance was a deliberate choice.

That leaves intent. The government chose this course of action because it felt that it was better than the alternatives. But it is difficult to imagine courses of action with worse outcomes for millions of people than the current one. What are we missing?... The regime... bought off as many henchmen, through venal means, as it would need. Yes, the catastrophe would weaken the regime; but society would weaken even faster, assuring the regime continued control. The Oxford English Dictionary defines “evil” as “doing or intending to do harm.” Ultimately, there is no other plausible explanation...


#shouldread

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