Welcome to Z-Pack:.1 topic, 2 days a week, 5 minutes. Easy to consume and fast-acting⚡️

If this is your first Z-Pack, welcome - I'm Zach.

⬇️ Let’s get it.

What the hell happened to Venezuela?

If you hadn’t heard, Venezuela is in the news because their current dictator president, Nicolas Maduro, is being a dick and trying to steal the July 28 election. We shouldn’t be surprised. The president before him, Hugo Chavez, was elected in 1998 and handed the mess he made to Maduro, in 2013, who made more of a mess.

Poverty shot up from around 30% in 2010 to more than 90% of the population! This doesn’t just randomly happen.

7 million people, ~25% (!!) of the country, have fled.

Usually this happens to countries ravaged by war.

Now, Venezuelans are worse off than they were in the 1940s and are poorer than many countries in west Africa.

“But how did this tragedy happen?” 

I’ll keep it short and sweet for you by summarizing great posts, like this one from economist Noah Smith:

1. Oil — Venezuela’s government depends on selling oil to make most of its money to do government things, like pay for welfare programs, buy imports, fund infrastructure, pay off foreign debt, etc. They screwed this up.
   

   How??
   

   Depending on a commodity to make money sucks: Most countries in Latin America get money from selling natural resources and agricultural goods to other countries, which isn’t great. Why? Because (1) these commodities aren’t usually worth a lot, unlike complex tech (think of computer chips); (2) you can’t control the price. This means that if more people want your corn, there’s more demand, so you can charge a higher price, which means you can get more money - yay! But if it drops, and drops hard.. that really sucks for you. Unless you control most/all of the supply, it’s nearly impossible to make the price go back up. Woof.
   

   Hugo Chavez, elected president in 1998, mismanaged the main oil company: to extract and “make” good oil to sell, it takes a company with lots of smart people. Venezuela had a great state-owned company called PDVSA, which was needed to process their super weird oil (their oil is harder to process than, for example, Saudi Arabia’s).
   
   But Chavez messed it up by (1) taking the company’s revenues to the fund government programs and his cronies; and (2) firing a ton of the skilled staff, who protested against this.

   No good people, no good machinery = harder to get the oil, and less and less of it to sell.
   

2. Currency crisis — around the same time, people in and out of Venezuela saw this and starting getting scared. Meaning they lost confidence in Venezuela and its currency, the bolivar, so it’s value started collapsing. This usually makes your exports cheaper for other countries to buy, but..

   If your currency loses value, it’s usually harder to —

   1. to buy imports (like food) from other countries, because it takes more bolivars to buy the same 1 dollar, for example.

   2. it’s harder for the government to pay its debt off, which is often in foreign currencies like USD

      
      So the gov’t tried to print more money and basically say something like “actually, the bolivar is worth 2 dollars, not 1 dollar!” .. which doesn’t usually work.
      

3. Government randomly taking people’s businesses — from the late 90s to mid-2000s, both Chavez and Maduro just took people’s businesses to (1) take their money, and (2) hand the businesses over to their cronies. From agriculture to iron to cement, etc.

   This is obviously super whack because they chase off the people that know how to run them. This also doesn’t encourage people to start their own business if it’s the government can take it from them randomly.
   

   

   
   

4. Government setting random prices for things = shortages — imagine the government tells you “ok, you have to sell bread for $2 a loaf, not $3.” Why? Because if you don’t, they’ll arrest you. But your costs per loaf are $2, so now you can’t make a living. Companies lose money and close their doors. Less businesses = more shortages of food, medicine, etc.

The TLDR; if you end up running a country, try and make sure (1) a commodity isn’t your main source of income, (2) keep your currency stable, (3) don’t take people’s companies randomly and fill them with your friends, and (4) don’t baselessly demand people sell their stuff for a certain price.

Still curious?

• This post on the Venezuelan election

Before you go — it’d mean the world to me if you could share Z-Pack with just 1 person who you think would enjoy it too.

Please share and encourage them to subscribe - thank you 🫶 https://zpack.beehiiv.com/subscribe

Thanks for taking the Pack,

Zach

🤝 If you got this from a friend, sign up here

Disclaimer: This is not financial advice or recommendation for any investment. The Content is for informational purposes only, you should not construe any such information or other material as legal, tax, investment, financial, or other advice.