Venezuela's 'socialist paradise' turns into a nightmare: Medical shortages claim lives as oil price

[happyslug]

39. Actually the problem is in what Economists call the "Dutch Disease".

In simple terms Venezuela would be better off shutting down its oil wells and doing without the money from oil.

http://en.wikipedia.org/wiki/Dutch_disease

I wrote the following in June, 2014, just before the price of oil started to drop like a rock. The problem remains the same, but today the problem is the price of oil has dropped so much, that the Government no longer can keep the rest of the economy going. In times when the price of oil is up, the economy is hurt for oil keeps the value of the local currency to high, so high other industries and farmings just die out. In times when the price of oil drops like a rock (as it is doing today), there is nothing else in the economy to keep the economy going. In Coal Mining Regions of the US, you saw a similar situation. When price of coal is high, everyone goes into the mines and NOTHING ELSE IS BUILT UP for no one can compete with the mine when it comes to wages. When the price of coal drops like a rock, the miners are out of a job, but given that nothing else was built up doing the time of high prices, there is no other jobs to take (Jobs that do exist are related to the mines OR to keeping the miners feed and clothed NOT to support any other industry or even farming).

My Article from June 2014:


In many ways Venezuela has been suffering from the "Dutch Disease" since 1900. The term "Dutch Disease" comes from how the finding of Natural Gas in the Netherlands in 1959, lead to a decline in manufacturing in the Netherlands. Prior to the finding of the Natural Gas, Netherlands would export its agricultural and manufactured items to its neighbors in Europe. If exports were higher then imports the affect would be to INCREASE the value of the Dutch Currency, this would increase the value of imports till the value of imports equal the value of exports. If imports were higher then exports, the currency would FALL reducing the cost of items being exported, till the value of exports equal imports.

The finding of Natural Gas upset this system, for the export of Natural gas would be same no matter the value of domestic currency and thus would have the net effect of raising its value to levels that make the exporting of other items to expensive, and the importing of items very cheap. You end up with an economy wrapped around one items and that economy is driven by that one items, to the detriment of the rest of the economy.

Chavez actually was working on solving the problem of the Dutch Disease in Venezuela, then the price of oil climb higher then anyone though it would. This had the effect of encouraging importing of all types of items that could be produced locally, and forcing anyone not tied in with the Oil industry to quit doing anything, including farming and manufacturing.

This has been a problem for Venezuela since at least the 1920s. No one has been able to solve it and the recent increase in the price of oil (and that Venezuela has a HUGE amount of heavy sour oil it can export) has had the affect of keeping the Bolivar high. In many ways Venezuela is one of the most expensive countries in the world to live in, despite the fact it is loaded with slums.

Given that the price of oil increased by a factor of FOUR since 2000, that brought in a lot of Revenue to the Government who tried to use it to relieve a lot of the problems in Venezuela, but the mere bring in the revenue is the problem. In many ways Venezuela would be better off NOT exporting oil, thus no revenue and thus the value of the Bolivar would drop making Farming and Manufacturing profitable.

Notice, the problem is the MONEY coming into Venezuela, NOT how the Government is spending that money. In many ways you saw this in Saudi Arabia, Iran, Libya and other OPEC nations, they have high value currency but almost no exports of anything by oil related items (Crude oil and refined oil). Venezuela has had the same problem since the 1920s, yes it pre dates Chavez by decades. The only reason Chavez was able to take over, was do to the drop in the price of oil in the late 1990s, oil revenue dried up in Venezuela and no one knew how to pay the bills with the revenue from oil dropping like a rock in the late 1990 (Remember a $1 a gallon gasoline? and some Americans were paying even less).

Chavez got into power, pushed to higher oil prices in OPEC meetings, did get some price increase then you had the slow but steady increase in oil prices starting about 2002. This was both good and bad for Chavez. It was good, he had the revenue to do the projects he wanted, he reduce the poverty level in Venezuela by amounts unheard of elsewhere. On the other hand, his attempts to improve farming and manufacturing tended to fail for the revenue from Oil kept the value of the Bolivar to high to encourage exports while that same high value encouraged imports.

I do not know how you solved that problem. One of the reason Al Queda is so powerful is the unrest in Saudi Arabia and the Gulf States for the same reason. We do not hear of them for those are dictatorships that the US favors. We do hear of Iran and Venezuela, for they are ruled by people we dislike (and that also includes Russia, another exported of oil that we dislike). Russia and Iran are large enough and independent enough from the rest of the world to restrict what is imported and thus protect its farmers and manufacturing, Venezuela is not that thus can not isolate itself from the rest of the world, while exporting oil.

I hate to say this, but this cut off of air flights may be GOOD for Venezuela. It would be good by isolating Venezuela from imports (in the case of air travel people and flowers which tend to be airlifted out of Columbia and Venezuela for resale in the US, Columbia much more the Venezuela do to the Dutch Disease in Venezuela). If further boycotts of importing items to Venezuela occurs, it may encourage domestic production and pull Venezuela out of its Dutch Disease. Only time will tell but maybe this is a good thing for Venezuela.