 Welcome to the FeeCast, your weekly dose of economic thinking from the Foundation for Economic Education. I'm your host, Richard Lawrence, and I'm joined today, as ever, by our fabulous panel, Dan Sanchez, Mary Ann March, and our very, very special guest, Jorge Gerasati, who is from Venezuela. And if anyone has not seen the video that Jorge narrates, it's his life story. We put it out a couple of months ago. It's actually in the description, so if you click on that. So powerful. There's a powerful story about Venezuela, and that's going to be the topic that we're going to be talking a lot about today. We've talked a lot about Venezuela over the past couple of FeeCasts for good reason. And that reason is because there are some very terrible things happening down there, the most recent of which was a sham election on Sunday down in Venezuela that re-elected the president, Maduro. So we're going to get into that, and we want Jorge to tell us all about his personal story. Before that, though, I wanted to cue you, Mary Ann, to talk a little bit about where Venezuela came from and how it got to where it is today, because it's a pretty interesting and sad story. Yes. Absolutely. So in 1915, you must know this, that Venezuela was the fourth richest country in the world based on per capita GDP. And today, it is one of the poorest countries in Latin America, and the economic index, excuse me, the index of economic freedom ranks it as 169 out of 170 countries. Second only to Venezuela. All right, excuse me, Venezuela only has fewer economic freedoms than North Korea, nobody else. North Korea is 170, Venezuela is 169, and it used to be four. Right, that's correct. And why generally are these policies? Well, I think the four was the GDP. Right, per capita GDP. And the other number was economic freedom. That's correct. Yes. We've seen in Venezuela the rule of the law being eviscerated by price controls and regulations. And in 2016, a million people have taken to the streets in protest because people are starving and there's shortages on basic goods and medical supplies. I know I've seen from CNN pictures of newborn babies and cardboard boxes at hospitals because they just don't have access to goods. It's a devastatingly sad story. And I think there's no better person to talk about it than someone who's actually lived it. Jorge, you talk a lot about in your video where Venezuela came from, where it is now. But tell us your perspective of why Venezuela is in such a bad place today. I will start by saying thank you for all the support to our country, to our people. Because my people are struggling, as you said. There are difficult conditions that we are living right now in my country. And the fact that we have free organization just supporting us and expressing our voices and speaking out for us because the million of people who live in my country, they don't have the opportunity to speak out. They don't have the opportunity to express themselves because the government silenced them. Yeah, I might add here in my research, I also found that Venezuela breaks 143 out of 180 for press freedom. Press freedom. Yeah. So it's totally unfree in the press area. Chavez and the government of Chavez nationalized several newspapers, nationalized several TV stations and radio stations. So there's no way you can express in your country, in my country. And of course Chavez is the preceding president to Maduro. And tell us a little bit about how he got in power. Chavez was in the military and in 1992 he tried to meet a coup d'etat who wasn't successful. So he tried to overthrow the elected government. By force. A coup d'etat in which more than 200 people were dead last year were killed because of the coup d'etat. Because they tried to overturn a democratic government with issues, with difficulties. But that's why we believe in democracy because we believe in peaceful transitions. And he didn't believe in that. And that's why then he became a dictator in my country. So fast forward six years from the coup, the attempted coup, he was elected, legitimately. Legitimately. Yeah. There were difficulties in the 1990s. But the way countries overcome these difficulties is through democracy. It's through good public policy, it's through debate, it's speaking out, not through force. So with that being said, and I want to thank you for that, for expressing the millions of people that want to express. And they can't. And the international community is very important for us because then my people who are protesting every single day not only feel that their struggles are seen in the international level, but also that their protests are supported by Americans, people in Canada, in the European Union. And that's extremely important for us because we believe that they are like in our fight as well. It's our honor for sure. And I would begin to ask you, there are so many questions that we could ask you about Venezuela, but what truly are people dealing with today? You mentioned the lack of press freedom, right? We talked about in the last feed cast that there was a Kellogg serial factory that was closed. Yes. Right? But what truly are people in Venezuela experiencing now? And as a corollary question, because I'm sure we'll get into this a little bit later too, why can't they just elect a different government? Why was there a sham election? Yes. We'll need to divide in two different difficult circumstances that people live every day. The first one is, of course, the political repression. They cannot speak out. They cannot express themselves. They cannot blame a politician, a government politician, because they will put in jail. But also you have the social difficulties that to me are the most important ones. Because the people who are suffering the most are the people who Chavez told them that everything was going to be fine, right? That people who elected them and who believe in Chavez. So now these people that believe in him and his project, now they're suffering. My people are losing weight every single day because we don't have foods. Why we don't have food? Because we have a 20,000% inflation rate in my country and we have price controls. And so Chavez just nationalized the industries and he destroyed all the private sector. So the people who used to go, for example, being agriculture and produce the food that our people need, now those people don't have those farms because the government came and grabbed the farm from them. That's not fair. So what I've heard from some people is that things were okay under Chavez and then they got bad under Maduro. Is that true? That's a complete lie. That's a lie because the one who really made the policies that are resulting in this misery is Chavez. Chavez was the one who nationalized industries. Chavez was the one who made the central bank and another basically government institution. Chavez was the one who put all these policies in place of nationalizing banking or nationalizing agriculture or nationalizing the private sector and now we are seeing the results. Chavez had two big differences that Chavez, first of all, he had oil prices booming. He had oil prices skyrocketing more than $100 per barrel. And in contrast, when he was elected in 1988, one barrel of oil was $8. So imagine the change in the revenue of the government because the oil industry is controlled by the government. So that's the first thing. The second thing is that you see the result of these policies not right away. You see them years after that. So Chavez died in 2013. But for example, he nationalized all these industries and banking in 2009. So basically it was only four years after he did that. Now we are seeing the consequence. Not only we have a barrel of oil at $100, but Chavez made so many debts with other countries at the same time. So we not only have a boom in oil prices, he also incurred this huge debt that just to give you an example, we have more than $200 billion in debt. $200 billion in debt. Exactly. And our exports are like $20 billion. So nothing is being exported. So we need to export 10 years without grabbing any money to pay only the debt. That's incredible. And we have the whole program with you. And so we're going to talk a lot about this stuff. We are going to take a break fairly soon, but I do want to hone in on a couple of terms that you've used. And I want to kind of cue Danny to kind of give us some light on this. Two terms for you, Danny, nationalization and inflation. What are those two and how are they playing into this situation here in Venezuela? Sure. So nationalization is when the government basically takes over a company, maybe a factory, or maybe a whole industry. And so oftentimes when governments will nationalize is when, so in the oil industry, when it would help them to get a huge portion of the income of the country. And when there is some sort of financial or economic crisis where they are not producing enough so they say, okay, well, we need to nationalize. So in the Kellogg plant case, for example, that the Kellogg just couldn't afford it anymore so they pulled out. And so then Maduro's government then nationalized it and then gave it to the workers and then said, okay, well, this is we, the people are going to provide food now. So in the process of socialism, which we discussed in last week's Vcast, nationalization is crucial. Yes. Yes. Nationalization is, they're stepping stones towards socialism. And then inflation. What quickly is inflation? Inflation can mean two things. There can be money inflation or price inflation. And the first leads to the second. So money inflation is when you just create additional units of the money. Just printing more money. Right. Right. And then the second lead is that the new money starts bidding up prices and so prices start to rise. Which is exactly what's happened in Venezuela. Yes. You said 20,000% inflation? Yes. It's incredible. Just to give you an example, one item. Let's get back to that as soon as we get the next break because we're going to take a quick break and then we'll get right back into the conversation. One year ago, over 700 students, scholars, philanthropists, and business leaders from five continents gathered in Atlanta for a brand new, one-of-a-kind event, FICON. But get ready. This year is going to be even bigger. At FICON, we celebrate inspiring entrepreneurs, innovators, and wealth creators while helping you set your own path to personal and professional success. And it was awesome. 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So we were talking right before we left about inflation, and I know that there's been a huge amount of inflation in Venezuela, but before we get into that, I do want to cue you, Marianne, because you did have something to say in your previous remarks. You mentioned a term that might not be familiar to all of our watchers and listeners, and that's the rule of law. It's something we kind of talk about a lot at fee, but what is the rule of law? Well, I like to think about the rule of law as being opposed to the rule of man, where there's uncertainty for the future, where we're not sure if the rules are going to apply to everyone equally. So we think about the rule of law as being things like property rights, where I know that this is my coffee mug, and if Dan tries to take my coffee mug, I can have something to say about that, and then we apply that to more important items than just coffee mugs. But the rule of law is very important for people to know where they stand and to we think about it in terms of economics, to have the right incentives. And to have some certainty as to how to plan our own economic lives, whether it's for ourselves personally, our families or our businesses that we're planning for. So maybe if I know that if I'm getting paid X wages today that tomorrow hyperinflation isn't going to make those wages worthless, I saw an interesting news story at a market in Venezuela where women were buying plantains and one woman said that to the price of one plantain was equal to the amount of money that she bought her home for, one plantain banana. A few years earlier, because in the units that had been inflated over time by the government, it was the amount of the house that she purchased. So not the same value, because the actual value of those slips of paper became less through the inflation process, but the numerical figure was the same as buying a house for buying a plantain. That's incredible. You had a story you were about to tell about inflation. It sounds like it's a pretty big problem. Inflation is the most difficult problem any people can have in the household because, for example, if you want to buy a fruit, in one year that fruit will cost you 20,000% times more. It will cost you much more than when you buy it. And the salaries don't go with inflation. The salary is stagnated. So right now if you want to provide for a family of five people, you need to have 100 minimum wages to do that in my country. 100 minimum wages. Just to provide for your family. And that's why you're seeing so many difficulties in my country in terms of health, because my people cannot eat with their salaries. Because when their government produces inflation, that money that are purchasing power of the people goes to the hands of the politicians. And they spend that money on their stuff. And my people who should have that money, those savings to the consumption, they don't have it. And that's why it's the most important issue that we have in my country right now, we need to stop that. So you mentioned that a family of five would have to rely on 100 minimum wages as prescribed by the government. I'm curious to eat properly, to eat properly, which is incredible. I'm curious if you could tell us something very interesting about your own family. Are you one of many children? What is your family like? I come from a very, my family is just amazing. They gave me an opportunity to study here in America. They gave me an opportunity to follow my dream, my passion, which is to make a change in my country. And even though my family has struggles as any Venezuelan family, my family doesn't have the most struggles that most Venezuelans have. And I am working for them. I am fighting for them for the 90% or 99% of Venezuelans who cannot afford a decent living. And when I say a decent living, it's just one person consuming 3,000 calories per day. And that's it. We are not asking for a country that gives you everything. We're asking for a country that gives you the opportunities to flourish, to have a job, to provide for your family, and to give it a decent living. So personally, I live in the States right now because I'm studying here. And after I finish studying, I want to come back to my country. So right now, I don't have those issues. But I'm here because of those people who have those issues. Because at the end, ideas, the ideas that we defend, change the life of those people that need it the most. So where do you go to school currently? I go to the Honor's College of the Florida Atlantic University, and I study economics. And of course, you're an intern now at Fee, which is a point of pride for us. Yes. Just as well as I think it is for you. So you were talking about ideas, right? And you're talking about different ways in which we sort of conceive of the problem in Venezuela. And something that I wanted to make sure that we hit on was the fact that certain commentators in the US, as this is a growing issue in people's minds, have been talking about Venezuela. But they don't always get it totally right. For example, last week tonight, you guys know John Oliver. It's his show that he does on Sundays. And he has a clip. You can probably find it online. We might even actually post it in the description so you can watch it yourself. There are a lot of things in there that we might actually take issue with, primarily, that he actually says that what's down in Venezuela, what's happening, is not socialism, which of course is the creed of the party that is in power. Maduro's party and Chavez before him, they had a socialist creed. And of course, last week on the FeeCast, we talked about what those terms actually mean. Actually, public or government operation and ownership of the means of production, right? And so that's what nationalization is part of. It's a part of a socialist plan. But there's something interesting that John Oliver says. He says, this is not socialism in Venezuela. This is actually mismanagement of the economy. Yeah. I have a quote from John Oliver that I'd like to read to you. He says, Samo Chavez's programs could have been sustainable if he had pursuant to sound economic policy and run a tight ship. I think it would have been harder for him to run a tidorship when they're already bossing around the industries and telling people what they can or can't do. Oh, yeah. And mismanagement as sort of a diagnosis of this whole problem is a bit suspicious, wouldn't you say? Yeah, I mean, the problem is, is that with socialism, you can't have good management. Because nobody, no government can have good management. That the economy is too complex to manage. That it's all that we as fallible human beings can do to manage our own lives and our own responsibilities. So at most, our own businesses that we're in. And then all those businesses interrelated, the decision making that goes into that is so complex that one single central planner could not possibly manage it all. I mean, that's the main lesson of our founder Leonard Reid in his classic essay, I Pencil, is that no single person even has the knowledge to make a single pencil much less centrally planned in economy. And of course, people like us who have been to our office know how seriously we take that pencil motif. When you walk into our office, we have pencils on the walls. We have pencils on the light pendants. They're everywhere to remind us of this fantastic essay that people cite all the time to kind of look at the miracle of the market process. And by the market process, I mean buying and selling, producing, and service production. All these things come together through interesting and sometimes unknown ways to produce the things that we actually want. It's an amazing story. So we'll put that in the description as well. I wanted to go into a little bit of detail about one example of what happened in Venezuela when the oil company was nationalized. And help me on the pronunciation here, if you will. Petrolos de Venezuela? Petrolos de Venezuela. Doesn't that sound nice? Well, what happened is in 1976, Venezuela first nationalized this industry, but more or less in name only. The people running the company were still calling the shots. They were still making the decisions. But then after Chavez was elected, he took power and started curtailing those freedoms. And before you knew it, investment was down. And then in 2002, there was a strike and following which 18,000 workers were fired, 2 thirds of whom were management and skilled professionals. And they were replaced with cronies and politically connected individuals who had no idea how to run an oil refinery. So the friends of the government are put in to operate an oil refinery and all the professionals and experts who actually know how to do that are kicked out. Right. And then in 2014, what oil prices tank? It just exacerbated an already dire situation. And that's the thing is that capitalism is maligned as being plutocratic, that the elites get to have access to everything. But like you said, in this case, it's the cronies that are able to take the commanding heights of the economy. That seems more plutocratic to me. Commanding heights, Danny? What are those? So the commanding heights are often the big parts of the economy that can be seized. So it's hard to seize tiny little industries like the creation of this mug. But if you can seize the oil supply, which is pretty centralized, and as long as you have enough police, you can just march them around it and then grab it. Then you have seized a big component of the economy because energy is needed for the entire economy to run. And so you get like a stranglehold over the economy. So let me ask you this, before we go to our next break, is Venezuela actually a socialist country? We know that that's actually the creed under which they operate. Of course it is. I mean, first of all, the slogan of Chavez was socialism in the 21st century. So modern. Yes, but it's not only the slogan, it's the ideology behind the policies. It's the train that Chavez got in Cuba and that is coming from the Soviet Union tradition. And we know that. For example, policies such as nationalization, as you mentioned, policies as a price caps. Policies at the end, what they are doing is that they're limiting the freedom of the people to produce and to create their own futures. And that's why this is a philosophical question. Either you believe that politicians should create prosperity for all of us, or if we believe that people working hard every single day for their dreams will create the prosperity that we need in our country. So of course there is mismanagement, but the reason that we're in these problems is because Chavez and Maduro, their administrations, they just attack private property, private entrepreneurship, and really what they're attacking is the people's life, their futures. Yeah, and it's creating such a violent situation there, too, as well, which we'll get into in a moment here. We're going to take a quick break and we'll be back to the fee cast after a quick message. 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So head to FECON.org and use the promo code Atlanta in order to get a ticket for this incredible three-day event for just $25. I'll see you there. And we're back to the fee cast and we were talking before we broke about some of the violence that is happening in people's lives that are being risked in Venezuela today. And I wonder if you might sort of talk about what it is to live like in Venezuela today. I bet you have been seeing all over the news what is happening in my country when people go out and protest. I was one of them when I was living in Venezuela. But why we protest? Because we believe that we deserve a better future that our country can have a better future. So in my country when you go to the streets and protest, protest for your rights, for your freedom, the government, what is their response? They have violence against us. So they have the police, they have the military, you're shooting the students. Students with just a flag and a slogan and singing about the great future that we can have as a nation. On the other side, you have the police, the police and the military just against them, throwing bullets at them, killing them. Just last year, more than 100 people, more than 100 students were killed. We cannot tolerate that. We cannot tolerate a government that is against their people and they want people silenced and they want their people seeking better public policies and seeking a change. We cannot have a change in my country if you have a government who's not tolerating other views. Now, a lot of people who sympathize with socialism, they say that the police state stuff that you're talking about, that that's not part of socialism. But do you think you can actually separate the police state aspect from it, of it from the economic planning? I believe in political freedom, civil freedom and economic freedom. You need to be free to pursue your dream. You need to be free to speak out and those freedom are together because if you have a government in which their mentality is to silence the students, if their mentality is to close the businesses that they don't believe are good enough for the common good, that's a tyrannical government. That's a government that is using their country to do their business to their own thing and it's not letting the people to live their lives. So they're interconnected. That's why we believe in freedom. And relating to the violence, the tyranny of the government is not merely limited to the actual government proper. There are gangs that are supported by the government as well that are inflicting all sorts of violence on people. People are being mugged on the streets regularly. It's a terrible situation there. But I do wanna connect that, Danny, because when we circle back to socialism, we talk about the creed under which all of this is happening. This is actually textbook socialism, exactly the way that one of our favorite economists actually mapped out Ludwig von Mises, actually mapped this out what's happened in Venezuela. Yeah, well, and he thought it was the road to socialism because Ludwig von Mises actually had pretty strict definition of socialism where he thought that as long as there were any kind of prices in any kind of market at all, that it wasn't socialism, that socialism was complete central planning, but he talked about, he had this essay called the middle of the road policy leads to socialism, and what he describes is how interventions spiral, that one creates a mess that justifies another intervention, which creates a mess which justifies another one. And it really seems like that's what happens in Venezuela. So Jorge, tell me if any of this sequence is incorrect because what it seems to me that the sequence of interventions has been is that they nationalized the oil, that gave the government a lot of money that it could spend on generous social spending, generous in a sense, but then the price of oil dropped, and so then that made it harder, there was a budgetary shortfall, they tried to make up for that by printing extra money, monetary inflation, but then that drove up prices and it created price inflation, but then they tried to clamp down on that with price controls, but then that price controls as economics teaches us creates shortages, especially of food, and then businesses start to close and then the government uses that as an excuse to nationalize factories, especially food factories. I mean socialism is violence and socialism where they want to create is a dependency on the state for everything. It's not only ideological because if you go to Marx, to Oscar Langue, if you come back to these guys, they believe that they should change the preferences of the people, that they should change the way that they think that the people are their issue and not them, and that's why you have people like Che Guevara just killing people in Cuba, in Bolivia, in Africa, just everywhere he went. This is an ideological issue as well that when you go to the technical issues, they just go and let's say they nationalize agriculture, so you nationalize that, that in fact not even the Soviet Union did, but Venezuela did it, they nationalize most agriculture, so when they start managing these farms and things like that, they don't produce enough, they don't produce well because what, they're a bunch of crooks. So then, when they're not producing enough, they need to control prices because as things become more scarce, then they will rise the prices, so they need to control that as well. So you end up in a system which they control everything. You turn one policy knob, something else changes, you gotta pull another lever and figure out what wheel to turn next. It's amazingly complex when you think that you can actually foresee every different dimension of an economy that you have to control and that gets us back to what just happened in Venezuela this past weekend. I'm wondering Jorge, if you can say a little bit about the experience of people in Venezuela who are politically connected and the experience of people in Venezuela who are not politically corrected. That's a great question. And I ask because transparency international is called Venezuela the most corrupt country in Latin America. Yeah, I heard about the certain policy where there was special kinds of bags with food, with like actual, like a range of food, but that only like high standing members of the socialist party were able to access them. It is horrible because in Venezuela, and as a fascist type of like mentality of this government as well, they divide people. If you are with the government, if you are a politician, you have for example, one price for the dollar, not like the rest of the people. You have one price for this and X item. So it's like it's completely different experience. The people who are connected with the government, they have to, they have from their tables. They have properties in other countries. They are extremely rich because the oil industry produced $1 trillion in the last 20 years. $1 trillion in a country like mine with only 25 million people, it's a bunch of money. So they are connected, they are well, they are good. We call it the enchufalos, which is like connected in Spanish. What is the word again? Enchufalos. Enchufalos. It's like you're connected to a plug. Oh, okay, got it. So that's the difference. But the vast majority of the country is having many, many issues. And so these connected people, I'm assuming, were most of those who actually came out this past weekend and voted, right? I mean, in the past weekend, only, and we're gonna go into that, of course, less than 20% people voted. But the people who voted are either those enchufalos who are not more than 1,000 or 2,000. But you know what is horrible about the government is that he went to the poor neighborhood in my country, in which you have people who are suffering, who had two or three days without eating, and they say, go out and vote, I'm gonna give you a box with food just for a day. So I cannot blame whoever did that. But you know what is the beautiful thing? That the vast majority of my country reject that. Reject the corruption of the government. They reject that the government was using their necessities to find votes and legitimacy. And so they boycotted the vote. They boycotted the vote. Yes, more than 80% of my people didn't go out and vote because it is not an election what we had. I also read that the political opponents were being suppressed as well. Where is there even another option? No, there was another option, but it was not a real option. They said, the government said that it was an option, but it was real not. So that's why people didn't go out and vote because we have political prisoners or political parties are illegal, according to the government. Your political parties are illegal? Yeah, the government just illegalized all the political parties. We don't have media outlet to express ourselves. We cannot go and ask for votes, for example, because you will have the government just repressing the people and scaring the people. So those are not real elections in which the government just make a fraud. Just try to make an election that is not real in action. And the international community mostly is regarding it as a fraud. And in fact, the United States government has taken some steps to maybe try to solve some of this. I read that Trump has announced that he wants to increase sanctions on Venezuela. Now what concerns me about that is that seems to play into Maduro's story, that a lot of why he, it seems how he gets away with this is that he has this foreign boogeyman. He's like, oh, it's the United States fault that they're waging economic warfare on us and your problems are their fault, not mine. And then it causes people to rally around the flag as they call it. I mean, but right now we need to understand that Maduro only has 7% popularity in my country. 7% in all the polls. So my people do not believe Maduro- Reelected as president at 7%. That's quite a trick. That's quite a trick because I mean, with hyperinflation, people hate the guy. People hate the tyrant, the dictatorship. So people do not believe that the sanctions will produce economic issues. They are living their economic issues for more than a year. So they are not stupid. They know that the government is doing that. So that's why people understand that the sanctions are against the regime and not against the people. With that being said, I know that sanctions is a very polemic topic. Not only Venezuela, but international diplomacy. Because for example, the United States have had sanctions against North Korea, Iran, Cuba, the Cuban embargo, right? Sanctions are not enough, but these sanctions are good because they are against the regime. Target officials, not against the people who actually have any issues. Also sanctions are not enough because we need to do more at the national community. Interesting, we're gonna have to actually break right now because there's so much to talk about with Venezuela. We might have to do another episode with you or while you're here. But this has been an absolutely fascinating discussion and we'll post a lot of the different items we referred to in the description. So for now, we'll see you next week at the FEECAST.