More Insanity From Hugo Chavez

 

"[N]o law or government has succeeded or indeed can succeed in preventing every man from striving after his own and his loved ones' earthly well-being in the way he considers most suitable by making use of his faculty of free choice." - Faustino Ballve

 

   Sometimes it is absolutely amazing that certain people can get as far in life as they do. Venezuelan President Hugo Chavez warned farmers recently that if they continue to sell their goods in surrounding nations, they may have their farms "expropriated", meaning they will be confiscated and nationalized. The Venezuelan government has imposed price controls on food to benefit the poor so farmers have chosen to sell their goods abroad to get better prices. The result has been widespread food shortages. 1

    "'A government cannot allow itself to be slapped and do nothing'", Chavez said. Farmers attempting to circumvent price controls risk losing their farms "no matter who the owner was" and military force would be used, if necessary, to enforce the action. Chavez has already confiscated property in the oil, telecommunications and electricity industries. 2

   Chavez may be the President of his country, but that does not entitle him to steal land owned by his citizens. Not only is such an act absolutely immoral, it is just plain stupid from an economic standpoint. A respect for property rights is absolutely essential if a nation is to build a strong economy. Without it, there is no incentive to invest, and it takes investment to grow an economy. The Venezuelan government has already destroyed the incentive for farmers to sell their goods domestically by forcing them to pay what are essentially food subsidies in the form of lost income. If Chavez wants to be a socialist purist and help the poor pay for their food, he should subsidize the food directly with government money. Instead, he forces farmers to pay for the subsidies by requiring them to sell their goods below market price. Price controls never work; they always result in shortages because merchants simply choose not to sell instead of selling for little or no profit. The same result occurred in the U.S. in the 1970's when price controls were imposed on gasoline. Price controls are bad enough, but by threatening land confiscation Chavez destroys any motivation that might remain to be a farmer at all. After all, why would a farmer want to invest in a new farm when the government is not only going to force him to be unprofitable, but threaten to confiscate the farm altogether if the farmer doesn’t comply with price controls?

   The dismal success rate of radical socialist states proves that government is utterly incompetent when it comes to creating a dynamic and healthy economy. This point seems to be lost on Chavez as he continues his ongoing quest to create a socialist "paradise" in Venezuela. And by the way, price controls have recently been proposed here in America. Various individuals from President Bush to Hillary Clinton have proposed freezing mortgage rates for a period of time as a way to lessen the pain of the subprime mortgage mess. Such proposals are misguided at best and likely would result in a scarcity of loans as lenders simply choose not to lend.

 

Some Lessons from Zimbabwe 

"Who suffers most from inflation? Who suffers most from rising prices? It’s the poor, not the rich. The rich can protect themselves from inflation; poor people can’t."

- Jean-Claude Trichet, head of the European Central Bank (ECB)

   The destruction of the Zimbabwean economy continues with the recent introduction of a $10M bank note. Equivalent to just $3.90 in US dollars, the creation of the note is the latest effort by the Zimbabwean government to stabilize an economy wracked by inflation running at an estimated 50,000% a year. 3 The Zimbabwean government has been driving the inflation by running the currency printing presses so earnestly that there probably is no nation on earth where money is piling up quicker. Clearly, printing enormous amounts of money is not what makes a nation wealthier - prices are rising so quickly that shoppers often find higher prices for the same goods just a few hours later. The parallels between monetary policy in Zimbabwe and the United States is not only striking, but sobering. The differences between the two are only in degree and scale. The US dollar, like the Zimbabwe dollar, is just an unbacked piece of paper with no intrinsic value. It once was backed by gold, but President Nixon ended that when he closed the gold window in 1971, forfeiting a US government promise to redeem dollars for gold on demand. Nixon did this because the US didn’t have enough gold to honor the demands of foreign banks - too much paper money was in circulation - and effectively declared national bankruptcy. With a true and honest gold standard, there never would have been more paper notes outstanding than gold in reserves, but governments can always be depended on to defraud by printing more paper than is actually backed. Since 1971, the dollar has been just a piece of paper - a fiat currency only - and the government has been running the printing presses faithfully ever since, resulting in perpetually increasing prices across the economy. With every decrease in interest rates, the Federal Reserve signals its intent to step up the printing of money in a quest to create perpetual economic growth. The most recent inflationary booms drove tech stocks and home prices to heights never before seen, creating an illusion of wealth that came crashing down when the bubble popped. Prices for many of the goods we purchase every day have risen rapidly in recent years, signaling that inflation is alive and well. With the 3/4% interest rate cut by the Federal Reserve last week and the 1/2% cut this week we can be assured that the Fed has little intention of easing the inflationary pain anytime soon. Inflation in America isn’t running anywhere near the levels seen in Zimbabwe, but it should be a sobering thought that all fiat currencies in history have eventually ended up the same way: worthless.