Venezuela and Bernie Sanders

Wander down into the comments on any American news source about the crisis unfolding in Venezuela, and you will find a flame war about socialism in America. This is either A Completely Unfair Comparison or The Shape of Things to Come. In a move that will surely shock you, I would like to say both sides are wrong. I skew towards those who say it is unfair, but there are some real considerations to be had.

Socialism is a highly developed, varied, and defensible economic tradition. The elevator pitch goes like this: All value begins with labor. When we purchase something, we should be paying for the sum of all labor that contributed to it. However, the non-labor “owners” of companies raise prices and take a cut, creating a capital class that is essentially stealing from the labor class. This means that in order to achieve a fair and prosperous society, we must abolish capital and the capital class*.

Depending on how exactly you flesh out the nuances around “value”, some practical techniques for estimating a proper socialist price emerge. (Ironically, it is Marx’s formulation that is the hardest, if not downright impossible, to work with.) For example, most capitalists who recommend certain industries socialize recommend setting the price at the average cost.

The point for this piece is not to bore with the finer points of actually calculating value. The point is that the Maduro government seems not to have bothered with them either. They have taken a rather fast and loose interpretation of Marx’s idea that there is a social value and sort of…guessed at it? The application of prices in Venezuela has been fairly haphazard and more about what Maduro feels these things should cost.

The trouble is that price controls are tricky. First of all, in most cases lowering prices will cause a shortage—if firms are making less money, they will sell less. This is how a country runs out of toilet paper after a toilet paper price ceiling. Where this gets complicated is what it does to other industries. If you put a price control on peanut butter, people will buy less jelly and drive the price down. If you put a price floor on steak, the shortage will lead to people eating more hamburger and drive the cost of that up. If you do multiple price floors, they start interacting with each other in very hard to predict ways. The more price floors, the more precision that is required to make a judgement. This is a piece of the puzzle of what undid the Soviet Union; they could not keep up with the information requirements of central planning as corruption spread.

The practical impact of this is that Venezuela is doing very little to mitigate the very real problems of central planning and price controls, mostly by denying that they exist. Most serious socialists recognize that you cannot just magic your way into a functioning economy. You must properly plan your central planning. I’m the capitalist in the room, but I’ll defend socialists from Maduro. Venezuela has a political problem, and any Marxist worth their weight in labor can tell you that capitalism develops political problems too. Nationalizing their oil reserves gave them a good deal of cash to work with and some flexibility in offsetting the costs of other nationalizations and price controls. It is a pity they squandered that with bad policy.

I’m not going to entirely let the Americans saying there are no lessons for Sanders and his supporters off the hook. I took a lot of flack for saying that Sanders needed to be more specific about how he was going to control prices at colleges and universities as well as in health care. Sanders is doing something different from the Maduro government, promising to pay for the market prices on some key goods. The issue is that the plain wording of Sanders’ plans suggests he will make no attempt to control costs. This suggests one of two things:

  1. He has no plan to control costs. Sanders is writing a blank check, one that the private market will take the taxpayer for a good ride on. This is a bad plan.
  2. He is being intransparent about his theory of value. As Venezuela has proven, knowing how your leaders plan to set policy is important to deciding if they have a good plan. His habit of playing nice with American revolutionaries means some extra scrutiny is in order.

I often rail against equivalence—the existence of two sides is not proof that the middle is right. But this is a case where averaging the two poles will get you closer to the truth. The Maduro government is doing socialism really badly and is something of an exceptional case. On the other hand, Sanders has not really told us how he will avoid those pitfalls and may therefore be headed straight for them. I skew towards defending Sanders because Maduro’s government is definitely off base, but Sanders only might be.

So while I’m definitely a capitalist and definitely skeptical of Sanders’ loftier claims, Venezuela is not some prophetic vision of what would happen if we elected a socialist.




*This is closer to Marx’s predecessors. Depending on how you read Marx, he either adds a number of qualifications about what we mean by the value from labor or qualifies himself into a tautology. The elevator pitch, no matter how you interpret several hundred years of economic thought, simplifies a lot.

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