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Hugo Chavez: International Economic Clown
From The Daily Capitalist
If it weren't for Hugo Chávez, my favorite Latin American dictator, life would be pretty dull. The guy is a walking, talking economics lesson. He's so easy to pick on because he has the Sadim touch (you know, instead of turning things into gold like Midas, he turns things into crap).
Everything he has done has moved Venezuela backwards. The people who actually do something productive in the economy hate him. The have-nots love him because he promised them lots of free stuff. But lately his numbers are sinking: his policies don't work. He's a typical populist caudillo1 like his hero Castro. He seeks only power and disdains concepts like individual liberty, freedom of expression, and free markets.
Chávez has no idea how the world or human nature works. He has no idea how economies work. The guy is ignorant. If all you study are socialists and populists, you will be ignorant. Ignorant of classical liberal ideas such as natural law, free markets, and limited government. I'm going to guess that his idea of Austrian economic theory has something to do with Arnold Schwarzenegger.
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In 2009 he engineered the constitution so that there are no term limits to his presidency. He's been seizing or muzzling the opposition media. He has been beefing up the military and buying lots of arms. Other than a few rows over soccer and minor border disputes, Latin America has been a pretty peaceful continent so one must conclude his army will be directed at his fellow Venezuelans. He is spreading his poisonous ideas and oil wealth around the continent.
The government claims that they have had "robust" economic growth in recent years, but that is a lie. First, foreign and local capital has been fleeing the country. Second, no one wants to invest there because they fear nationalization. Oil is about 80% of the economy (90% of exports) and it is owned and controlled by the government. They claim GDP rose substantially in the latter part of the last decade but it was all due to rising oil prices. With declining oil prices, the economy has tanked. There is very little growth from private industry.
Most of the statistics for inflation and growth are made up by the government or the World Bank or the U.N. If you track economic growth it matches perfectly with oil prices. Inflation was officially 27% in 2009, but the free (black) market rate for the bolivar is actually much lower. So, it is my guess that the fictional growth claimed by the government is much less and inflation is higher.
Chávez continues to nationalize major industries. The oil industry was nationalized in 2002 and production has declined since then for several reasons. First he fired all the engineers and skilled workers after the 2002 protest strike (about 19,000 people fired). Second he has neglected to invest in the production infrastructure and the physical plant is degrading. He just spends.
His price controls (over 400 items are controlled) have lead to shortages of primary food products as growers and processors try to evade controls. Food production is declining and it must import two-thirds of its needs. There is power and water rationing as well. People are unhappy. He's rigged politics so that he can perpetuate his power. He'll be hard to get rid of unless he's assassinated or there is a coup.
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What do you do if you are a dictator on the slide? It's hard to just declare martial law because it's so anti-democratic and it may backfire on him and even his friends in neighboring countries may abandon him. So you just bide your time and do it in stages.
First you devalue the currency. He just devalued the bolivar by 50% (4.3 to the dollar) and he created a two-tier system so the bolivar is slightly higher for imports (2.6 per dollar) than exports. The real ("black" market) value of the bolivar, according to the Wall Street Journal, is 6.25:1.
“They put the value of the dollar at more than 6 in an arbitrary and illegal manner,” Chávez said. “We have to organize to reduce and attack that speculative, illegal dollar that hurts the Venezuelan economy so much.”
Hugo is upset that people might want to protect their own interests rather than go down with his ship.
More from the WSJ article:
Mr. Chávez, 55 years old, is gambling that the benefits of a weaker currency will offset faster inflation. ...
In Mr. Chávez's favor, a weaker currency helps narrow a growing budget shortfall by instantly giving his oil-rich government more local currency to spend per barrel of oil exported by the state petroleum company, PDVSA. That is a key consideration with congressional elections looming in September.
Mr. Chávez has watched his popularity slide amid corruption scandals, a shrinking economy, rising crime and shortages of food and electricity. Increased spending could boost Mr. Chávez's popularity.
Mr. Chávez also predicted a weaker currency would breathe life into a domestic economy that depends on imports for everything from beef and milk to cars. ...
Devaluation isn't enough to revive the domestic manufacturing base. Few investors are willing to brave Venezuela's maze of price caps, currency controls and the ever-present fear of nationalization. ...
What is more, by keeping a subsidized dollar rate for importing food, medicine and essential items, Mr. Chávez removes any incentive for Venezuelans to produce what they need most.
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I can write the script for Venezuela.
All this spending won't do anything to help the economy. It doesn't create wealth or jobs; it only redistributes the wealth created over the years from oil production. In case you haven't seen the obvious, this is Keynesian fiscal stimulus. Give money away to those whom the government favors. Pay a supporter to dig a hole and another supporter to fill it.
Which means citizens are bailing out of the bolivar because they think it will be worthless. Another slight problem he has with human nature.
At Caracas's middle-class Sambil shopping mall, lines at cashiers reached 50-deep. Carmen Blanco, a 28-year-old accountant, waited to buy a 42-inch flat-screen television she doesn't need because she already has one at home.
"It doesn't make any sense to keep my savings," Ms. Blanco said Saturday. "I'd love to see how things work in a normal country."
Carmen is one sharp person, although I would recommend gold jewelry or just gold instead of TVs. Which shows that even with an intelligent middle class, guys like Chávez can still succeed.
Chávez's response:
Venezuelan President Hugo Chávez said that businesses have no reason to raise prices following the devaluation of the bolivar and that the government will seize any store that seeks to capitalize on the situation.
Chávez said he’ll create an anti-speculation committee after private businesses warned that prices would double and consumers rushed to buy household appliances and televisions. The government is the only authority able to dictate any such increases, he said.
“The bourgeois are already talking about how all prices are going to double and they’re closing their businesses,” Chávez said in comments on state television during his weekly “Alo Presidente” program. “People, don’t let them rob you, denounce it, and I’m capable of taking over that business.”
Goods will quickly disappear from the shelves, businesses will close, the offending "bourgeois" (shop owners) will be arrested, and life and commerce will grind to a halt. Demonstrations will break out. Counter-demonstrations will be orchestrated by Chavezistas. The military will be called in to repress the people ("create order"), martial law will be declared and never lifted, and Hugo will be the new Castro. More price controls, rationing, and a growing bureaucracy will be the order of the day. To divert attention to his failures he will blame the U.S., traitorous bourgeois elements, maybe invade Colombia, pay off his thugs, spend money, and neglect oil production. A major part of our oil supply will be jeopardized.
He'll always be looking over his shoulder for someone trying to overthrow him or kill him. He'll create a police state with local block wardens and a powerful security service. People will try to leave. Lots of people.
All this because the guy knows nothing about economics or human nature.
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I have a suggestion how we can help Chávez along: Boycott Citgo. Yes, he owns it and they sell a lot of gasoline in the U.S. Don't go there. Don't support his repressive, ignorant, backward regime.
1 A caudillo is a charismatic military leader with populist-socialist policies which aim to redistribute wealth to the poor masses, at least in the beginning of the regime. They always end up as dictators of various stripes. They control the economy through patronage to their supporters, redistribution of capital, and they rely on the military to maintain control. They promote a personality cult which is why you see huge posters of the leader. They can be leftist or kleptocratic-oligarchic. Castro is a typical modern leftist caudillo. Of course being authoritarian, it doesn't really matter if they are "left" or "right."
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I was thinking along similar lines as I read this, but the sentences that stood out were:
"Chávez (US Gov't) continues to nationalize major industries." Banking and automotive, are healthcare and energy next?
"First you devalue the currency." Ben and Timmay have that covered, barring a populist revolt.
It seems like a lot of the current gov't policies are destructive to capital. Without adequate capital formation, there will be no real long-term growth, except in unemployment, misery, and declining living standards.
I fully expect the class warfare card to get heavy play by Dems going into the fall elections, with Wall Street fat cats as the poster boys, since they have precious few accomplishments to tout. If the American electorate is stupid enough to fall for this, then I guess they will get what they deserve, sadly.
I've long contended that the US is nothing more then a banana republic with nukes. The things propping us up is inertia(America was really good for really long) and the reserve currency status of the dollar. Both will wear thin with time. I expect that within 20 years North America will look a lot like South America.
+1 these 2 comments. Wow, some real howlers in this article. Like "Latin America has been relatively peaceful"?!? That's interesting, last I checked there have been hundreds of military coups over the past century in the region, and the term "death squads" came to popular use based on some of the paramilitaries down there.
"I'm going to guess that his idea of Austrian economic theory has something to do with Arnold Schwarzenegger". This is so dumb on so many levels. First, do you think any president knows very much about economics? Obviously they have advisors, these are people who probably understand global economics better than some Libertarian fanboy (not naming names). Furthermore, why guess about such things - there's a thing called RESEARCH which allows you to procure INFORMATION. Watch, I googled "Chavez economic advisor" - sure enough looks like it's Jorge Giordani, a former Venezuelan Central Bank official. So, "I guess" he's basically a lesser Ben Bernanke, wow what a commie bastard.
Venezuela's economy was nothing more than a US oil drilling colony until a series of revolts in the 1970s claimed rights to their petroleum reserves. They've got some of the largest reserves in the world, so I doubt they'll have problems any time soon. They ARE playing the inflation game in a ruthless manner, but people are used to it there. Everyone has higher inflation expectations, compared to idiot Americans who don't even know what the term means!
To find a bigger clown than Obama. Hugo just barely fits the bill.
Redistributing wealth that the rich created (with their savvy oil manipulation) is a sure-fire way to destroy Venezuela's fragile social ecosystem. Three cheers for the next coup d'etat that will restore democracy.
Hopefully his own "citizens" will kill him.
The act of revolt, to alter or abolish a corrupted government is to claim the title of Citizen. It is its highest and most meaningful action.
Correction: Natural law, free markets and limited government are conservative ideals, not liberal (statist) ideas. Chavez is a statist of the highest order - fascist dictator.
Natural law, free markets and limited government are conservative ideals, not liberal (statist) ideas.
The OP mentioned "classic liberal ideas", not the perversion which modern liberalism has become. You need to do some reading. It was "classic liberals" who fought for law created by the people, not kings; classic liberals who promoted free markets as opposed to government controlled ones, and classic liberals who fought for Bills of Rights and limits to government power.
It's like reading Orwell all over again: what were once honourable terms (liberal, gay, democrat) have all been devalued and diminished by the statists, and the sheeple don't realize what's happening. "Four legs good, two legs bad."
Touche' Kevin. What a difference one word can make.
Venezuela in a mess, US in a mess ... the people get a government they deserve.
Yes. That's what I'm talking about. Right on, Econophile!
Glad to see this article. Latin America is mostly a mess because of people like this. Follow a pretty standard pattern to. Kinda makes me wonder how oil production is looking down there and what reserves are there.
+1
From the article:
Agreed, but don't forget the obvious: Because he's evil. He causes grievous harm to millions because principally, he is self-serving (like in North Korea, the people actually don't matter).
While I agree that he probably does not understand the basics regarding economics nor human nature, I assert that even if he did, it would not matter (except to make him a more effective dictator).
Good article, and I agree with the predictions.
He fired all the competent reservoir engineers years ago and replaced them with party loyalists who don't know jack shit about getting a barrel of oil out of the ground. Production has been tanking.
I had the pleasure of bunking with the military/political officer on board a civilian seismic vessel working for PDVSA. They were a bunch a retards but we gladly took their money.
kudos for the Citgo embargo. been screaming such for years now. Lukoil as well. buy Exxon gas.
In Dallas area quite a few of us stopped using
CITGO even though they would consistently
be 2-4 cents lower. 7-11 was a CITGO customer
and the unofficial boycott of CITGO caused them
to find another provider. It may still be CITGO
but at least they felt enough heat to make the
change public.
There's a reason Citgo is cheaper--it's garbage gasoline. Venezuela's oil consistenly has a higher content of sulfur in it than oil from other countries, so it's a pain in the ass to refine, and the final product results in lower mpgs.