Learning from Latin America

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The economic meltdown in many parts of Latin America is not receiving much attention in the mainstream media, except as the scapegoat for the influx of kids at the U.S. southern border. While gang and drug activity are big problems in some countries and have contributed to the crisis, it’s only part of the story in Latin America. Countries like Venezuela and Argentina have shifted to the political hard left. Their economies are wilting and should serve as sober warnings for the U.S.

Perhaps you think that economic problems in countries like Venezuela and Argentina can be attributed to a shortage of natural resources. Think again. Argentina has a rich agricultural base, outgrew Australia and Canada in GDP and per capita income in the early 1900s, and was actually ranked #10 in per capita income 100 years ago. Venezuela is blessed with massive oil reserves, currently ranked first in the world by some estimates. These nations should be strong economically today, but they are struggling. Both are currently ruled by hard socialists, Maduro in Venezuela and Kirchner in Argentina.

Life is not easy in Venezuela. Food and power are rationed in Caracas. There are even water shortages because the government lacks needed capital to fund a water-distribution network. Government regulations are so burdensome that many investors have left the country. The central planners have implemented a tiered foreign-exchange system that subsidizes dollars to some sectors of the economy at the expense of others. The exchange rate can range from 6.3 to 50 bolivares per U.S. dollar. In a word, it’s chaos.

Some industries are in total disarray. For example, the Venezuelan government has delayed $4 billion in payments to international airlines that serve the country. The government wants airlines to take their funds in bolivares, a currency inflating at 60-80% annually and virtually useless outside of the country. Some airlines like Air Canada have left altogether, while others like American and Lufthansa have cut back flights. The government is currently “negotiating” with a host of airlines for payment of past debts.

Of course, the U.S. has had for some time what is desperately needed in South America. Capitalism thrives where there is a stable monetary system, courts to enforce contracts, and respect for the rule of law. This foundation is eroding, however. Our monetary system continues to weaken with Fed meddling and a $17 trillion debt. The GM bailout demonstrated that courts are not always objective arbiters of private contracts. The ongoing illegal immigration fiasco undermines the rule of law. All of this breeds crony socialism, which is commonplace in Latin America. The U.S. is moving down the same path.

Perhaps you are one of those who thinks that what is happening in the emerging economies of South America can’t happen here. It’s already underway to some extent.

5 Comments

5 Comments

  1. Larry  •  Jun 21, 2014 @5:39 AM

    I enjoyed your discussion with Andrew Wilkow. None of the other talk shows have followed Venezuela like you have.

  2. Ken  •  Jun 23, 2014 @11:35 AM

    Enjoyed your positive comment relative to Mexico, made at the very end of your interview on the Wilkow show. Haven’t heard that anywhere else. What a breath of fresh air!

  3. John Parnell  •  Jun 23, 2014 @12:51 PM

    I’ve traveled to Mexico a lot over the years and I’d give the government mixed reviews in terms of economic reforms. Their business and academic leaders seem to understand what needs to happen, and my positive comments were directly primarily at them. Cronyism and corruption are deeply embedded in the system, so progress is slow.

    Illegal immigration is a serious issue, but we can’t blame them if we won’t even control our own borders. Most Latin Americans deal with government corruption all the time. Many who enter the U.S. illegally hear that others are getting jobs and not being deported, so why should they respect borders that we don’t take seriously? Our government is the reason this problem continues to fester.

    BTW, their handling of the Sgt. Tahmooressi case makes me sick. They are making a political point and our government has failed to take the steps necessary to get him released. Again, we have met the enemy and he is us.

  4. Terri R  •  Jun 23, 2014 @2:36 PM

    You’re 100% right doc. Many Mexicans are pushing for reform but the drugs, gangs, and corruption are really bad. If the US government secured the border and deported illegals, their government would be forced to get more serious. As it stands now, Mexico gets $$$$ sent back from illegals working in the US and both governments look the other way.

  5. Arthur W.  •  Jun 23, 2014 @8:43 PM

    Re Venezuela and Argentina, we may be headed in that direction eventually, but I think it is more likely that we are trending toward European social democracy, if there is such a thing. This, of course, is what the progressives, including Obama, want for us. More government and more dependency on the central government, the latest example being health care. Right now, almost 50% of us don’t pay income taxes so why would they care what the government spends? They have no skin in the game. And they vote.

    Conservatives don’t have an effective answer. It is not enough to talk about future generations, because they are being taught that the government knows best since they now control the education curriculum. We have the best economic system in the history of the world and we can’t sell it to school children.

    Thus far the government has not managed to take over the economy but not for lack of effort, cranking out regulations by the thousands of pages. 2014 mid terms are critical to at least slow it down. The best thing conservatives have going for them is the ineptness of the government: IRS, Benghazi, Iraq, prisoner swap, foreign policy etc. Europe, Venezuela and Argentina are what happens when people trust the government too much. Once progressives get in, it’s hard to get them out. But that’s a hard sell.