The further to the left or the right you move, the more your lens on life distorts.

Friday, April 04, 2014

Swallowing a Fly

It's reasonable to state that champions of big government are also strong proponents of "social justice," strong voices that speak against "income inequality," and strong defenders of increased spending, particularly the types of spending that increase dependency on the government. It's also reasonable to state that the same ideological mindset never spends much time examining contemporaneous experiments (in big government, social justice, income inequality, or dependency) conducted in other countries. One such experiment has been on-going in Venezuela for the past decade, and the results are predictably awful.

Megan McArdle summarizes:
Venezuela’s economy is starting to remind me of the old woman who swallowed a fly. Those who attended kindergarten in the U.S. will well remember her saga:
There was an old woman who swallowed a bird,
How absurd! to swallow a bird,
She swallowed the bird to catch the spider,
That wriggled and jiggled and tickled inside her,
She swallowed the spider to catch the fly,
I don't know why she swallowed the fly,
Perhaps she'll die.
. . . and on up through dogs and goats and cows, each one intended to deal with the animal that had preceded it down her gullet.

And why does this remind me of Venezuela’s economy? Well, first the late President Hugo Chavez diverted money from capital investment in the oil industry to “social investment” in the poor. Unlike the old lady with the fly, I do understand why he did that. And for a while, it worked -- oil production fell, and the decline was more than offset by rising oil prices. After a while, however, oil prices stopped rising, and Venezuela got into a spot of trouble. As the trouble got deeper, the government started having trouble laying its hands on ready cash.

“As the price tag of the Chavez/Maduro regime has grown, the country has dipped more and more into the coffers of its state-owned oil company, PDVSA, and (increasingly) the country’s central bank," Steve Hanke of Johns Hopkins recently explained.

This created a little problem with Venezuela’s currency, the bolivar. Venezuela now has runaway inflation. Naturally, it needed to do something about that, so -- price controls. And currency restrictions. Hanke’s data show that the gap between the official exchange rate and the black-market rate for the bolivar has dramatically widened.

Any economist -- or, for that matter, anyone who slept through one semester of microeconomics -- can tell you what came next: shortages. It became regularly impossible to buy toilet paper, flour or anything else at controlled rates; when such items were available, lines were often hours long, and people started hoarding.
What Venezuela represents is socialism in action in modern times. Yet, the Left insists that there is no lesson to be learned, or at the very least, that Venezuela did it wrong, that their star, Hugo Chavez, wasn't the right leader, or didn't do enough, or ... No matter how many times the socialist experiment has failed throughout the last 100 years (and that's a lot of times), to the Left it never seems to be the big idea that has flaws, rather, it's just the implementation.

Under Barack Obama, the United States drifts toward a more socialist system—more dependency, more government intrusiveness, less individual freedom, an anemic economy, and astronomically high debt.

But no matter, if we transfer enough money by increasing taxes on "the rich" in the name of income inequality, we'll be able to continue our profligate ways, just as Venezuela's Chavez was able to raid his oil industry ("the rich") in the name of socialism. Until we can't. We can print money (think: "quantitative easing") year after year to buy our own debt, until the dollar begins to devalue, just as Venezuela's currency did. And then, under the next president, we can institute price controls to battle inflation (that was caused by printing money) "for the good of the working people," until we encounter shortages.

Impossible? Just as the citizens of Venezuela.

Of course, shortages have some merit, at least from the point of view of a corrupt, incompetent socialist government that doesn't want newspapers in Venezuela to print critical stories. This from Manuel Ruada:
Over the past four months, six newspapers in Venezuela have had to shut down their print editions due to chronic printing paper shortages according to Venezuela's Institute for Press and Society. These shutdowns limit the amount of news and opinion that Venezuelans can receive on their country's escalating political crisis, and on protests against president Nicolas Maduro.
Unintended positive consequences for big government proponents! Of course in the United States, the hamsters in the media have been trained well. They tend not to write critical stories about this administration so paper shortages simply won't matter. Oh well.