Browsing the blog archives for August, 2015.

More of the Inevitable in Venezuela

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It’s time to update the crisis in Venezuela. The mass printing of bolivars has led to predictable hyperinflation in recent months. It’s no surprise that President Maduro’s government hasn’t published any inflation or related data since December 2014, when the annual rate officially hit 68%.

But there are other ways to skin the proverbial cat. Venezuela-born and Miami-based financial analyst Miguel Octavio frequently travels to Caracas and always dines on a popular local favorite, arepas, at the same restaurant. The price he pays for arepas is always changing, providing key insight into general prices in the country. Since November, Octavio logged an increase from about 100 bolivars for an arepa with cheese in November 2014 to about 470 in July 2015, with the price more than doubling in the past 3 months. Because the trend is not stable, computing the current annual rate is an inexact science, but I’m estimating ~1000% based on the arepas. Conservative estimates are closer to 200%, which is no picnic. To put this into context, inflation is a problem in neighboring Uruguay and Brazil, but it’s only 8.5% and 9.6% in these countries respectively.

The economic calamity is widespread. Barclays analysts give a 98% probability to Venezuela’s default on its sovereign debt in the next 5 years. As a Bank of America economist put it, “People are literally getting rid of money faster than the government can print it.”

This type of hyperinflation is a broad result of Venezuela’s Marxist philosophy that demonizes and punishes free enterprise in favor of an arbitrary, inefficient central planning model. It is a direct result of the country’s decision to print more currency. We’re experiencing both of these evils in the US, although at a less tyrannical pace. While I don’t expect the US to go the way of Venezuela anytime soon, the trend is in the same direction. It might be a generation away, but massive debt, unfunded liabilities, and constant pressure on liberty and free enterprise—the engine of the economy—foretell trouble down the road.

For more on the situation in Venezuela, see http://www.wsj.com/articles/in-venezuela-economists-improvise-to-track-economy-1439759978.

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Democrat vs. Socialist

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Chris Matthews recently asked DNC chair Debbie Wasserman Schultz to explain the difference between a Democrat and a Socialist. She wouldn’t answer. As we shall see, the reason why tells us a lot.

A Democrat is a member of a particular party, but a socialist can refer to either a party or an ideology. Dominant views in parties can and frequently do change, while ideologies are more consistent.

Democrats and Republicans are political parties. Their members tend to share common views on certain issues, but not always.

Socialism and capitalism are ideologies. Socialists favor government control of production because they believe government officials are more trustworthy and wiser than would-be business owners. Capitalists favor market control of production because they believe individuals can be trusted for the most part, and should have the right to control their own capital, labor, and purchase decisions. Besides, capitalism works.

Now back to Wallace’s question. Several decades ago, the answer would have been easy: Unlike socialists—who are statists—Democrats are neo-capitalists who also favor some government intervention in the economy. But this explanation is no longer true. Wasserman Schultz struggled with an answer because the Democrat party no longer emphasizes free enterprise. In fact, many Democrats are quasi-capitalists at best. How often do you hear prominent Democrats praise or even acknowledge free enterprise for anything positive? Most rail business and blame its leaders for every perceived social malady from income inequality to health care to unemployment.

But herein lies the rub. The President may be a strong leftist, but the current party includes large numbers of both traditional Democrats and modern socialists. If Wasserman Schultz embraces free enterprise in her definition of a Democrat, she will alienate the socialists. If she doesn’t, she distances herself from many blue collar Democrats and independents who see themselves as moderates. Democrats can’t win national elections without the support of this latter group.

Of course, Republicans have a similar problem. Many Republicans are not capitalists, but instead favor a blend of free enterprise, socialism, and cronyism. Today, libertarians and constitutionalists occupy the political space largely abandoned by the Republican party. They often vote Republican by default, if they vote at all.

Frankly, Chris Matthews asked a superb question, and the same should be posed to every prominent Democrat. To be fair, Republican candidates should be asked to clarify the difference between a Republican and a capitalist, constitutionalist or libertarian. Those who claim the values of liberty, rule by Constitution, and free markets should be asked what they specifically plan to do (if elected) to vigorously promote these ideals. Any answer that doesn’t include a repeal of Obamacare, a complete overhaul of the tax code, and a significant rollback of the welfare state is coming from an imposter.

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