Good Luck Zimbabwe

It appears that Zimbabwe has ousted the tyrant Robert Mugabe and his first lady Grace who has ruled and ruined the country over the last 37 years.  Right now Zimbabwe ranks 175 out of 180 countries on Heritage’s Index of Economic Freedom.  Here is a quote from Heritage:

Zimbabwe’s economy is characterized by instability and volatility, both of which are hallmarks of excessive government interference and mismanagement. Massive corruption and disastrous economic policies have plunged Zimbabwe into poverty. The government’s near bankruptcy has triggered large protests over unpaid civil service wages and a continuing economic crisis.

We wish Zimbabwe well.  We recognize how difficult it will be to make headway after 37 years of misrule. If they are reading we want to remind them that capitalism works and socialism doesn’t.  As evidence, three of the five countries below them are Venezuela, Cuba, and North Korea.  Good luck.

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A Reminder On Socialism

Yesterday is was Communism (no, we still don’t reference our stuff0.  Today it is socialism, the slightly less virulent method of restricting economic and personal freedom.   The WSJ Editorial Board tells us:

Venezuela is broke, which takes some doing. For much of the second half of the 20th century, a gusher of oil exports made dollars abundant in Venezuela and the country imported the finest of everything. There were rough patches in the 1980s and 1990s, but by 2001 Venezuela was the richest country in South America.

And now socialist Venezuela is broke.  Yes the country with the largest proven reserves in the world according to Wikipedia is broke.  The socialists are almost as unlucky as the Communists.  There are just too many “unexpected” events every time one of these methods is put in place.

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.

 

 

 

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.

Sorry But No

Mary Anastasia O’Grady discusses the Venezuela-Cuba connection at the WSJ.  We like her columns but we love her name.  She starts off with three assertions:

The civilized world wants to end the carnage in Venezuela, but Cuba is the author of the barbarism. Restoring Venezuelan peace will require taking a hard line with Havana.

We think the first one, “The civilized world want to end the carnage in Venezuela,” is false because the second, “Cuba is the author,” and the third, “Restoring Venezuelan peace will require taking a hard line with Havana,” are true.

There is no evidence that the civilized world wants to end the carnage in Venezuela.  Certainly Obama did not want to end it.  The Donald has only shown interest in humanitarian aid. No country outside of the Americas wants to confront Cuba or become enmeshed in American, and particularly South American, politics.  The Canadians, under Trudeau are not interested in defending civilization as this indicates.  No other country in the hemisphere dares to intervene because of either fear of or support for Venezuela-Cuba.

We are not sure that we want to end the carnage in Venezuela.  We certainly want to make folks aware of it but it is not casus belli.  On the other hand, if Maduro asks for transport to a safe haven we should provide it.  In addition, we hope that The Donald continues to support the Cuban people rather than the Cuban government. There is much between war and weak support that is the business of politics.  We hope that progress starts.