Must-Read: Ricardo Hausmann: Through the Venezuelan Looking Glass

Must-Read: Ricardo Hausmann: Through the Venezuelan Looking Glass:

Venezuela’s crisis is not the result of bad luck…

but the inevitable consequence of government policies… expropriations, price and exchange controls, over-borrowing in good times, anti-business regulations, border closures, and more. Just consider this small absurdity: President Nicolás Maduro has refused, on several occasions, to authorize printing larger-denomination banknotes. The largest bill currently is worth less than $0.10. This has caused havoc in the payment system and in the functioning of banks and ATMs….

Why would a government adopt harmful policies, and why would society go along? The chaos into which Venezuela has fallen may seem to be beyond belief. In fact, it is a product of belief…. The paradigm of Venezuela’s chavismo blamed inflation and recession on devious business behavior that had to be controlled through more regulation, more expropriations, and more managers in jail. The destruction of people and organizations was perceived as a step in the right direction. By getting rid of those witches, the country would be healed…. The fundamental determinant of public policy choices is the public’s beliefs. In countries where people regard the poor as unlucky, they want redistribution; where they regard them as lazy, they don’t. Where people believe that businesses are corrupt, they want more regulation; and, with enough regulation, the only successful businesses are corrupt….

Donald Trump… and his many supporters [think] the US is led by weaklings who are being exploited by savvy foreign powers, masquerading as allies. Free trade is a Mexican invention to take away American jobs. Global warming is a hoax invented by China to destroy American industry…. Much the same may be true of the United Kingdom’s vote to leave the European Union. Were immigrants and EU rules really blocking the country’s progress, implying that Brexit will open a path to greater prosperity? Or is the economic downturn since the vote an indication of how valuable integration and the free movement of Europeans was to the UK’s own vitality?… Venezuela shows how unaffordable such experiments may turn out to be.