Archive for July 14th, 2003

Economic Ignorance Showcase

July 14, 2003

Showcase 1. Extending a decree that dates as far back as a year ago, the Venezuelan Government decreed once again a firing freeze in the country’s labor markets for an additional six months. This means that anyone that makes less than a certain amount can not be fired. In practice there are a number of ways around this decree that does little to improve the economy. In fact, some companies do not want to hire new workers as they are afraid the freeze will continue to be extended. Another demonstration that these people have no clue as to how economics works. Maybe they should decree full employment!

Showcase 2. On the same day that the Federation of Construction companies annouced a 67% drop in construction, the Minsiter of Planning suggested in Chavez’ Sunday nationwide address that the coming boom in construction will create a shortage of cement. Just for reference construction GDP during Chavez’ administration has been as follows: 1999: -16.5%, 2000: -2.7%, 2001: +13.5%, 2002:-17.8% 2003: (First Quarter): -64%. As an example, when Cemex Venezuela can not sell all of its production locally, it goes abroad, so its plants don’t stop. According to Cemex’ annual report only last year, local cement demand dropped by 21% to 23%, this suggests over half of its capacity is being exported. If I remember numbers correctly, this implies the comapny must be exporting over 60% of its production. Thus, the “boom” that Mr. Giordani is projecting would require an increase of at least 100% in construction for shortages in cement to occur. Dream on!