Venezuela is teetering on the brink of collapse. The nation’s political system is shattered, as tens of thousands of protesters have taken to the streets, urging President Nicolás Maduro to resign. And it makes sense why: their economy is in utter shambles.
In 2018, inflation exceeded 177,000 percent, decimating the country’s currency, the bolivar. A cup of coffee, valued at $0.50, now sells for over 800 bolivars. Over 10 percent of Venezuelan children are suffering from moderate to severe malnutrition. The situation is so dire that Venezuelans have taken to eating rats, dogs, and zoo animals to stop from starving.
This tragedy is occurring even though Venezuela is one of the most resource-rich nations in the world. The country has an estimated $14.3 trillion worth of natural resources. It has enormous oil and natural gas reserves and is the world’s third largest producer of coal. How, then, has Venezuela managed to turn such an abundance of riches into extensive crippling poverty? To any student of history, the answer is clear: socialism.
Indeed, Venezuela’s energy crisis is a textbook example of what happens when the government attempts to run sectors of the economy. Following his election in 1998, former President Hugo Chavez socialized the country’s various industries, transforming its multi-faceted economy into a glorified, state-led gas station. By 2014, Venezuela had become an economic one trick pony, with the sale of oil accounting for 95 percent of the country’s export profit. But those profits were not being given back to the people. True to form, Venezuela’s socialist government squandered $1.3 trillion in oil revenue through mismanagement, waste, excess, and outright corruption.
Venezuela’s ongoing crisis is a scathing indictment of socialism’s tendency toward misuse and disarray, especially when it comes to the economy’s energy sector. Properly managed, natural resources can be an incredible asset for any country, but in the government’s hands, they fuel economic destruction. And while recent events have highlighted the tragic failure of socialistic authoritarianism in Venezuela, we mustn’t be so naïve to assume that America is immune to such mismanagement.
American leftists are already dismissing the Venezuela experiment as “not real socialism” and pushing the narrative that “true socialism” would work in the United States. But these individuals fail to recognize that socialism’s problems aren’t quarantined to South American countries. They are endemic of a system that prioritizes government control over free markets.
Perhaps, then, we just need an example that hits a little closer to home.
In the 1970s, the United States faced an energy crisis of its own. Through most of the decade, the oil cartel OAPEC instituted an embargo against the U.S., leading to massive oil shortages and price increases of up to 350 percent. Panicked, the Carter Administration turned to big government as the solution to the country’s energy sector vulnerability. In 1978, the legislature passed the Public Utility Regulatory Policies Act (PURPA), a law whose unintended consequences are being felt now more than ever.
The original intent of PURPA was to encourage the increased production of renewable energy. It did so by establishing the government as an effective monopoly over the production and sale of renewable energy projects. These government-mandated projects set price controls for public consumption at “reasonable rates for the public interest,” and forced electric companies to purchase renewable energy at specified costs from the PURPA facilities.
Much like the results of Venezuela’s effort to nationalize its energy sector, the effects of PURPA on the United States have been quite devastating. What the government once deemed a “reasonable rate” for the cost of energy production currently exceeds the market rate by 300 to 400 percent. Not only does that lead to higher prices for consumers, but it also disincentivizes renewable energy production completely. According to the testimony of a utility representative, “utilities with large amounts of [PURPA-required] power on their system often must curtail or even shut down less expensive, more economic generation or be in violation of PURPA.”
The United States is not immune to government inefficiency and failure. Whether it be in Venezuela or the U.S., people suffer when top-down, government mandates are imposed on entire sectors of an economy. Big government is inherently unstable and only functions as long as the economy has wealth to burn. Once the coffers run empty, the system falls apart.
Thankfully, America has not reached the point of no return. But as the left’s slow march toward socialism begins to pick up steam, the risks of economic catastrophe only intensify. America, much like Venezuela, simply can’t afford socialism. And as a growing tide of young liberals seeks to embrace big government as the solution to societal ills, we must take this lesson to heart.