Chaos Blues

I’ve been worried lately about our friend Farida, who is working in Venezuela. Things have been rough there lately. It hasn’t shown up a lot in our news, but things are pretty chaotic. The root of the economic issues seems to be the government being low on cash (despite taking in $750 billion in oil revenue since taking over that segment of the economy in 1999).  So the government has been taking on debt, mostly from China. Inflation rates are around 54%.

When inflation is high, prices are high—or, rather, the money buys less. President Nicolas Maduro (successor to Chavez) doesn’t like the high prices. So he has declared that certain items—such as appliances—must cut their prices in half.

Venezuelan President Nicolas Maduro
photo from here

Some of the chaos is from crowds forming outside appliance stores, waiting to get in to make the lower cost purchases. But in addition, there has been a fair amount of looting. Crowds think, “The pries are too high; that means the store owner is trying to gouge us; since the store owner is evil, we have a right to take from him.” So they break in and walk off with flat screen TVs—in a country where toilet paper and one in four food items are considered scarce.

The thought of the chaotic mobs is not a far stretch from what government thinks—what we want, we take. These store owners had to purchase the goods ahead, with pre-inflated Bolivars (the currency). If they sell at pre-inflated prices, they cannot replace their costs, let alone purchase more goods for future sale.

Is it possible that some store owners are price gouging? Possibly. But in a free market, if a seller asks a price too high, demand drops, so he has to lower prices in order to make sales. It’s not a problem requiring the incarceration of the “bourgeois” businessmen.

Let’s put it in simple numbers, as an example. Suppose it costs the store owner $100 to purchase a TV wholesale. Between the time of his order and the time he puts it out for sale in his store, inflation has kicked in. The $100 he spent is now equivalent to $154. He has to take in at least $154 to cover his wholesale purchase, to be able to buy another TV to sell in the future. That’s without profit. He also needs enough to cover overhead: cost of his building, cost of his employees, cost of transportation of the goods, and other basics business costs (including taxes on everything sold). But when he puts $154 on the price tag, that looks so high. The president doesn’t like the look of high prices—caused by his inflation-inducing monetary policies—so he blames the store owner and mandates a 50% price cut. That means the price is $77. That’s only going to cover half the cost of the item to the store owner. The government has just taken $77 from the store owner, and demonized him, adding insult to injury.

The store owner has just had his business destroyed, permanently. And crowds are suspicious that the evil store owner might be holding back goods in some back room, so they’re prowling to make sure that can’t happen.

Farida sent me links to videos of the looting. Here’s one, and here’s another. (One more was immediately deleted; I don’t know how paranoid to be about that.) She also said she had been essentially under house arrest for a week (that was her term, but I think she meant the company she works for was insisting she stay inside her home for her safety). She’s trying to get a Christmas break trip to meet family in Europe, but she keeps getting told there are no airline tickets available. However, she was able to spend a recent weekend in the nearby Caribbean, which is better than house arrest with no toilet paper or food. She was scheduled to work in Venezuela for 18 months; this coming February will be the one-year mark. But she says conditions are so bad, she’s going to be relieved from that contract and will be transferred in January. Living in socialist Venezuela has been rough for a young single female engineer; I hope the next opportunity is opposite of tyranny. Farida is a person made for living in civilization.

I am looking at the connection between respecting property rights and civilization. Does government’s disrespect of property lead to the people’s disrespect of property—the looting? Or does a people who fail to live the rules of civilization naturally end up with a life-controlling government? It may be a chicken/egg question. But my guess is that imposition of tyranny—taking away God-given rights—demoralizes a people, quite literally.

On the other hand, the way out of tyranny, and the accompanying savagery and economic desperation, is people choosing to live the laws of civilization, which include respect for property, life, and truth. It’s one of those life problems with a simple but not easy solution.

Running Out of Other People's Money

“The problem with socialism is that you eventually run out of other people’s money”—Margaret Thatcher

I was thinking about this quote a few days ago while conversing with a friend in Venezuela. Our friend Farida, from Uganda, who is working in Venezuela for another year or so, was in contact on Facebook. I asked her how she was doing, now that she had finished training in Houston and returned there. I was concerned because I’d read this article about shortages there, particularly toilet paper.

The article starts with this:

CARACAS, Venezuela - First milk, butter, coffee and cornmeal ran short. Now Venezuela is running out of the most basic of necessities — toilet paper.

Blaming political opponents for the shortfall, as it does for other shortages, the embattled socialist government says it will import 50 million rolls to boost supplies.

That was little comfort to consumers struggling to find toilet paper on Wednesday.

The conversation between government and economists is almost comical:

"State-controlled prices—prices that are set below market-clearing price—always result in shortages. The shortage problem will only get worse, as it did over the years in the Soviet Union," said Steve Hanke, professor of economics at Johns Hopkins University.

President Nicolas Maduro, who was selected by the dying Hugo Chavez to carry on his "Bolivarian revolution," claims that anti-government forces, including the private sector, are causing the shortages in an effort to destabilize the country.

The government has announced its intention to import 760,000 tons of food, plus 50 million rolls of toilet paper. Commerce Minister Alejandro Fleming said of this amount, "We are going to saturate the market so that our people calm down." I looked up population data, and Venezuela has a total population in 2011 of 27,635,743. We could round either up or down, but we can estimate how long 50 million rolls will last the population.

I’m an extravagant American living in plenty, who likes to be clean. I also happen to use the same bathroom most of the time, so I will do for estimating. With help of Mr. Spherical Model, we go through a roll in about two days. Let’s stretch that out, to double, for people who are trying harder to make things last. Let’s say, generously, that a person can make a roll last for a week. That means that, after a couple of weeks of ordering in 50 million rolls (assuming faster shipping and disbursement than is normal in Venezuela), the country must already have ordered another 50 million, because those are going to be gone before another order can arrive.

So I asked Farida whether she was experiencing these problems. Yes, indeed. She had been living in a hotel before her training in Houston, and now is setting up in her own little house. So she now needs products she didn’t worry about in the hotel. And no toilet paper is available. We discussed options. Amazon doesn’t ship there. Stores are empty. After two weeks of looking, she finally got some TP from “some Chinese guys.” She says, “Fortunately I always have baby wipes somewhere.” But for how long? I told her that my mother, as a young girl on a farm, used to use catalogs and other paper that was going to be thrown out anyway. She laughed, but she may be considering this.

She said, “It’s a roller coaster ride in this country. I feel like I’m doing my time…. The mentalities are worse than the struggles…. If I told you what I have had to go through in this country, you’d be shocked. There is nothing more hard to survive than a fixed state of mind. I haven’t told my family because they would be in a state of panic.”

Mr. Spherical Model has a new boss, who recently transferred from Venezuela. He lived there for some years with his family. Getting the family moved out has taken longer than planned—everything does. (This is the second boss over the years transferring out of Venezuela.) He confirmed the hardships. He met Farida briefly before leaving, and added that where she is located, near the oil fields, is really in the middle of nowhere, so it’s even harder to get needed goods.

Farida avoids bread anyway, but one of the success claims of Venezuela has been that it always provides bread to its people. It’s a kind of white “pita” called arepa, that is cut in half and then filled as a sort of sandwich. It hasn’t exactly caught on worldwide, but the people there are used to it. Except now they can’t even get their entitlement share of arepas.

Venezuelan bread, arepas, stock photo

I did the math on the food being imported by government as well. According to the US Dept. of Agriculture, the average American eats this much:

The US Dept. Of Agriculture estimates that the average person in the United States eats .5 lbs of meat, 1.6 lbs of dairy products, .2 lbs of fats and oils, .8 lbs of fruits, .7 lbs. Of vegetables, .5 lbs of grains, and .4 lbs of sugars per day for a total of 4.7 lbs. of food per day.

Let’s say that people in Venezuela are smaller, or used to less, and get by on 3 pounds of food a day. If I did the math right, the special shipment of 760,000 tons of food will last all of 18 days. By the time they can order more, again, the shipment (if it ever reaches the people) will have run out. In the US, if there’s a shortage, someone in the marketplace opens up a factory, or farm, or supply line, to sell to the waiting buyers. Seems more sensible.

Venezuela hasn’t always been this way. It may never have been as thriving as what we’re used to, but it has abundant natural resources, natural beauty, a good climate. It should be possible for people to thrive there. Socialism, among the population (exempting the elite rulers) has been a leveler. It has taken from producers, to make sure they had no more than non-producers. It has prevented innovation and success, removing incentive to produce. And it has created the mindset that government provides, so everyone will be dependent.

It is an exemplary socialist state: rulers create needs and provide just enough subsistence to maintain power over a helpless but not quite desperate people. If the goal is to provide power to a limited number of power mongers, it has met the goal. If it is, as stated, to build a utopian, perfect, productive equality society—it fails, as they all must.

The reason to bring up Venezuela, and other socialist tyrannies, is as a warning. We have power mongers, using socialist dogma and patterns, in order to remove power from us—We the people—in our Constitutional republic. We know what will happen if they are allowed to take us down that road—economic and social failure.

On the Spherical Model, only tyranny, economic deprivation, and savagery are possible when people are held down in the southern hemisphere. That is the only outcome possible. The only antidote is living the principles of freedom, free enterprise, and civilization. May we find the courage and character within ourselves to move back upward!