Socialism on the Installment Plan: Zimbabwe

Inflation in Zimbabwe is estimated to be somewhere between 4,000% and 9,000% (see graph above through April 2007, the last time that CPI data were released, click to enlarge).

President Robert Mugabe's solution to the hyperinflation caused by excessive money creation? Print more money to fund government spending. See the full story here in today's Washington Post.

The decision to print more money comes after the government ordered sweeping price cuts of about 50% last month, accusing store owners and businesses of fueling the inflation. The government-ordered price controls have emptied stores across the country, with businesses saying they can't afford to sell at the new prices. About 5,000 managers and gas station and store owners have been arrested and fined for defying the price controls since the order was issued June 26.

Although an extreme example, the pattern of events in Zimbabwe illustrates a fairly common phenomena of "socialism on the installment plan."

1. The government intervenes in the economy with excessive money creation, price controls, tariffs, capital controls, regulation, etc. which create economic inefficiencies and distortions.

2. To "fix" the distortions that they created, the government then intervenes with additional programs, policies, price controls or regulations, which exacerbate the original distortions, which create further interventions, which create more distortions, etc.

3. The government interventions breed and foster additional interventions, which put the economy on a path towards socialism, with a ratchet-like movement toward ever bigger and stronger government, or socialism on the installment plan.

In Zimbabwe, the government engaged in excessive money creation and inflationary finance, which created hyperinflation and massive distortions and inefficiencies in the economy, e.g. the unemployment rate in Zimbabwe is currently 80%. To "fix" hyperinflation, the government orders price controls, which create widespread shortages, and greater economic distortions and inefficiencies. Then to "fix" hyperinflation and shortages, the government prints more money, which will further fuel hyperinflation and lead to even more inefficiencies.

Then with the economy in shambles, and the private sector decimated, the government will have to propose giving itself more power and control to try to "fix" the ailing economy, which will make the problems worse, not better. Socialism on the installment plan. Exhibit A: Zimbabwe.