Creative Chavista Thinking for the Fight Against Inflation.

February 3, 2011

Chavismo has an incredible ability to come up with creative new ideas. These guys, who never seem to be able to complete a project or even manage one, seem to always be thinking of new imaginative ways to screw up the country.

The latest one s a report that the Cabinet is thinking of imposing a salary cap on private sector salaries. Your immediate thought is that this is once again a measure to make us all poor, rather than having all of us be well off, that is how socialism works., no?

Well, you are wrong. This has nothing to do with narrowing the gap between rich and poor (funny how they always want the upper layers to come down, no?). Nope. The idea has nothing to do with equality, or with narrowing down the difference between rich and poor. It is actually qute clever. The objective is… (drum roll)

To lower inflationary pressures!

You see, despite what that dead guy with the Nobel prize from the University of Chicago said, Chavismo does not buy this monetary explanation.  They like their explanation better, obviosuly there is inflation because wealthy people have more money (Even if there are few wealthy people and lots of poor ones), not because Chavez increased the money supply in eight years by a factor of 15.(Do these guys ever stop to think about what they are saying?)

But think about it. Capping salaries in the private sector will affect only a small amount of salaries, no? If everyone is as poor as Chavez says, and there are so few noisy, capitalistic oligarchs, then it is those salaries that will be capped and according to Chavista lore there are few people in this category, no?

But then, of course, some Chavistas think they are smarter or more knowledgeable than others. While Chavista Deputy Sanguino, President of the Finance Committee of the National Assemby thinks it is a very interesting idea in terms of fighting inflation, the VP of the same Committee is not so sure. He thinks that the inflation problem can be solved by stopping speculation, thus, says Deputy Farias, we have to concentrate in the Anti-Monopoly laws. He also thinks that being underdeveloped has a lot to do with inflation, but apparently he has no clue on how to get us out of that, so he will concentrate in the first law.

Meanwhile, the Devil sits here in his ignorance wondering what part of:

“Inflation is a monetary phenomenon”, these guys did not understand.

Let’s see, in 2003, monetary liquidity in public hands stood at Bs. 18.7 billion. Eight years later it stands at Bs. 295 billion. That is an increase of 1,577 %. An increase of almost 16 times more bills, coins, however you want to imagine or count them.

Is the country producing 15 times more?

Obviously not, But there is 15 times more money chasing for the same goods, plus the increase in GDP, which is about 50% in that period. So, you have 15 times more money and only about 0.5 more goods.

Guess why there is inflation?

But, they will likely approve this crazy idea and when inflation persists, they will blame the phases of the moon, astrology or El Niño, but somehow they will never imagine that this guy Friedman from the Evil Empire had any clue as to what he was talking about.

But if you don’t get Friedman, just see the picture of the little kid above and you will get the whole picture of what Friedman meant.

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20 Responses to “Creative Chavista Thinking for the Fight Against Inflation.”

  1. Rosen Says:

    I don’t completely agree with the article. The main reason for the growing inflation in Venezuela is the closed economy (lack of trust from foreign parties) and the seeded hate to enterpreneurship. Lack of supply of goods.

  2. Bill Says:

    Economy 101 in the Bolivarian University. First lesson, Gross Domestic Product, GDP = C +INV+G+(EX-I). More precisely, for the Bolivarians, GDP = CORRUPTION + INVESTMENT IN WEAPONS +GOVERNMENT SPENDING + NET EXTORSION (EXTORSION – INVESTMENT IN BUSINESS). Net extorsion is the difference between what government functionaries are able to steel from businesspeople minus what businesspeople invest in the country. Obviously in regards to how chavistas see the economy, Investment in Business is a sin, an act of atrocity, an oligarch act of treason and thus substracts from GDP. Mr. Giordani is obviously the main promoter of these theories of Boli-Economy.

  3. James Says:

    I really wonder where did the chavista congressmen learn about economy, must have been in the bolivarian university where the eager young minds of the bolivarian revolution are educated. Now, we must admit these guys are pretty creative in coming up with ideas to reduce inflation and such forth. I mean, I wonder the degree of inspiration, analysis, in-depth that these guys were immersed in to conclude that inflation can be controlled by capping salaries!

  4. Bill Says:

    It probably won’t make you feel better, but just so that you know. I’ve never been to Venezuela, don’t known anyone from there, nor had any financial investment there. But it is frustrating as hell watching what is happening to a country with such enormous natural and human potential from here in Louisiana. Tankers bring oil to refineries here in Louisiana from Venezuela regularly.
    I recently read an article (those international oil companies sometime exchange information with each other, universities, and with intelligence agencies about what they have found) that stated that the Orinoco heavy oil deposits might be the largest deposit of liquid hydrocarbons anywhere. It is mostly very heavy oil, but it is still worth a tremendous amount of money. If you had an honest government, the amount of oil industry development occurring there would be unimaginable. Look at the money being poured into the Canadian tar sands. And that Canadian stuff is JUNK compared to heavy oil that you don’t need to mine, wasting vast quantities of natural gas and diesel in the process. If you had the rule of law, trillions of dollars of development would occur. Google Shell Pearl Qatar. They built ALL THAT to use natural gas to make a trivial amount of liquid fuel! And Venezuela could reap the vast majority of the profit. You could make the oil companies build all kinds of infrastructure. And they would be glad to do it, if they were sure that contracts would be honored.
    Then again, Argentina frustrates me too.
    And things can change. I’ll keep my fingers crossed.

  5. KMJ Says:

    Marc,

    There is a blog item from Yoani Sanchez making reference to a Charlie Chaplin film (The Kid, 1921). “The man in the threadbare suit, bowler hat and huge shoes carried pieces of glass on his back. His sidekick, a boy of about five, tossed stones through the windows of shops and houses so the glazier could sell his services to desperate clients. Together they formed a duo of survival, an “emergent” work team, that still yielded barely enough to keep the fire burning in their home. http://www.desdecuba.com/generationy/?p=2030

    The glass will probably have to be imported.

  6. marc in calgary Says:

    Antonio: smashing all the windows will foster a new glass industry for the masses! 🙂

  7. HalfEmpty Says:

    Micro$oft and the Fruit Company need to build heavier boxes. Ideas count too, and your man Hugo is nothing if not an idea producer.

    🙂

  8. Antonio Says:

    I don’t think it was Friedman who said that that an economy grows when it produces new things that can fall on your foot (as opposed to an over reliance on monetary policy).

    Forgive me for pushing this silly metaphor, but… The US grew when lots of people suffered metatarsal fractures. Now it is China that needs a supply of crutches to support its rapid growth. No such health and safety concerns in Venezuela: the revolution guarantees healthy feet to dance joropo.


  9. […] This post was mentioned on Twitter by Rafael Gotera, Jesús Roldán Zozaya. Jesús Roldán Zozaya said: Creative Chavista Thinking for the Fight Against Inflation: http://bit.ly/gwgLYI […]

  10. Gerry Says:

    For every two kilos’ of coin you can melt and get about thirty centimeters of re-bar (for construction).
    Although I would be worried about its tensile strength – just like the currency. Don’t worry its a socialist thing which will never fail.
    Every Venezuelan has by this time partied with a dictator/tyrant – they dance so well. But where does the compass swing, it no longer points to the north star. We are totally lost!!!

  11. marc in calgary Says:

    jeffery house:
    The first Sandinista Regime (1979-1990) didn’t print 200,000 notes until 1985,
    the kid in the photo is holding Zimbabwe notes from 2007. That kid was either a baby, or a twinkle in his daddy’s eye, during the first Sandinista Regime.
    Photos here:
    http://inclusion.semitagui.gov.co/Subjects/MoneyBanking/Economics/Hyperinflation/Hyperinflation.htm

    The recent “great recession” continues to be fed by idiots such as Krugman. No recovery is in sight. Actual housing values continue to fall. Today the announced unemployment rate shows an improvement of almost 1% over the previous quarters, yet only announce that a few thousands have found new work.
    Democrat’s Lies. Liberal’s Lies.
    Krugman’s only problem with the Obama spenders, is that they didn’t spend enough… Exactly the kind of thinking that got them into the mess.
    Krugman’s Nobel is worth just as much as Obama’s.

    http://www.zerohedge.com/article/labor-force-participations-plunges-fresh-26-year-low

    Giving up on finding employment, isn’t the same as actually finding work.
    Most people need a license to massage like that, or a law degree.

  12. Canadian Says:

    Hope that Chavez has trillions of barrels of oil to feed the unproductive, uncreative, uninnovative and proude-to-be poor Chavistas many years to come.

  13. pjk Says:

    what’s really weird is this idea that the truely wealthy make salaries. Chavez and his friends, of all people, should know that ain’t the case.

  14. Mick Says:

    The real estate bubble was a natural correction of an overinflated market. The government was encouraging ownership with such enthusiasm that they failed to police the markets sufficiently. The government “interventions” were the equivalent of giving medicine to sick patients. The medicine does not make them healthy, it helps the body’s systems get back on track, thereby indirectly healing the patient. Bailouts and unemployment checks are just bandages to get us by until we get back to being good consumers and supporting the companies we work for.

    The issue that nobody talks about, however, is the over inflation of payrolls. We constantly hear griping about jobs going overseas. Why would any savvy company pay for shipping if we could make it just as cheaply here. The labor force was producing too little for too much money.
    The market also corrected that. People are not so fat and lazy economically as they were 5 years ago.

    If Venezuela is to ever improve its’ lot, it will need to become productive in many avenues other than oil. Everyday technology is developed that will make electricity generated by many different forms and stored in yet to be invented forms, a replacement for oil. Can you imagine what Venezuela would be like in 2030 if oil were selling for $50 a barrel. Oil has crashed before and it will crash again.

  15. jeffry house Says:

    The youngster with the piles of currency at the top of the page was someone I saw many times during the first Nicaraguan Sandista regime, when printing money was also the measure of choice to put money–but not buying power–into the hands of the poor.

    Still, Friedman’s free-market absolutism hasn’t been much of a strategy, either. In the US, median incomes began to stagnate relative to the post-war period, just when Friedman’s simpler doctrines became influential.

    And of course the recent Great Recession wasbarely-conquered by massive government interventions that Friedman would have abhorred.

    For those interested in what another Nobel-Prize-winning economist had to say about Friedman’s legacy, this article is quite fair, I think.

    http://www.nybooks.com/articles/archives/2007/feb/15/who-was-milton-friedman/?page=1

  16. island canuck Says:

    “(Do these guys ever stop to think about what they are saying?)”

    Why should they?
    They only have 1 audience – the faithful who watch VTV. No one else believes them. They don’t care.

    They only want to keep pushing the crap to these people who will believe anything they say.

    It’s like the PSUV deputy who was photographed with Makled. He’s now saying that the photo is a Photoshop. Does it matter if it’s a lie. Nope. As long as the message gets out to the faithful that’s all that matters.


  17. Hi Miguel,

    Yes, Milton Friedman, amongst others, did say that inflation is always and everywhere a monetary phenomenon. So, inflation can ONLY destroy the real value of the actual Bolívar and other monetary items (items with an underlying monetary nature, e.g. all loans owed and made in B´s and nothing else). Inflation has no effect on the real value of non-monetary items like salaries, wages, rentals, capital, retained profits, trade debtors, trade creditors, etc. These non-monetary items´ real values are destroyed by accountants implementing traditional Historical Cost Accounting which includes the stable measuring unit assumption. It is not inflation doing the destroying.

    If Venezuela implements daily indexation in terms of the parallel US Dollar rate like Brazil did for 30 years from 1964 to 1994 then the Venezuelan non-monetary or real economy will stabilize.

  18. loroferoz Says:

    Long ago I stopped believing that the drug war/ most gun control was about stopping drug use / gun misuse.

    Just about as long ago as I stopped believing that protectionism/socialism/overwhelming bureaucracy were about trade/egalitarian economics/efficient regulation and management.

    This is to say, chavismo probably does not care if the measures make the tiniest dent on inflation. Probably they do not care about inflation unless it bits them hard. This is not about inequality, or capping salaries for less than 1% of the employees.

    This is all about sheer contempt for the subject at hand and an obsessive drive to control.

    You want to make a realistic civilians firearms policy? Learn all you can about uses and misuses of firearms, trade, parts, capabilities, storage, safety, enthusiasts, etc. etc.. Want to make sensible psychotropic substances regulation? Learn about their origin, use and users, social and medical effects, treatment of addiction, traditions and customs. Want to produce sensible economic policy? Learn economics, see people bid, offer, buy, save, compete, etc. etc.

    Don’t develop an almost morbid hatred for the actual subject, and then self-style yourself a crusader to wipe it off the face of the Earth.

    And of course don’t be a huge hypocrite like these chavista government officials and deputies who will certainly NOT cap, or even look into the huge quantities of money they make “legally”.

  19. CarlosElio Says:

    Dogma will trump rationality, even if you explain it in very simple terms. I tried a simple, visual explanation once. Here is the link http://on.fb.me/eEuYQj


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