Venezuela's predicament is due to a number of factors, but mostly to general mismanagement of the economy.
Somone pointed out, rightly so, that the export dollars earned weren't used to develop the internal economy. My understanding is that the nation is not self-sufficient. It relies on imports. This means that a decrease in the value of the Bolivar sends prices in the country soring. Now if prices were only to increase on non-necessities, things people didn't need to survive, the impact would have been much less. The government should have used its surplus to foster development in industries that supply the necessities of the nation. It's my understanding that Venezuela was importing food (for reasons you cite below). That' is disastrous when your currency plummets for what I hope are obvious reasons.
The country racked up a lot of debt during the Chavez years in order to subsidize Venezuelan living standards. It nationalized industry and drove out entrepreneurs. (South Florida was once again a major recipient of wealthy Latins.) It decimated food production, thanks to price controls and land confiscation. It failed to properly modernize and reinvest in its state-owned oil company, which was systematically looted through corruption.
Agreed...
Remember this. We'll come back to it.
Matters weren't helped when the oil price dropped, which affected Venezuela's foreign exchange reserves. Because it was afraid of having its valuable oil assets confiscated if it defaulted on its debts, it continued to service them even at the expense of supplying basic commodities to its citizens. It created a tiered exchange rate regime, which dried up commerce. (For example, foreign airlines stopped servicing the country, because Venezuela set the conversion rate from Bolivars to foreign currency so low that flying people in an out of the country became unprofitable.) What can I say? Venezuela is just an economic basket case.
"Didn't help when the price dropped"? That's an understatement. I'd say it was like pulling the bottom card out on a house of cards.
The inflation is a result of the point I've tried to make over the years regarding fiat currency: Its value is based solely on confidence. Once the country defaulted on a portion of its debts, that confidence was shattered, and now the currency is in a death spiral. (So where are the MMTers now? Isn't this where they tell us Venezuela, as a sovereign state, can just print itself back to prosperity?
Yeah, I'm going to disagree. The value of any token, be it a dollar a movie ticket, arcade token, or gift card is based solely on whether the organization that backs those tokens can deliver on its promise. Belief has nothing to do with it. Having said that, people are irrational and can create a self-fulfilling prophecy. If everyone believed that the movie tickets from the local theater were worthless and no one bought them, the movie theater would shut down, not because it couldn't deliver on its promises, but because people irrationally believed it couldn't. The same goes for any currency. If store shelves are stocked with things people need and want, but they believe that the currency used to buy them is "worthless", then people end up creating the situation they feared.
As far as MMT is concerned, everything that's happened is perfectly consistent with MMT.
You may be able to print currency, but as Hyman Minsky once said, anyone can create currency, the trick is getting people to accept it. If things of value the currency can be used to purchase decline, people will rightly reject it.
If the currency created by the Venezuelan government were being used to create things of value in Venezuela (a point made in another post in this thread), things that people need, like food, this would drive value back into the currency, but instead, the government is creating currency and using it to pay foreign debt and buy staples for the population. That's 100% inflationary and perfectly predicted by MMT. This is something you point out in the section I said we'd get back to. Instead of using the money for economic development and increasing internal self-sufficiency and efficiency, money was used to subsidize living standards. This isn't a failure of socialism per-say this is the failure of the government and the culture to understand how to manage their economy.
