The Opinions Expressed: Voodoo Economics

Wednesday, January 13, 2010

Voodoo Economics

I do love Chavez. As much as he is leading Venezuela down a road to ruin, at least he is able to make me laugh on occasion. There is a priceless article on the BBC about his currency devaluation.

From different parts of the article:

"But on Friday, President Chavez announced that it would now have two rates - 2.60 to dollar for "priority" imports, and 4.30 to the dollar for other items considered non-essential - a 50% devaluation.

Hugo Chavez, has said troops will seize control of any business that raise prices in response to the devaluation of its currency.

He said there was no reason for prices to go up, and speculators' businesses would be handed over to the workers."

So the costs of importing things is going to go up 50% and yet somehow there is no reason for prices to go up. Wow! I guess those evil capitalists operating in Venezuela were making such good margins on their imports that a 50% increase in costs is not really going to impact their profitability.

The other thing that really confuses me is the split between “priority” and “non-essential” imports. Who is going to sell anything to Venezuela at the “priority” exchange rate when you might only be able to buy things worth half of the value if what you are purchasing is deemed “non-essential”! So this policy is going to halt any imports of “priority” goods – which I suppose would help domestic producers if they have spare capacity, or any capacity – and there will be massive inflation on the “non-essential” goods.

In the end, I’m sure that any economic problems that arise as a result of this policy will actually be the result of US meddling. There are probably CIA agents on the ground right now conducting covert economic warfare against the Venezuelan people.

It will be interesting to see how this plays out, but I can only imagine the popular outrage this will cause when prices rise and staples become unavailable. At least the oil price is back on the rise!

No comments:

Subscribe to: Post Comments (Atom)

Brief Conversational Thoughts

Me at Oktoberfest - The greatest thing about multiculturalism is that you get to celebrate every culture’s drinking holidays. This leads me to the question of why Asian’s don’t have any good drinking holidays, or why they are holding out on sharing them with the rest of us.
Overheard at lunch - "Are you one of those Asians that turns all red as soon as they have any alcohol?"
Me: Missionaries going to hostile countries need to be more dedicated to their cause and more forceful in their ideology. George: Aren't those called economists?
On natives learning the value of hard work instead of getting an apology- "If they didn't need to learn the value of hard work, they would have colonized Europe and we wouldn’t be having this conversation"
On a worsening global economy – “I’m not that concerned about a global recession. I’m a student, it’s not like my standard of living can get much lower”

What I've Finished Reading Recently

Development Redefined by Robin Broad and John Cavanagh – I don’t know how this got on my reading list, but it was clearly from a less than reputable source. If you know nothing, or very little about the rise and shift of the Washington Consensus then this book would likely be helpful. Otherwise it is probably not worth your time.
Wealth into Power by Bruce Dickson – The Chinese Communist Party has coopted most of the new entrepreneurial classes in China. Because of this “crony communism” economic development may not threaten the power of the party as many outside commentators may suggest. There are issues regarding income disparity and the perception that some of the gains may have been ill gotten, but so far the party has been able to balance these concerns, and may continue to be able to do so going forward.
History of the English Speaking Peoples by Sir Winston Churchill – Well it was a short 1400 or so pages, and there is no way that I’m going to remember which king did what when, but it was a massive insight into the rise of English power in the world from the Roman landings to the end of the Victorian era. Watching the evolutions of the parliamentary system, common law, and the relationship between church, the monarchy, and parliament throughout the centuries was fascinating. After reading his work, I have a much better appreciation for Churchill’s saying about not knowing history dooming us to repeat it.
Termites in the Trading System by Jagdish Bhagwati – Preferential Trade Agreements are bad. Regional Trade Agreements are not much better. Their proliferation is causing problems for world trade as the hegemonic trading powers add non trade related issues to their agreements, and a spaghetti bowl of agreements is created. This creates distortions and inefficiencies. I got some concrete examples of arguments I had been learning about in econ! In this instance I think Bhagwati is correct. The world is working as the model predicts and something should be done. Sadly political courage is lacking these days.
The Coming Anarchy by Robert Kaplan – This book contains essays all written during the 1990s in the wake of the fall of the USSR. It speaks to the problems which were perhaps ignored at the time, but are coming back with a vengeance now. Rising populations combining with stagnant growth are a recipe for disaster, and the giant city slums of the developing world are the ticking time bombs. It is eerie to read and see how many times Afghanistan is mentioned as a potential hot spot. It offers some compelling arguments about why it is unlikely that we will be dealing with a rapidly democratizing globe in the near future. Arguments which seem all the more compelling knowing they were written a decade ago. Brace yourselves for an international system where many types of governance are accepted and interact on a regular basis.
Forgotten Continent by Michael Reid – I didn’t know a lot about Latin American history, which was the main reason for me picking up this book. Reading the preface, I found out that the author was The Economist’s Latin America editor for a pretty long time. The rest of the book unfolded like a 300 page Economist article. It certainly spoke to the history of conflict, both military and political across Latin America, and the ideas about how a winner take all mentality in a democracy can lead to a lot of instability is compelling. Latin America has problems, but it seems on the right track, and has no nukes. I guess this is why we don’t hear much about it. Still, applying this rubric of emerging democracy amongst a divided nation leads to some tough questions about how to deal with many of the poorer places in the developing world where politics less developed, and there are fewer resources for the winners to distribute.
The Chinese Century by Oded Shenkar – Pretty much the staple arguments about why China will have a big impact from now on. If you don’t know much about that it’s a worthwhile primer, but if you know a lot about China already it probably isn’t worth your time.
Common Wealth by Jeffrey Sachs – An interesting follow up to The End of Poverty. This book has much less in the way of story time and more ideas for addressing a broader range of problems. He goes beyond the MDGs and adds some other development ideas to his agenda. It still really pushes the .7% of GDP, but adds extra costs to fund other efforts as well. If we don’t deal with these issues, the rich world will suffer, and the cost will be greater than the cost of intervention. I’m amazed that despite knocking Easterly at the end of the book Sachs pretty much adopts his idea of the need for searchers but IN ADDITION, not instead of, aid bureaucracies and centralized control. The thing that perhaps stuck with me the most was that if all of the billionaires in the world (less than 1000) pooled all of their wealth and collected 5% interest, that revenue would exceed the combined aid budgets of the entire world. Take from that what you will, I think it’s pretty powerful.
Why Cooperate by Scott Barrett - This book didn’t put forward much in the way of what I would consider new ideas. Cooperation happens for different reasons. The participation necessary depends on the type of issue that is being confronted. If you are already aware of how IR works, this is probably not a worthwhile read for you. If you need a primer on different types of problems and the coalitions necessary to address them, it’s a quick read.
Nudge by Richard H. Thaler and Cass R. Sunstein – This book was certainly interesting. It lays out how we are faced with choice architectures every day and despite attempts to do otherwise, there will usually be someone in a position to construct the choice architecture in a way that could benefit the general public. While constructing an architecture that makes choosing easy, or that sets the default to be “the best” option, we risk creating a culture that would rather have other people make decisions for them, rather than thinking on their own. The authors caution against government nudging in inappropriate places, but what happens if people start demanding the government make decisions for them because it’s just so much easier than making them on their own. Instead of political parties promising that if elected, there would be more elections, we may find voters demanding that the party that wins no longer burden us with the nuisance of further elections. Clearly this is an exaggerated threat, but I think the solution is educating people more, not condoning ignorance by giving everyone a good default choice.