Venezuela Clarity

Rich Lowery is on point in discussing Venezuela at NRO.  He has a great way of summarizing how bad things are there:

The result is a sharp, years-long recession, runaway inflation, and unsustainable debt. The suffering of ordinary people is staggering, while the thieves and killers who are Chávezista officials have made off with hundreds of billions of dollars. At this rate — The Economist calls the country’s economic decline “the steepest in modern Latin American history” — there will be nothing left to steal.

The situation leaves The Donald with limited options as Rich discusses.  Read his whole analysis.  What he doesn’t remind us of is the policy of The Donald’s predecessor.  To him Chavez was mi amigo.  As Patrick Cooper at USA Today had a quote from AP back in 2009:

“President Barack Obama has gone abroad and gored an ox — the deeply held belief that the United States does not make mistakes in dealings with either friends or foes. And in the process, he’s taking a huge gamble both at home and abroad, for a payoff that could be a long time coming, if ever.”

Read all of Patrick’s column to remind yourself how controversial the predecessors actions toward Venezuela were.  The Donald’s predecessor always seemed willing to gamble with our future.  If we were at the track we would say he wasn’t an astute improver of the breed.

Recently we cited David Horowitz at PowerLine on why the Middle East is a disaster.  The Middle East is not the only disaster left for The Donald to work out.  We wish him greater insight than his predecessor.  The problem is he has less degrees of freedom because of the actions that were taken.

Venezuela Confusion

Brandon Morse at The Blaze informs us that World of Warcraft currency is worth more than Venezuelan currency.  Brandon gives credit to others and then says:

According to sites that track the value of both currencies, KalebPrime’s math is outdated, and WoW gold is now worth even more than the bolivar.

According to the site dolartoday.com, which actively tracks the worth of the bolivar on the black market, the bolivar has dropped to 11,185.95 per dollar since KalebPrime posted .

Meanwhile, according to mmobux.com, which tracks the value of WoW’s in-game currency for sales outside of the game, the lowest sale of 10,000 gold in a real life exchange will get you $1.21 [or 8,264 per USD].

So when did this come about?  Brandon tells us:

This drop in the worth of the bolivar is stark compared to its worth just a few months ago. In May, 279 bolivars would net $1, according to CNN Money. In June, the worth dropped to 408 bolivars for every dollar.

What is the cause of it?  Brandon gives the party line:

The Venezuelan economy has suffered greatly under President Nicolas Maduro’s socialist regime. The drop in oil prices, combined with the Venezuelan government’s mismanagement of the economy has resulted in a shortage of everything from food to everyday items.

So the drop in oil prices is listed as the first cause.  What was the oil price at the beginning of May when things were less terrible?

Sidebar: We use the Brent price per barrel from Oil.Com.  There are several different benchmarks.  All will show that the price has jumped up and down but has been relatively stable in the last few months.  We use WTI for a longer view because that is the data we could find.  The benchmarks have different prices but they move together.  We are more nervous about Brandon’s measurements of the Bolivar.  It could be that CNN Money and dolartoday. com are not comparable because the Bolivar has an official rate and a real or black market rate.  End Sidebar

Brent crude was just above $52.  What was it at the beginning of June?  It was just below $52.  What is it today.  It must be like $1.43 to cause all this turmoil.  It is $52.72.  That’s right, the oil price has moved up slightly.  Now oil prices did plunge.  It plunged from about $100 a barrel to, roughly, the current price in the second half of 2014 as this chart shows (alert: it is a different benchmark (WTI) so the price today is a couple of dollars different).  Since the beginning of 2015 the price has jumped around on both sides of $50 but is is hard to discern a trend.  So oil prices dropped three years ago.  It is a problem for Venezuela but it is hard to connect what happened three years ago to its current woes.  The government needs to take at least 99 percent of the responsibility for the current problems.

Compare what is happening in Venezuela to the more capitalistic USA.  USA produces (2014 =8,764) over times as much oil as Venezuela (2014 = 2,500) but it is a smaller part of our economy.  The USA and its oil industry is recovering nicely in 2017 while Venezuela in chaos.  The different economic systems are why.

If that is how The Blaze presents Maduro’s problems then you know what to expect from the legacy media.  Venezuela is socialism.

 

 

 

Consumer Friendly

We’re bad with names so we forget who at NRO makes this point over and over again.  We’re pretty sure Mark Perry is on this case too.  We’re also late reading The National Review.  In the latest edition, Dan McLaughlin says [third paragraph], “Since 1978 the Republicans have built their economic message around tax cuts and business-friendly regulations …” [emphasis added]

Dan is right about tax cuts but absolutely wrong on the bold part.  The GOP’s message is about consumer or market friendly regulations.  Of course, the GOP is responsible or partially responsible for a number of business-friendly regulations like Dodd-Frank, tariffs, and many restrictions on economic freedom created by the federal government.  Those regulations are business-friendly because they protect existing businesses.  But the GOP message is about economic freedom which means consumer friendly or market friendly regulations like eliminating requirements for opening businesses.  The GOP is not perfect but its message is economic freedom.  That is the opposite of business friendly.

Venezuela And US Taxes

OK, it is a bit of a stretch but there is a comparison between the debacle in Venezuela and reforming US taxes.  It comes from Larry Kudlow’s discussion with Art Laffer and Steve Forbes posted on NRO.  They are talking about how to restore prosperity:

Incentives matter: If you reward an activity, then people do more of it. If you punish an activity, people do less of it.”

But for the tax side of “one big idea,” Laffer would like to see corporate tax reform. I agree. Reagan used to say, “Give me half a loaf now, and I’ll get the other half later.” Well, I’d take the half loaf of corporate tax cuts right now. And that would work for Forbes, who can see income-tax reform following corporate-tax reform. “Even if we get to this two years down the road,” he said, “I think [Trump would] be amenable to doing something radical like a flat tax.”

Socialism and the lack of incentives to produce are part of what is killing Venezuela. The other part is the incentives and abilities socialism gives to those in power.

Incentives are a big problem because the US corporate tax is just about the highest in the world and it is one of the few that is world-wide rather than territorial.

Sidebar One: A more nuanced explanation from the Christian Science Monitor says that most systems are hybrids of territorial and world-wide.  The issue is still the same: Do we (the US) want to tax US corporations that want to invest international funds in the US.  The incentives are really far wrong when we penalize US companies for investing in the US.  End Sidebar One.

Sidebar Two: Most of the problems with writing US tax rules and enforcing them relate to the high US rates.  If the US rates were equal to or lower than most other countries then corporations would not try to use legal and sometimes illegal means to move income out of the US.  The Congress would not need to worry about all the fine print on transfer prices and the like.  The IRS would not need to spend so much time enforcing the fine print.  Lower corporate tax rates are win–win-win.  End Sidebar Two.

We are happy to see Larry, Art, and Steve endorsing changes in the corporate tax system first.  We wish they did it with more conviction.  We wish they would leave out first.  The choices about what to do about Venezuela are complicated and difficult but relate to getting incentives better.  The choices about US tax legislation are easy.  Do corporate taxes by lowering rates and making it easy to invest in the US.  We don’t care if the solution is territorial or hybrid as long as it fixes the problem.  It is the biggest opportunity to improve incentives the most.

It Is Not Our Fault

We were not going to write on the current issues of health insurance and health care but Catherine Rampell forced us into it.  There are real important issues in the debate and decisions about what the federal government should do about health insurance and health care.  Some of them include:

How to stop Medicare/Medicaid from bankrupting the government?  See George Will at NRO.
Treating employer paid health insurance as taxable income. This creates all sorts of perverse incentives but might reduce the next issue.
How to keep the supply of health care sufficient despite price controls?
How to find competition so consumers have choices.  One-third of the counties will have one Obamacare provider in 2017.

When we saw Catherine’s yogurt analogy headline we were hoping she would come out for less varieties of yogurt.  The number of yogurt options at the supermarket is astounding.  And then there is frozen yogurt.  We could use a few less but then we don’t eat it in any case.  Rather she suggests that there will be a plan that covers one kind of cancer but not another.

Sidebar: The University of Wisconsin System has 28 health plans and four different levels to choose from.  That would be 112 choices.  I’m sure Catherine thinks that is far too many for human processing.  Not everybody at every school can enroll in all programs.  End Sidebar.

Healthcare reform is difficult because there are lots of moving parts.  The few choices that the GOP might add is not going to overwhelm consumers.  Neither will the GOP be able to fix all that is wrong in one bill.  We hope they make progress and hope that they recognize that the job won’t be finished.  Let’s tune out Catherine and worry about serious stuff.

Good News In Missouri

Dave Jamieson from the Huff Post reports good news from Missouri although he doesn’t think it is good news.  Missouri Republicans have prohibited localities from taking the minimum wage into their own hands.  Dave writes:

For low-wage earners in St. Louis itself, the new law will have a startling consequence: It will actually push the minimum wage back down, from the city-approved $10 per hour to the state-approved $7.70. The downgrade is slated to take effect on Aug. 28.

For someone earning the bare minimum, that’s a potential cut of 23 percent.

Obviously, for somebody earning zero the percentage increase can’t be computed.  It is great to see the GOP helping out the poor and unskilled by giving them the opportunity to create human capital.  Well done!

A conservative issue is whether the action of the Missouri GOP is proper.  What they did was:

[T]he state GOP recently passed what’s known as a statewide “preemption” law, forbidding localities from taking such matters into their own hands.

Much has been written about the relationship between the states and the federal government.  Not much has been written about the relationship between the states and localities.  Can the state of Missouri do this?  Is it wise to do it?  Our initial take is yes and yes but it may need more thinking.  At this point we see the right of the state to limit local actions such as property taxes so the minimum wage is another acceptable limitation.  We welcome more debate on this relationship.  The wisdom of the Missouri GOP in eliminating St. Louis’ increase of the minimum wage is obvious so there is no need to discuss that.

Capitalism Question

George Will has a great article at NRO on capitalism.  He puts the choice that Americans face this way:

In the accelerated churning of today’s capitalism, changing tastes and expanding choices destroy some jobs and create others, with net gains in price and quality. But disruption is never restful, and America now faces a decision unique in its history: Is it tired — tired of the turmoil of creative destruction? If so, it had better be ready to do without creativity. And ready to stop being what it has always been: restless.

You should read the whole thing but in case you don’t, we want to reinforce what he did say and note what he doesn’t say.  George has some nice examples of the changes that capitalism has wrought in the grocery business.  Capitalism leads to net gains with constant disruptions.  We would like to discuss two things that George does not mention in the article.

First, what is the alternative to capitalism?  A good analogy is earthquakes.  With capitalism you get small quakes all the time as the market reacts to new conditions.  Over time you get the results that George notices where, in just over a century, the A&P goes from zero to a 75 percent share of the grocery business to bankrupt.  The alternative is to try and forestall the little earthquakes.  The pressure still builds up and we get epic economic events like the former USSR, eastern Europe, and Venezuela to name a few.  Economic change is coming.  The question is how do you want it?

Second, George makes no comment but capitalism and open borders are not connected.  Folks try to connect the two because the Venn Diagram of the two groups of supporters has a substantial overlap but they are unrelated things.  We support the former but not the latter.