One of the best examples of non random markets is that of Venezuela and her disastrous economic policies.
Everybody with some common sense knew that Venezuelan socialist policies would end in disaster.
It is very easy to see. Whenever you see a radical left or socialist party ascending to power, you know there is going to be a complete disaster after some years.
If they are allowed to govern for a sufficient period of time, they will completely obliterate any economy and society.
When a leftish government has enough years in power, like Venezuela´s case, it is just a matter of time that the private society dies and all capital fly away to other shores.
We also know that in a country like that no one in its right mind will invest a dime, unless you get paid very well, like the Chinese or Russians. But, those are not genuine private investors, but corrupted officials or multinationals that take advantage of the situation and get good conditions thanks to the corrupted Venezuelan politicians.
The rest of private activity is systematically destroyed.
Small and medium sized companies find it impossible to work in an environment of exponentially growing regulations and taxes.
Those companies either cannot comply with the regulations or are just destroyed by the inexistent demand.
Someone who knows cyclical reality, knows that when a government like that takes charge of a country the best alternative is to short the country completely. For nationals, it means leaving the country with all property possible.
International investor, in case they are allowed to make a bet, will short the Venezuelan currency and bonds, and only would buy bonds in usury conditions.
When a radical leftish party takes control of a nation we know that its currency is going to get destroyed completely. We also know that a government like that is likely to introduce price controls sooner or later.
Price controls always lead to chaos, “planned chaos” as Von Mises would say.
All of this is not random, of course, but follows some clear patterns of human action and reaction.
Speculators and price controls
One of the typical practices of totalitarian regimes – even those of the “right” – is to set increasing controls in the economy. Their favorite are: capital, currency and price controls.
I do not why, but it is in the very socialistic nature, to want to control everything. They cannot think of something as free managed. They just love to “control”.
As usual, it is the “speculators” the ones that are to blame (anyone with a shop, whether it is candies or chickens, is considered a speculator). Also, others to blame are: “fascists” (basically everyone who opposes the socialist government), capitalists (everyone who has some savings), et cetera.
When governments like that are established they start spending and taxing like hell, expecting to create the best social conditions to create the “New Man” (1).
As the policies do not work, there are increasing amounts of capital flying to Miami silently (2).
Then, the second phase of the totalitarian process starts.
Speculators, capitalists, “fascists”, people lacking solidarity, et cetera, are blamed.
Venezuela capital controls
The government starts creating new taxes and controls, like Capital ones.
In other words, you cannot get money out of the country without permission. When that happens, people search for alternatives, as for instance, some years ago, you could take money out of Venezuela through some stock market operations.
I do not know if it is still possible.
As the economic situation worsens and with a rising cost of like and prices (nobody deals or invest in Venezuela anymore), the government adopts ever increasing controls. They start blaming the dollar and some evil spirits.
The situation does not get better, of course, but worsens at an increasing pace.
The government members do not believe it can happen since they implemented “good policies”. They blame everybody out there, and the opposition starts to “visit” the prison.
The truth is that no one saves a dime in a country like that since everybody knows that the currency loses value every day
Half of the companies are bankrupt and the other half are hanging from a rope and praying for a change in government.
How to survive in Venezuela?
Those who survive are blamed for the disastrous economical conditions. They are called “profiteers”.
Those days, good protein is getting very difficult to find. Things like milk, eggs and, I guess, gym proteins, are very difficult to find. Supermarkets start to see their shells empty.
Venezuelan black market
Egg producers have close and the few remaining maintain operations at the minimum. They cannot even replace the machinery in those conditions.
Factories start to deteriorate. The government blames them crying “evil capitalists”.
One of the last stages of a populist regime is to start setting price controls. I think, it is probably their favorite measure.
Price controls started to be implemented massively in Venezuela in 2013 and 2014. I suppose that they are increasing and changing them as time goes by.
They are just putting more oil on the fire.
When the government starts doing it, the last medium and small national companies start breaking down.
At that stage, only multinationals, the State and the black market are alive.
Curiously, multinationals do quite well in an environment like that. The rest of small companies are literally crushed.
No one in its right mind even consider trying to start a business in that environment, unless it is a crime related one. Everyone who can save up something tries to take it out of the country as soon as possible.
The curious thing is that it is bureaucrats and politicians the ones that make the biggest fortunes in a country like that. They just send the money to tax havens. Then, they appear on TV criticizing how evil “speculators” and people who send money to tax havens are.
Cynicism at its highest.
Speculation in states in transition to socialism
Despite all the Venezuelan government propaganda, the real and truly bad speculators are those who belong to the government. They are the only ones who can make some “business” using their contacts in the official apparatus.
The rest of people are condemned to live and die in the regulatory hell devised for them.
It is amazing that the country with the biggest oil reserves in the World has to blame shop owners and people like that for the fact that there is no milk in the shops. It is as bizarre as it gets.
The reality is that the Venezuelan government has already adopted almost all totalitarian policies, and we can conclude that there are not genuine markets in the country anymore.
Venezuela, whos is to blame?
They cannot really blame stock market speculators because Caracas Stock Market is rising dramatically every year, so nobody can really short the Venezuelan stocks.
They cannot really blame futures traders since there is no future market in Venezuela.
What they have is, I repeat, the biggest oil reserve in the World.
There is no currency markets to be blamed.
The bolivar is not traded in any exchange or whatever.
The government sets a fixed price for the bolivar to finish speculation, but the truth is that speculation is bigger than ever inside the country, and government officials and friends are making outrageous profits by “trading” currencies in the black market. Basically, they buy the official dollar at six bolivars, and sell it at 250 in the black market, quite a nice profit for a short-term transaction. Is not that a great idea?
Disgusting fortunes are being made in Venezuela lately.
Corruption in bolivarian Venezuela
Government officials make a 3000% profit with a short time transaction, and they do not even need any sort of stupid regulation to do the business.
That is how the big money is being made in Venezuela nowadays, by extreme and disgusting corruption. That money is sent to tax havens or even the United States by some methods.
At the same time, Venezuelan streets are a hell on earth, and the homicide rate is more than 10 times bigger than that of the United States. But you do not see those things on TV.
The truth is that the only way to end the crisis would be to eliminate all regulations and taxes implemented by the government. It is simple, really.
The problem is, I think that eventually we will see price controls in Europe and even in the United States. When that day arrives, we can be sure that things are going to get worse.
Those hypothetic price controls are not random, but the final result of insane socialist policies: socialist policies under the mask of democracy.
- Banana republics think that they can achieve a welfare state like Germany or Switzerland without the creation of massive companies in the past, like happened in Europe or The United States in the XIX and XX Centuries. Socialists think that Germany and Switzerland are rich because they are “social”, when the truth is that they are “social” because they are rich. Even Germany will not be rich some day. No one will escape the cyclical laws, not even the United States.
- Many of those are from government officials who are not stupid and do not want to keep their “savings” in Venezuela.