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Anarchy is Worse than Socialism

Summary:
Socialism is bad. I need no convincing. But the collapse of Venezuela is much worse than anyone would have predicted from socialism alone: NYTimes: ….the drop in Venezuela’s economic output under Mr. Maduro has undergone the steepest decline by any country not at war since at least 1975. By year’s end, Venezuela’s gross domestic product will have shrunk by 62 percent since the beginning of the recession in 2013. Venezuela has lost a tenth of its population in the past two years as people fled, even trekking across mountains, setting off Latin America’s biggest ever refugee crisis. Venezuela’s hyperinflation, expected to reach 10 million percent this year according to the I.M.F., is on track to become the longest period of runaway price rises since that in the Democratic Republic of Congo

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Socialism is bad. I need no convincing. But the collapse of Venezuela is much worse than anyone would have predicted from socialism alone:

NYTimes: ….the drop in Venezuela’s economic output under Mr. Maduro has undergone the steepest decline by any country not at war since at least 1975.

By year’s end, Venezuela’s gross domestic product will have shrunk by 62 percent since the beginning of the recession in 2013.

Venezuela has lost a tenth of its population in the past two years as people fled, even trekking across mountains, setting off Latin America’s biggest ever refugee crisis.

Venezuela’s hyperinflation, expected to reach 10 million percent this year according to the I.M.F., is on track to become the longest period of runaway price rises since that in the Democratic Republic of Congo in the 1990s.

“This is essentially a total collapse in consumption,” said Sergi Lanau, deputy chief economist at the Institute of International Finance…

So what is causing the tremendous drop in economic activity? Ironically, it’s not too much government but too little. Outside of the capital, the government has practically abandoned its most basic responsibility of providing law and order. The result has been widespread looting. Ordinary theft is about stealing money or valuable “final” goods like diamonds or art works. In theory, the thief receives more or less what the owner loses. Looting, however, is a special kind of theft. Looting is theft plus destruction. The person who steals a candy bar is a thief. The person who breaks a store front window and steals a candy bar is a looter. Looters destroy intermediate goods and infrastructure and gain far less than owners lose. Looting is the worst kind of theft.

He said he lost his job at a hotel when looters ransacked it in March, ripping out even window frames and cable wiring. He now collects wild plums to sell for a few cents in the city’s parks. Most of his community’s diet now consists of wild fruits, fried corn pastries and bone broth, residents said.

Farther from the state capital, conditions are worse.

…The four stone quarries that are the island’s only industry have been idle since robbers stole all power cables connecting them to the grid last year. Local opposition activists estimate up to a third of the residents have emigrated from the island in the past two years.

“It used to be a paradise,” said Arturo Flores, the local municipality’s security coordinator, who sells a fermented corn drink from a bucket to local fishermen to round up his salary, which is equivalent to $4 a month. “Now, everyone is fleeing.”

On the other side of Zulia state, in the ranching town of Machiques, the economic collapse has decimated the meat and dairy industries that had supplied the country.

Power cuts have idled the local slaughterhouse, once one of the largest in Latin America. Armed gangs extort and rustle cattle from the surviving ranchers.

“You can’t produce if there’s no law,” said Rómulo Romero, a local rancher.

…“There’s no local, regional or national government here,” said José Espina, a motorbike taxi driver there. “We’re on our own.”

To say that socialism is better than anarchy is not to defend the rotten Chavez-Maduro regime. Instead I am pointing to the relevance of Mancur’s Olson’s model of the roving and stationary bandit. Olson explained why roving bandits evolve into stationary bandits:

Under anarchy, uncoordinated competitive theft by “roving bandits” destroys the incentive to invest and produce, leaving little for either the population or the bandits. Both can be better off if a bandit sets himself up as a dictator-a “stationary bandit” who monopolizes and rationalizes theft in the form of taxes. A secure autocrat has an encompassing interest in his domain that leads him to provide a peaceful order and other public goods that increase productivity.

The process is working in reverse in Venezuela. In Venezuela, the stationary bandit regime is collapsing and it is being replaced by a regime of roving bandits.

The incentives Olson identifies will eventually result in a new stationary bandit or, if Venezuela is lucky, maybe even less banditry and better institutions. The process is already underway. Consider this:

Local shopkeepers have pulled together to repair power lines and keep telecom towers running, to feed public workers, and to procure diesel for backup generators.

“We have practically taken on the functions of the state,” said Juan Carlos Perrota, a butcher who runs Machiques’ chamber of commerce.

Local shopkeepers are repairing power lines, feeding public workers and taking over the power of the state. Awesome! ¡Viva la maquinaria de la libertad!

The process of rebuilding governance, however, is slow and the destruction of wealth and human life costly. Indeed, it’s a surprise that Venezuela has gone so far down this path. Stationary bandits are usually replaced by other stationary bandits. Juan Guaidó seems far superior to Maduro on every score but the real puzzle is how Maduro has held off the generals even as anarchy looms. Don’t the generals see that that the goose is dying?

The post Anarchy is Worse than Socialism appeared first on Marginal REVOLUTION.

Alex Tabarrok
Alex Tabarrok is Bartley J. Madden Chair in Economics at the Mercatus Center at George Mason University and a professor of economics at George Mason University. He specializes in patent-system reform, the effectiveness of bounty hunters compared to the police, how judicial elections bias judges, and how local poverty rates impact trial decisions by juries. He also examines methods for increasing the supply of human organs for transplant, the regulation of pharmaceuticals by the FDA, and voting systems.

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