Biden Administration

Will the Biden Administration’s Out of Control Spending Turn the U.S. Economy into Venezuela?

Image by Peggy und Marco Lachmann-Anke from Pixabay

Prominent Manhattan attorney and conservative blogger Francis Menton points out the remarkable parallels between the current state of the U.S. Economy and 1998 Venezuela in a new must-read article entitled, “U.S. Gets Ready to go Full Venezuela on Economic Policy.”

I recommend you read Menton’s entire piece, but here are the highlights:

It was in 1998 — a mere 23 years ago — that Hugo Chavez first got elected President of Venezuela. From the start, his program was explicitly one of vastly increased government spending, which was supposed to make the economy grow, reduce income inequality, eliminate poverty and bring about social justice. Chavez called the social programs his “Bolivarian missions.” Among some 30 or so such “missions,” big ones included blowout spending on education, subsidized food, subsidized housing and healthcare.

Sounds a lot like the stated objectives of the Biden Administration, does it not?

In the early years, things seemed to be going swimmingly, at least if you believed the official statistics put out by Chavez’s government. Not only was there supposedly steady and mostly rapid economic growth (often over 5% per year, particularly 2004-10), but they also regularly crowed about how the redistributionist spending had greatly reduced the rate of poverty. Then, starting around 2013, it all started to fall apart. Today, eight years later, it continues to fall apart. More details on that later.

Senate Majority Leader Chuck Schumer has so many plans, he’s trying to make an end run around the limitations on budget reconciliation bills. I posted about that here.

On March 1, prior to the passage of the bloated and unnecessary COVID relief bill, the U.S. national debt stood at $28 trillion and debt as a percentage of GDP was 129 percent.

The last time this ratio approached anywhere close to these levels was at the end of WW II. In 1945, this ratio was at 114 percent and in 1946, 118 percent. The booming post-war economy allowed the U.S. to reduce our debt to more manageable levels. A year-by-year comparison can be viewed here.

Still, when the war was over, we didn’t follow up with reckless spending,

When former President Donald Trump took office in 2017, this ratio stood at 104 percent and had crept up to 106 percent by 2019, possibly as a result of the trade wars.

Obviously, because large swaths of the economy had been shut down due to the pandemic in 2020, the U.S. was forced to provide financial relief to the American people.

The economy is strong at the moment and is poised to see far better than normal gains this year. The $1.9 trillion COVID package was about three times  larger than it needed to be.

But rather than exercising some fiscal restraint, the Biden Administration is planning a veritable shopping spree.

Yes, it’s blowout government spending, on the usual issues pushed by advocacy groups, which supposedly will shortly achieve all the usual promises of the left: economic growth, increased economic fairness, and social justice. In other words, it’s the Venezuela economic program, blown up to U.S. scale and then tweaked a little here and there to buy off the squeaky wheels of the moment.

Menton examines what’s included in the latest behemoth infrastructure bill the administration is pushing and concludes that, just as very little of the COVID-19 relief package will actually provide relief to those adversely impacted by the pandemic, only a small amount of the funds in the infrastructure bill will actually be spent on infrastructure.

“Back to Venezuela. The blowout government spending program in Venezuela got started in the very late 90s, but only really took off around 2004 (after Chavez consolidated control over the national oil company).”

Menton writes about the “useful idiots” in America who praised the Chavez economy.

This group included Sen. Bernie Sanders of Vermont. In 2011, Sanders said, “These days, the American dream is more apt to be realized in South America, in places such as Ecuador, Venezuela and Argentina, where incomes are actually more equal today than they are in the land of Horatio Alger. Who’s the banana republic now?”

He mentions Salon writer David Sirota, who in 2013 wrote that the results of Chavez’s program were an “economic miracle.”

Menton includes several charts which illustrate the spectacular upward trajectory of the Venezuelan economy up until 2013, followed by the sharp decline afterward.

In 2013, fifteen years into Chavez’s rule, the government statistics still showed an “economic miracle” (although keen observers knew it was not real). Chavez and then Maduro used the time to change first the election system, and then the constitution, so that removing them from power became almost impossible.

He notes that the country “stopped publishing economic data in approximately 2014, so that all numbers after that year are informed estimates.”

Poverty? They claimed to have reduced the rate from 23.9% in 1999 to 8.5% in 2013. Today, USAID estimates that 90+% of Venezuelans are in poverty. Probably, you have seen the pictures of formerly middle class people going through garbage looking for something to eat.

Also, note that these numbers end in 2018. Trading Economics here has an updated figure for Venezuela’s most recent economic “growth” rate for 2019. It is -26.8%. However, they note that other estimates range up to -36.1%. In other words, the economy is much smaller today than when Chavez first came to power in 1998. The inflation rate remains in the range of 1,000,000% or more.

The Venezuelan economy has always been tied to the price of oil and strong oil prices concealed many of the country’s underlying problems in the final years of Chavez’ life. Upon his death in 2013, Nicolás Maduro became the president.

It wasn’t long before Venezuela’s economy finally buckled. The years of overspending and corruption had taken their toll.

When oil prices collapsed shortly afterward, the economy went into free fall. And we all know the rest of the story.

Menton closes with the following question: “How bad is the damage to the U.S. economy being inflicted by the blowout wasteful spending of Biden and the Democratic Congress? Likely, we will only know the first inklings by 2022, and still only a little by 2024.”

Read the whole article – and the comments.

2 replies »

  1. I think we will see the disaster of unbridled government spending before 2022. I have seen prognostications of stock market collapse and housing market collapse before the end of 2021, certainly by 2022.

    These initially sounded like wild, out of mainstream predictions to me….I didn’t want to believe them; then I think about the housing market not as a bubble, but simply as inflation…. a single asset inflation that is driving other associated commodities to be inflated as well. Proof? Lumber commodity prices were up 262% from a year ago. Copper – up too (don’t quote me but I think I remember seeing over 25%).

    Is our economy really strong or could the stock market simply be ‘inflated’, as in lots of dollars chasing a few quality assets (stocks)? That sounds like the definition of inflation to me. Fiat money has no where else to go, bond yields are lousy (that’s being charitable), so stocks get the nod. I think that we have and will continue to have lots of ‘zombie’ firms running around – those that should have died a natural death, but because they weren’t completely terrible, money flowed into their stocks, seeking some form of haven and defense against the falling value of the dollar (inflation).

    I think that there are good arguments for a deadly level inflation to already be on our doorstep, but just not yet in evidence across all asset classes. When too much money starts chasing too few goods (the kind of goods that are purchased for everyday use), then prices will go ‘Venezuela’ and then look out…. we will have to get out our wheelbarrows, full of Benjamin’s, to take to the grocery store. Check gasoline and basic food stuff prices. I am paying more for each over the last few months.

    I pray that I am wrong about impending monetary doom / hyper inflation. I have absolutely no trust in the elected leadership of the USA who push for Trillions in additional spending and bailouts. I think that they really don’t know what they are doing to our economy and what’s worse, they don’t seem to care. The money the fed is pumping via stimulus is debt – and no amount of income tax increases (corporate or personal) will offset our deficit. I’d stuff my money into my mattress, but I don’t think it will stop it from becoming worth less or worthless.

  2. It’s a scary time, because you’re right. The people in charge really don’t know what they’re doing. And frankly, I don’t think they would really care if they tanked the stock market or caused hyperinflation if they were able to achieve their collective goals…I’ve been watching the stock market defy gravity and yes, with the economy picking up after the lockdowns and there’s a lot of pent-up demand, but I worry that one day, it will reverse and it never does so in an orderly fashion. Corrections come suddenly, and people panic,..And with a sharp tax increase coming down the pike, I’m afraid we are #%$&@*.

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