Lipstick on a Pig

By March 25, 2018 May 23rd, 2018 No Comments

Venezeula’s boss, after creating crushing hyperinflation, now proposes to fix it by cutting a few zeros off the bills.  It’s hard to believe that anyone could take his proposal seriously, but such is the level of economic understanding by most people.

Inflation is a clever way to steal money out of people’s pockets without even being in the same room.  Say you increase the amount of money by 1% and you get to spend that money.  It’s a great deal for you.  You buy goods for the cost of printing up some paper bills.  But for everyone else, their money is worth 1% less because prices increase due to the increase in money.  That’s why counterfeiting is illegal; it’s theft.

Governments use inflation all the time to allow them to spend more than they tax (people notice taxes and resist them, but few notice mild inflation).  But hyperinflation, a quarter million bolivars to buy a dozen eggs, quickly impoverishes people and gets a lot of attention.  In response, governments blame everything except the real cause (the government).  During the 1970’s in the US, the government issued WIN buttons (Whip Inflation Now) for people to wear, as if the cause of US inflation was something other than leaving the last remnants of the gold standard in order to spend freely.  But they could do that with a straight face because so few people understand the actual cause of inflation – a huge failure of economics education.

Adopting the US dollar would be a big improvement for the people of Venezuela.  They would exchange hyperinflation for single digit inflation and their government would have some fiscal discipline forced upon it.  But the change is unlikely to happen because without the advantages of theft via inflation the current government probably couldn’t stay in power; and they know that.  So Venezuela’s boss will continue to invent excuses for inflation and leave people in misery instead of putting his power in jeopardy.