Economics

When I heard that in the 2008 Presidential election it would be the first time in a long time that we would have a true wide open primary in both parties, I became interested in politics.  Can you believe that back then, I felt that if Romney didn’t win the GOP primary I would likely support the Jr. Senator from Illinois?

HA!

Anyway, before I started blogging I was a big commenter on Alan Colmes‘ site.  Only after experiencing frustration at being unable to format my responses did I begin blogging.  But while over at Alan’s place, I realized that I knew not thing one about economics.  I Googled basic economics and was driven to Amazon’s “Basic Economics” by Thomas Sowell.

I ordered the book and my life changed.

One of the money quotes?

The first lesson of economics is scarcity: there is never enough of anything to fully satisfy all those who want it. The first lesson of politics is to disregard the first lesson of economics.

A real life example:

The government has announced an emergency toilet paper run for 50 million rolls

Venezuelans are scrounging around for toilet paper. Markets throughout the country have run out, and when they are in stock the rolls fly off the shelves.

The country of Venezuela is running out of toilet paper.

Why?

State-controlled prices — prices that are set below market-clearing price — always result in shortages. The shortage problem will only get worse, as it did over the years in the Soviet Union. [AP]

Venezuela also has tight controls on foreign currency, which makes it hard for companies to import raw materials and equipment, slowing down production of a wide range of goods, according to the AP.

I should add a correction to Mr. Sowell:

There is never enough of anything, when the cost is sufficiently low, to satisfy all those who want it.

 

The fire in Venezuela is a perfect example of the dangers of the corporate state:

Venezuela’s Amuay refinery explosion is emblematic of the Hugo Chavez curse. The blast hobbled PDVSA’s largest oil processor – as well as killing 39 people. The Venezuelan leader’s policy of placing loyalty before commercial prowess may not have caused the accident. But it has warped the nation’s business ethos. The way he has meddled in the state-owned oil company offers an apt example.

A decade ago Chavez purged PDVSA of 19,000 employees he considered enemies and now rewards political allegiance over anything else. Employees must now devote as much time to political proselytizing as they do to pumping and refining oil. Top jobs typically go to true-blue Chavistas.

As a result, PDVSA is no stranger to maintenance issues from wellhead blowups to oil spills and unplanned shutdowns. And now, at some 2.7 million barrels a day, oil output is almost a fifth below the level when he took office in 1999.

A large part of why I don’t like the idea of too much Government meddling is that it provides too much opportunity for abuse.  I’m continually confused as to why those on our left would think that we’ll find angels in government but only devils in a free’er free market.

Recent moves make matters worse. Last week Chavez vowed to strip PDVSA of a seventh of its 70 percent stake in a key oil venture to hand it to another government-controlled enterprise -mining operation CVG. It’s a great deal for the latter. CVG companies consistently lose money, so getting a 10 percent share in 150,000-barrel-a-day Petropiar oil venture will bolster its finances. And it may also help win over CVG’s 9,940 steel workers ahead of the presidential election in October.

It’s explicit.  Chavez, and  he’s by no means unique, is using his power to buy votes.  Capitalism may be imperfect; businesses will fail and people will lose their job, but it’s simply superior to this.

It’s not the only recent example of mind-bending politicking, either. On August 22 Chavez approved a plan to finance unpaid benefits for government workers with petroleum-backed bonds. Workers cannot cash them in for a year, however, and the 18 percent coupon they pay is less than the 19.4 percent inflation rate. But after years of waiting, this transparent play for votes must seem better than nothing to thousands of active and retired public servants.

Some time ago I stumbled on the CATO Institute’s Dan Mitchell.  He has an awesome video on how to balance the budget; a concept I’ve taken a liking to:

He also has his own blog that he regularly contributes to.  The other day he referenced a great post of his where he links economic freedom to prosperity:

What’s responsible for the turn-around in each of these nation’s welfare?

As Mr. Mitchell says:

– Chile’s score jumped from 5.6 in 1980 to 8.0 in 2008, and the country now ranks as the world’s 4th-freest economy (ahead of the United States!).

– Argentina’s ranking has improved a bit, rising from 4.4 to 6.0 between 1980 and 2008, but that still only puts them in 94th-place in the world rankings.

– Venezuela, by contrast, is embarrassingly bad. The nation’s score has dropped from 6.3 to 4.4, and its ranking has plunged from 22nd-place in 1980 to 121st-place in 2006.

Chile was the poorest and is now the most wealthy of the three.  Venezuela has seen just the reverse.

Fascinating.

At some point, the results have to implicate the system.  At some point, we have to push back from the table and see what it is that we have caused to occur.

Has the rhetoric of our elections brought about that things that we have promised?  ProtestsOr have we caused the exact opposite to occur?  In our quest to provide food for the masses, have we, in fact, brought about the opposite?  In an effort to set to work the poor, have we taken from them the opportunities that bring about job creation?  In short, is what we are doing working?

Or, perhaps, as citizens, we have to step back and begin to wonder if it’s really the aim of the government to provide in the first place?

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