Venezuela Map

Income Redistribution: The Venezuelan Economy

by Elaine Schwartz    •    Mar 8, 2013

The Venezuelan economy in 3 pictures:

Price Ceilings

Price Ceilings

Observed during October, 2010, the sign shows that there is a price ceiling for Diana Oil. At 4,73 bolivars, the ceiling is 32% less than 7 bolivars, its “capitalist price.” As always, price ceilings lead to long lines and shortages.

However, for retirees and others with more free time, the cost of the inconvenience has been minimal.

Subsidized Gas Prices

Subsidized Gas Prices

At 4 cents (!!!) a gallon for regular, Venezuelan gas is heavily subsidized.

In addition to such inexpensive fuel, poor Venezuelans enjoy free neighborhood health clinics free housing and government pensions. As a result, the poverty rate is down and Venezuela is faring better on the UN’s Index of Human Development.

Ranked #19 by transparency.or, Venezuela is one of the most corrupt countries in the world.

A score of 19 from Transparency International indicates that Venezuela is among the more corrupt countries in the world.

The subsidies, the price ceilings, the wealth redistribution, and nationalized oil fields have distorted the normal incentives created by demand and supply. The result is a pervasive corruption that constrains economic growth.

Perhaps one Bloomberg headline sums it all up: “Hugo Chavez, R.I.P.: He Empowered the Poor and Gutted Venezuela.”

A final question: Can short term benefits from income redistribution be worth the tradeoff of long term economic growth?

Sources and Resources: Bloomberg, here and here, has excellent articles on the Chavez legacy. My gas price information and picture were from CNN Canada, the price sign from N. Gregory Mankiw’s blog and here is the UN’s Human Development Index. I do recommend looking at Transparency International’s corruption index.

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