The Zimbabwe Experiment
An extreme, cautionary look at the ills of inflation.
Central banks are running their printing presses overtime to keep the financial system in tact. Economists are dusting off economic terms with frightening implications: stagflation, deflation, hyperinflation. Abstract terms to many, but for others, they can be very real.
Anyone who didn't sleep through fourth grade history class probably remembers stories about hyperinflation in Germany before Hitler's rise to power. For most of us, it's pretty hard to fathom swapping wheelbarrows full of worthless banknotes for a loaf of bread.
With globalization and the advent of an international market for developing countries to peddle their wares, that's all ancient history, right?
Zimbabwe, a South African nation with 12 million inhabitants, is battling rampant hyperinflation to the tune of 100,000% per year. The International Monetary Fund puts the rate even higher, at a whopping 150,000% as of December, 2007. The Christian Science Monitor reports that a sausage sandwich in Zimbabwe costs 30,000,000 local dollars, which translates into just $1.25. In fact, prices are rising so quickly, some storekeepers -- for lack of clients -- are buying sacks of grain to turn around and sell at a profit a couple of weeks later.
The country wasn't always such a mess.
After breaking from the U.K. and weathering civil war, Zimbabwe became a model African nation, blazing a trail toward success after its formal independence in 1980. A 1995 World Bank report lauded the country's social programs, economic development and support for small farmers.
However, poor infrastructure, shortages of hard currency and a controversial attempt by President Robert Mugabe to return lands to the poor majority have resulted in chaos. Here's one assessment of the current situation.
At under 40 years, Zimbabwe has the lowest life expectancy of any nation. Unemployment is at 80% and its manufacturing industry is operating at just 5% of capacity. Mugabe -- unchallenged during his almost 30-year rule thanks to an iron fist, crackdowns on opposition parties and allegedly rigged elections -- blames foreign nations for his country's woes, as sanctions stemming from human rights violations have helped cripple Zimbabwe's economy.
So, what role did hyperinflation play?
As Professor Depew aptly says of the 1930s, "The stock market crash didn't cause the Depression, it was merely a symptom of it." Hyperinflation didn't cause Zimbabwe's woes, it's simply a manifestation of larger issues. But that knowledge does little for teachers who can't make it to school becase their salary of 400 million Zimbabwean dollars doesn't cover cab fare.
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