Five Ways to Ruin an Economy

[Marksman_91]

http://globalpublicsquare.blogs.cnn.com/2013/11/16/five-ways-to-ruin-an-economy/

Some startling images caught our eye this week. A shopping free-for-all at a major electronics chain, the equivalent of America's Best Buy. People making off with flat-screen TVs…refrigerators…and more…all at bargain basement prices. No, it’s not the holidays yet. This is what happened when the government of Venezuela decided to play Robin Hood: the army took over the privately owned chain and slashed prices.

The incident got us thinking. We often talk about best practices for economies. Perhaps there should also be a list of things to avoid – a checklist titled ‘How to ruin your economy.’ Well, it so happens this isn't just a theoretical list, because Venezuela is actually ticking each of those boxes in practice.

So let's go to rule #1. Attack big business. That's exactly what we saw Venezuela do this week with "Daka" – the electronics chain. President Nicolas Maduro says that his opposition is in cahoots with Washington to bring down his economy. Apparently that's why TVs were so expensive. As we saw this week, there's an easy fix: Have the army take over. Sounds like a lasting solution.

That brings me to rule #2. Create hyperinflation. It turns out those TV salesmen in Venezuela aren't the only robbers. The truth is the overall price of goods has risen 54 percent in Venezuela this year. So, if your household groceries cost $100 a week in January, they'll now cost you $154. The ripple effect is clear. Prices go up, so salaries have to go up, and so anything you produce costs more. Mission accomplished, your economy is now less competitive.

Rule #3. Induce a currency crisis. The easiest way to curb inflation is to increase the value of your currency. Basically, print less money. But it turns out Caracas actually has a cash crunch, so it actually needs to do the opposite. Meanwhile, the black market for American dollars is thriving. The official exchange rate is 6.3 Bolivars for every greenback. In reality, the black market rate is 7 to 10 times that amount. For a country which imports 70 percent of its basic goods, this is a big problem. You may remember recently that Venezuela ran out of toilet paper. Why? Well, it's running out of a different kind of paper – the money to pay for it.

Which brings me to rule #4. Subsidize, subsidize, subsidize. If Caracas is running out of money, thegovernment doesn't seem to know. Just last month, President Maduro raised public sector salaries by 10 percent across the board. This comes after two recent elections, where the government lavished subsidies to win votes. Gas is essentially free in Venezuela. In fact it's also nearly free in neighboring Cuba, which Venezuela has been subsidizing for years.

I could go on and on, but I'll point out just one more rule. Number #5, which is…Become a dictatorship. President Nicholas Maduro won a vote this week to get what is known as “decree powers” – the ability to pass laws without consulting Congress. He says he needs these powers to fix the economy and tackle corruption. After all, Venezuela is ranked 181st of 189 countries for doing business. It is ranked 9th for corruption. It took years for Hugo Chavez to take Venezuela to this point…and now Maduro wants to double down on the very same policies.

So, on points 1 through 5, Venezuela is on a fast-track to total ruin. The world saw this coming under Chavez. We hoped for change, but in his dying days Chavez handpicked a “mini-me” to stay the course. The sad truth is that Venezuela is wasting the world's largest oil reserves. It could have been as wealthy as Saudi Arabia or Qatar. It could have outstripped Mexico or Brazil. Instead, it is beginning to resemble North Korea, simply by following the most ruinous set of policies in the world.

One thing that extreme left-wing politicians seem to have in common is that they tend to run economies very poorly and seem to have no basic grasp of how economies work. This goes beyond social policies now, this is reaching to the very core of a country's backbone: the economy. Chávez may have had some good ideas in theory regarding giving the poor a chance to rise up in the social strata. But his economic policies, now being run by Maduro to a worse extent, are driving Venezuela to ruin. The price adjustment that the government is currently enforcing is only going to keep even more entities from doing business in Venezuela, and actually drive many who currently do business in the country away. Pretty soon there's gonna be a scarcity of all kinds of products. What the Maduro administration basically did was just give a short-term discount to the people. mostly due to the fact that there will be some new municipal elections in the first few days of December, and they seek to make them happy for a short while to gain some of their support. This dirty tactic might work for short while, but later on, it's gonna come back to bite them in the ass when people realize that these policies have only made things worse in the long run.

[Half-Century Man]

1. Corporate troll

The truth is the American version of capitalism is a nightmare for 99% of the population.
There is no and never has been a free market.
John Stewart Mills was naive, because given a chance most fiscally driven people will gleefully let people die to enhance profit.
Privatizing traditional governmental functions is stupid, because why substitute a governmental bureaucracy with a corporate one? You can control the costs with a governmental one.

And the best way to protect economies? Undo the vast American Intelligence apparatus which has worked mainly for corporate America for the last 70 years. Shackle the international banks. Make sure the most powerful entities in any country is the government of that country, seconded only by international responsibilities to other governments. International influence should never be trusted to profit motives.

[Socialistlemur]

3. Huh?

That sure was a non response. Are they selling canned answers? Maduro has been using some of the dumbest most backwards and irresponsible policies ever seen. Maybe you don't get it but the guy is ruining whatever Chavez left behind. Maduro has been in charge of Venezuela for almost one full year. Check the inflation statistics since the man took over. And please don't give me that tale about chile and Allende. The Chavez government has been in power for 14 years. They own stores, control the distributin system, own the media, have the military and secret police on their side. So this is basically about a government printing too much money to make Maduro popular. Maduro knew he wasn't Chavez, tried to start a Chavez cult and things went downhill from there.

[Warpy]

2. Liberals ran an economy that saw the longest sustained boom

in the history of the world and did it with high taxes at the top and living wages at the bottom. Yes, there was inflation. It was around 4% until OPEC delivered a huge inflationary punch by fixing oil prices at triple what they once were.

How they wrecked our economy was by attacking labor and funneling all the country's wealth into very few hands at the top.

The top has invested heavily all over the world, in every country but the US. The impoverished government, starved by regressive taxation, can't even keep up with repairing the infrastructure, let alone replacing it with the type that will help the next boom start. And until all this stuff reverses, our economy in the US will be trashed and getting worse.

Conservatives in both parties destroyed the US economy. Liberals went out of power in 1969 and have never been back in. I hate to break it to you, but conservatives are far right, not left.

Venezuela is a mess under Maduro, that's the truth. He lacks Chavez's ability to wheedle big business into playing ball, so big business has taken the ball, mitt and bat and locked them up, creating artificial shortages that have contributed to that huge inflation rate.

Maduro is an ideologue who is incapable of admitting when something isn't working and simply placing blame on his opposition instead of finding ways to work with them. In that way, he greatly resembles the conservatives that wrecked our economy.

[Bacchus4.0]

4. the shortages are real as Ven imports 70% of its products as a starting point

They are dependent on other countries to provide their needs. If a microwave Brazil costs $150 thats the baseline price. Add to that import taxes, import costs, overhead, profit, profit, and the cost for an importer to purchase dollars to exchange fro the product in the first place. The goverment already auctions dollars at about double the official rate so its going to be kind of hard for a business to make a profit if the government then goes and tells them they have to sell the product using the official rate.

Well, now the government announced they themselves would be importing electronics and appliances. Just about every other state run enterprise in the country has been a disaster so I wouldn't expect this to be any different.

[Warpy]

5. No, the state doesn't do very well at running consumer businesses

which is why I advocate for a messy, mixed system. The private sector doesn't do a good job of running labor intensive services like education, health care, fire protection or the police/military. Only a mixed system can do it all and do it at all humanely.

Maduro seems to have as tenuous a grasp of economic history as our own right wingers do and it doesn't take a crystal ball to see what road he's got Venezuela on.

ETA: some of the shortages are artificial since they have busted these guys with warehouses of things people are desperate for.

[Flatulo]

6. The Scandanavian countries have nailed it.

[Warpy]

7. I think so, too.

I hope someday we'll get there, the south kicking and screaming all the way.