Socialism and Populism failing Economics 101

President Nicolás Maduro ordered managers of electronics chain Daka to lower prices or face prosecution.

(Photo: Girish Gupta for USA TODAY)

STORY HIGHLIGHTS

• The assault against business comes amid a severe shortage of basic goods and extreme inflation
• Televisions were the most in-demand item
• President Maduro's popularity has dropped significantly in recent months

CARACAS, Venezuela — Venezuela's President Nicolás Maduro intensified his perceived fight Monday against "bourgeois parasites" he accuses of an economic war against the socialist country by threatening to force more stores to sell their merchandise at cut-rate prices.

National guardsmen, some of whom had assault rifles, were positioned around outlets of an electronics chain that Maduro has ordered to lower prices or face prosecution. Thousands of people lined up at the Daka stores hoping for a bargain after the government forced the companies to charge "fair" prices.

"I want a Sony plasma television for the house," said Amanda Lisboa, 34, a business administrator who waited seven hours outside a Caracas Daka store, similar to Best Buy. "It's going to be so cheap!"

Five managers of electronic retailers including Daka are being threatened with prosecution for unjustifiable price hikes, the Venezuela government said. More stores may be at risk, as well. Government inspectors were dispatched to check prices at an array of other businesses.

"This is for the good of the nation," Maduro said, referring to the military's occupation of Daka. "Leave nothing on the shelves, nothing in the warehouses … Let nothing remain in stock!"

Maduro said his seizures are the "tip of the iceberg" and that other stores would be next if they did not comply with his orders. Maduro is expected to win decree powers in Congress in the coming days that he says will be used to take over more businesses.

The assault against business comes amid a severe shortage of basic goods and extreme inflation, which is currently at an annual rate of 54.3%. Both are tied to policies of the government, which is boosting public spending and printing money in record amounts to pay for it.

Venezuela's central bank said the country's money supply grew 70% in the past year. As a result, the value of the Venezuela bolivar continues to drop at a time when the country must import increasing amounts of basics like food and even toilet paper due to failed state schemes for running the economy.

For Venezuelans, it costs more bolivars every week to buy from stores that must pay the foreign producers of goods they order in hard currency like U.S. dollars. But Maduro blames it on greedy business and his opponents here and abroad.

Hebert García Plaza, head of the High Commission for the People's Defense of the Economy, said a new washer/dryer cost 39,000 bolivars on Nov. 1, and went up to 59,000 bolivars a week later. According to the exchange rate set by the government, that is the equivalent of a washer-dryer going from $6,190 to $9,365.

But that math is distorted because the state's official exchange rate is set artificially far lower than what people get for their bolivars on the black market. In that case the washer/dryer cost $650 on Nov. 1.

Also, Venezuela's policy of restricting the reasons for which people can exchange bolivars legally has raised the exchange rate on the black market, making dollars more expensive for retailers and thus raising the cost of the goods they import.

Importers complain that there is such a shortage of dollars they are having to buy them on the black market to import inventory at a good price. If they were to charge clients based on obtaining the dollars at the official rate, they say they would make no profit.

Maduro's government has brushed aside such complaints and is trying to put an end to black market currency exchanges. The government banned websites that publish the black market dollar rate, a strategy that one prominent Venezuela blogger likened to banning the sale of thermometers to crack down on cold weather.

Nonetheless, many Venezuelans lined up for the reduced-price goods. Televisions were the most in-demand item in the line outside Daka. Also sought were refrigerators, washing machines, sewing machines and other imported appliances.

Water and snacks were being sold outside the stores by Venezuelans keen to profit from the commotion. Happy customers emerged carrying large-screen televisions and other items back to their cars.

"I would bet that the next thing to disappear from shelves are televisions," said Alberto Ramos, an analyst at Goldman Sachs in New York. "What the government is doing is aggravating the picture. There is no economic justification for this."

The government said that five people had been arrested in the country's central city of Valencia for looting. Even Venezuelans who knew the policy was unsustainable were in line for a good deal.

"I have no love for this government," said Gabriela Campo, 33, a businesswoman hoping to take home a cut-price television and fridge. "They're doing this for nothing but political reasons, in time for December's elections."

Maduro has been taking dramatic measures up to the approach of municipal elections on Dec. 8. His popularity has dropped significantly in recent months, according to some independent media polls.

Ramos and most analysts are expecting a devaluation soon after the election, likely leading to even higher inflation. This is not the first time Venezuelans have seen their government steal company assets in times of trouble.

Former president Hugo Chávez often theatrically expropriated or seized assets from more than 1,000 companies during his 14-year tenure. This, among other difficulties for foreign firms, led to a severe drop in foreign investment in the country that has hobbled its ability to produce oil despite having the world's largest estimated oil reserves.

"This is more like government-sanctioned looting," said Caracas-based engineer Carlos Rivero, 42. "What stops them going into pharmacies, supermarkets and shopping malls?"

Bill's comment: History repeats. This approach to economics and governance has failed repeatedly in third world countries. 

Update: NY Post 27Nov13

Venezuela is in a death spiral that could produce a crisis for the United States. Economic collapse, incompetent leadership and Cuban meddling may provoke a showdown among well-armed chavista rivals, with civilians caught in the crossfire. US diplomats, who’ve spent years ignoring or minimizing threats emanating from Venezuela, must act urgently to prevent a Syria scenario on our doorstep.

The late dictator Hugo Chávez left behind a mess: His divisive, illegitimate regime polarized society and devastated the economy. Inflation is running at 50 percent, while the vital oil sector is faltering. The bloated, bankrupt state can’t sustain the social spending that kept the peace; the nation already faces food shortages, power outages and rampant crime.

Chávez’s hapless successor, Nicolás Maduro, won disputed elections in April in what even he called a “Pyrrhic victory.” His mismanagement since has only hastened the country’s decline — for example, dealing with toilet-paper shortages by confiscating paper companies.

Maduro has resorted to accusing the Obama White House of plotting the collapse of the Venezuelan economy. He’s also created a “vice ministry of supreme social happiness” in an Orwellian gesture to tamp down widespread social anxiety. He even moved up Christmas celebrations up in advance of the Dec. 8 local elections.

Last week, Maduro publicly ordered retailers to lower prices on consumer goods. Security forces arrested dozens of shopkeepers and stood by as mobs emptied store shelves. Good luck seeing those shelves restocked. As he further tightens economic controls, Venezuelans will have to settle for what the government provides. Their only other choices: Flee the country, turn to crime — or oppose the regime.

Maduro is most worried about the last. He recently ordered the detention of several civic leaders who’d been mobilizing protest rallies. Regime sources say that he may even nix the upcoming elections and jail well-known opposition politicians.

Most blame these draconian measures on Maduro’s Cuban handlers, the puppeteers behind his rise to power. The destitute Castro regime’s survival depends on Venezuelan oil, so it means to keep Maduro in power by repressing popular unrest and ferreting out dissent — including within the regime.

By pushing Maduro to purge powerful chavistas — many with ties to the military — who disapprove of Havana’s heavy hand, the Cubans have likely overreached. This crackdown has stoked tension within the military between those aligned with Maduro and nationalists who’ve never been comfortable in a Cuban harness.

The regime has very little room to maneuver. Virtually every Venezuelan is infuriated by the daily fight for survival. The anti-chavistas are fed up with the harassment by an illegitimate and incompetent one-party state. All sides in the military are busy weighing their options.

Any act of repression, street brawl, electoral fraud or corruption scandal could unleash all the fury built up over the regime’s 15 years. Tragically, the sight of military units squaring off in the streets of Caracas is not a distant memory.

The United States imports about half the Venezuelan petroleum that it did when Chávez was elected in 1998, but that’s still 9 percent of our foreign oil purchases. Plus, an implosion of Venezuela’s economy — or, God forbid, prolonged civil warfare — will roil the international oil markets and destabilize the region when the US economy is sputtering.

What’s worse, in the last decade, Venezuela has become a narco-state, with dozens of senior officials and state-run enterprises complicit in the lucrative cocaine trade. The regime also is an ally of Iran and Hezbollah, which may find their own ways to exploit chaos in Venezuela.

Geography makes the bloodbath in Syria all but invisible to Americans, but Venezuela is a three-hour flight from Miami and No. 3 in the world in social networking. The US public will see photos and videos of innocent demonstrators mowed down in the street. Moreover, in the Americas, the United States will be expected to lead.

The Obama administration must work with regional partners to respond to the brewing crisis. It should invoke the Inter-American Democratic Charter as a step toward restoring democratic governance, and to warn Maduro and military leaders that they’ll be held responsible for violence against citizens.

If the administration fails to confront these events decisively, Congress should demand action and make clear to the president that leading from behind is not an option.

Roger F. Noriega was US ambassador to the OAS and assistant secretary of state under President George W. Bush. He is an American Enterprise Institute visiting fellow and managing director of Vision Americas LLC, which represents US and foreign clients.

Mark Steyn Explains The Euro Crisis

Mark Steyn has a gift with words and is the most interesting conservative commentator around.

"Europe" has a basic identity crisis: As the Germans have begun to figure out, just because the Greeks live in the same general neighborhood is no reason to open a joint checking account. And yet a decade ago, when it counted, everyone who mattered on the Continent assumed a common currency for nations with nothing in common was so obviously brilliant an idea it was barely worth explaining to the masses. In the absence of ethnic or cultural compatibility, the European Union offered Big Government as a substitute: The project was propped up by two pillars — social welfare and defense welfare. The former regulated Europe into economic sloth even as India, China, and Brazil began figuring out how this capitalism thing worked. The latter meant that the U.S. defense umbrella ensured once-lavish budgets for hussars and lancers could be reallocated to government health care and other lollipops — and it still wasn't enough. Whatever the individual merits of ever-more-leisurely education, 30-hour work weeks, six weeks' vacation, retirement at 50, the cumulative impact is that not enough people do not enough work for not enough of their lives. And once large numbers of people acquire the habits of a leisured class, there are not many easy ways back to reality.

<http://www.steynonline.com/4576/lethal-leisure>

Useless, jobless men – the social blight of our age

(article from London Times)
The benefits system has produced an emasculated generation who can find neither work nor a wife
by Camilla Cavendish

Of all the government adverts that have swamped our radio stations these past few years (must be a quick saving there for the Treasury), one of the most irritating was the jolly woman asking us in a sing-song voice if we had remembered to report changes in our circumstances. Like hell. Every time I heard the ad it conjured up a vision of a lonely official waiting in vain at her desk for people to come in and sign away entitlements to which they feel, well, entitled.
This pathetic advert seemed to me to epitomise the politicians’ total loss of control over the monster that is our benefits system. The Department for Work and Pensions (DWP) presides over a system so complex that it has to issue 8,690 pages of guidance to help its staff to apply its 51 different benefits — the product of the ever more precise targeting of benefits to particular groups.
In the years of plenty, it was easier to placate and complicate than to simplify. Every new benefit and its separate computer system was just bolted on to the mainframe. But the result is that Britain has more than twice the number of sick people as France. The potential for playing the system, defrauding the system and falling foul of the system is enormous.
So in declaring war yesterday on both poverty and the benefits system, Iain Duncan Smith had it right. If the Government is going to make real inroads into the deficit it will have to tackle the nearly £200 billion welfare budget, which is a third of government spending. This week’s £6 billion of cuts was only Round 1: £6 billion is only 1 per cent of government expenditure, so this was a warm-up. Round 2 will need to take on the DWP leviathan.
But the argument for welfare reform is not just one of affordability. In too many cases, welfare has entrenched poverty. Mr Duncan Smith is one of the few politicians who really understand the poverty trap. Gordon Brown made life more bearable for many people on benefits, but he also made it harder to escape from them. Get a job tomorrow earning between £10,000 and £30,000 a year and you’ll take home only 30p out of every extra pound you earn after the first £10,000. Twenty pence will go in income tax, 11p in national insurance, and 39p in lost tax credits. Add in the loss of other allowances (housing benefit, council tax benefit) and you may find it simply doesn’t pay to work harder. Our poverty trap is deeper than that of most other European countries. That is a strange legacy for a government that wanted to make work pay.
The fear of losing benefits — of not being able to scramble back on to the lifeboat if you fall off — is a huge disincentive to change your circumstances, let alone report them. One in seven working-age households is dependent on benefits for more than half its income. More than half of all lone parents depend on the State for at least half their income. William Beveridge would be horrified to discover that the safety net he designed has become a trap, creating generations of worklessness and dwindling self-esteem. It is also creating a glut of unemployed, unwanted, unmarriageable men.
These men were overlooked during a decade of prosperity that did nothing to change their lives. At the beginning of that decade, 5.4 million working-age adults were claiming out-of-work benefits. The same number were still claiming just before the recession struck. Almost a fifth of 16 to 24-year-olds were not in education, employment or training in 1997. The number was identical in 2006. These people stayed put in the Welsh valleys, in Liverpool, in Glasgow, while Eastern Europeans travelled a thousand miles to pick up work on construction sites in London. Immigration reduced the opportunities available to white British men whose poor education made them less attractive candidates, while the benefits system undermined their motivation.
The problem affects the whole of society because of the striking correlation between male joblessness and single motherhood, particularly in the old industrial cities. In Liverpool, male unemployment rose from 12 per cent in 1971 to 30 per cent in 2001. In 1971 11 per cent of families were headed by a single parent; by 2001, 45 per cent were. Similar patterns can be seen in Birmingham, Strathclyde and Newcastle. The epidemic of male joblessness after the collapse of manufacturing industries coincided with an increase in female employment and welfare support to mothers who found that they could manage alone.
Overlooked by society, irrelevant to employers, unwanted by women who can raise families on benefits without their help, the man who has no work or a series of short-term jobs is a problem. Without steady work, he will struggle to acquire a family: unemployed men are less likely to marry or cohabit than employed ones. Without a stable relationship, he is less likely to grow into a good family man and raise good sons. The taxpayer has become the father: one in four mothers is single and more than half live on welfare. A lot of these women describe the real fathers of their children as “useless” or worse. The men have no role.
In the worst cases, the State has helped to create a class of jobless serial boyfriends who prey on single mothers on benefits. When two of these men moved into the flat that Haringey Council had generously provided for Tracey Connelly, Baby P’s mother, the little boy’s fate was sealed. They killed him. Other such men appear in bit parts in tragedies such as that of Shannon Matthews, abducted and drugged by her own “family”. The welfare system has helped to deprive these children of the most effective check on abuse — the family.
Robert Rowthorn, Professor of Economics at Cambridge, has shown that female and male worklessness have been going in opposite directions for 30 years, well before this latest “mancession”. His research suggests that half the rise in lone parenthood in the past 30 years may be due to male unemployment. He believes that governments must start to focus on these men, and question the feminisation of education and the workplace. It is no solution, he says, to say that women don’t need men or that men should become more female. Nor is it any good waiting for economic growth to dig them out of poverty. Those men need a chance, not a benefits system that undermines them.

The limits of Socialism

I don't know who Dr. Rogers is but this makes sense:
Dr. Rogers is quoted:
"Friend, you cannot legislate the poor into freedom by legislating the
wealthy out of freedom. And what one person receives without working
for, another person must work for without receiving. The government
can’t give to anybody anything that the government does not first take
from somebody. And when half of the people get the idea they don't
have to work because the other half are going to take care of them, and
when the other half get the idea it does no good to work because
somebody’s going to get what I work for, That, dear friend, is about the
end of any nation."

Margret Thatcher (former UK PM) said it this way: "Socialism works until you run out of other people's money."

Socialism by Increments

Do you know how much tax you pay? Consider this example: to buy a Chevrolet priced at $20,000 in Indiana you must pay a 7% sales tax plus licensing and excise tax. To manufacture your car General Motors, suppliers and dealerships must also pay taxes. These include corporate income taxes, real estate taxes, inventory taxes , employee social security tax and so on. Of course these hidden costs are included in the price of the car. How much does all of this add to the price? According to a Harvard economist the answer is 18% or about $3000.
So to purchase your Chevy you must earn an extra $3000 for the government tax burden. However, your earnings are also taxed. For simplicity let’s assume your net federal income tax rate is 15% after deductions. In Indiana you will also pay state income tax of 3.4% plus a 1% local option tax. Do the math and we find that we must earn about $24,800 to keep $20,000. So, adding it all up, the total tax burden in this case is $7,800 or 39% of the purchase price. Taxation is nearing the point where the USA will soon be a Socialist economy.