Here’s a letter to NPR reporter David Greene:
Mr. David Greene
Dear Mr. Greene:
You and reporter Girish Gupta, who you spoke to this morning from Caracas, both seem mystified that Venezuela is in what you describe as an “economic mess” – with its people suffering massive shortages of staple goods – even though that country is rich in oil (“Opposition Blocks Traffic In Venezuelan Capital Caracas“). As you asked Mr. Gupta, “Why isn’t the oil money in Venezuela actually helping to make people better off?”
The answer is simple: people cannot eat, drink, clothe, shelter, educate, or medicate themselves with oil or money as such. Oil can be transformed into a few useful goods and, like money, also exchanged for other useful goods and services. These transformations and exchanges, however, require decentralized markets and uncontrolled prices – two economic institutions quashed by Venezuela’s socialist policies.
Without the incentives created by markets and the information transmitted minute-to-minute by market prices, even the most mundane outputs such as toilet paper, bread, and coffee do not get produced in sufficient quantities. And the few supplies that are produced are not reliably transported to where they are in highest demand. Even if all Venezuelans were knee-deep in oil with their wallets stuffed with money they would continue to be poor as long as their government sticks to its policy of suppressing markets.
Crude oil and cash are of no use if there is nothing to exchange them for – and without markets there is, indeed, nothing to exchange them for.
Donald J. Boudreaux
Professor of Economics
Martha and Nelson Getchell Chair for the Study of Free Market Capitalism at the Mercatus Center
George Mason University
Fairfax, VA 22030