During the 2012 oil boom, the Chavez government spent as if oil were $200 a barrel, even though it was only $100. They borrowed heavily to cover this gap. When prices later collapsed to the $30s, the financial shock was catastrophic because it came from a $200 spending level, not a $100 one.

Once a destination for American economic opportunity, Venezuela's economy imploded after nationalizing its top industry and imposing widespread price controls. This recent, dramatic collapse serves as a powerful, real-world example of how such policies can lead to ruin, yet they remain popular.

When local currency collapses, companies in places like Venezuela must shift focus from core operations to creatively exporting anything possible (like salt or pallets) just to secure hard currency for essential imports like spare parts.

One of Hugo Chavez's first actions upon taking power was to dismantle the national oil stabilization fund. This mechanism, designed to insulate the domestic economy from volatile oil revenues, was a critical defense. Its removal left the nation fully exposed to price shocks, directly enabling the subsequent economic collapse.

A rapid rebound in Venezuelan oil production is improbable, even with massive investment. The effort is constrained by fundamental infrastructure failures, like a deeply unreliable national power grid, which is essential for running upgraders and refineries. This makes a quick recovery lasting years, not months.

Economic growth is a direct function of the reduction in the price of energy. Nations with access to cheap, locally available energy are almost uniformly wealthy, regardless of their system of governance, while those without it are almost uniformly poor.

Venezuela's state-owned oil industry centralized wealth in the government, creating a populace feeling excluded. This enabled Hugo Chavez's populist rise, as he could promise to redistribute state-controlled resources, an appealing message amid corruption and low oil prices.

The critical blow to Venezuela's oil production was Hugo Chavez's 2003 firing of 20,000 experienced staff. This loss of human capital, years before major sanctions, caused the collapse. When these exiled engineers went to Colombia, they increased one field's output from 30,000 to 250,000 barrels a day, proving their value.

A key element of Venezuela's economic paralysis is that the country's vast human capital—the eight million people who left—will not return without fundamental changes. The regime's survival depends partly on this stalemate, as a mass return of talent and investment requires a restoration of freedom, safety, and property rights that would threaten its power.