It's Politics, Not Business

 We’ll get started with this week’s Venezuela : Down The Rabbit Hole segment in just a bit but first…Forbes had the headline “Natural Gas Eases Negotiations Between Europe And Venezuela”. The piece spent most of the time telling us about things we already know… the Maduro regime needs money, Europe needs natural gas, the Venezuela opposition needs free and fair elections, and there are various projects being discussed to utilize Venezuela’s primarily unused natural gas reserves.

 They did, however, highlight the fact that the real determining factors in what happens with these deals to utilize the mostly untapped, fifth largest natural gas reserves in the world, will be political, not business-related.

 There are a lot of moving parts involved in any potential natural gas projects (train wrecks?) with the Maduro regime including French President Macron offering himself as a mediator in possible negotiations.

 While I understand that the various European interests can probably get a better deal from the financially desperate Maduro (At least until he screws them like the Chavistas have screwed everybody else) the world would be better served if those needing natural gas didn’t overlook or trivialize the Maduro regime’s Human Rights violations, possible crimes against humanity, and basically the destruction of democracy and the rule of law in Venezuela.

 The US can provide Europe and other parts of the world all the natural gas they need (We are the “Saudi Arabia” of natural gas) if Joe Biden would allow it.

 Then we have Rio Times reporting that Venezuela President (dictator), Nicolas Maduro, ratified four decrees initiating an equal number of SEZs (Special Economic Zones). These SEZs aim to amplify Venezuela’s economic framework within the broader economic recovery strategy. The announcement didn’t say how these decrees will do this.

 Also unknown is is what the Maduro regime’s economic recovery strategy is (other than the “one step forward, two steps back” that we’ve seen so far).

 One thing that is certain is that any move by the regime will be focused on increasing government control, not necessarily increasing economic activity.

 Now let’s head Down The Rabbit Hole…

 Chapter 5/ Control Freaks…

 If there is anything that can match the failure rate of socialism it’s price controls. They simply never work…anywhere…ever. I don’t know about you but when I hear “This time will be different” I know failure is assured. It’s never different! When the housing bubble was questioned in 2007 we heard it as well as when we questioned the tech bubble in 1999 and in so many other instances. I believe “This time will be different” as much as I believe, as Ronald Regan famously referred to, “I’m from the government and I’m here to help”.

 A few years ago when Venezuela was going through yet another bout of food shortages, one of the things that was abundantly available was eggs. Cholesterol concerns aside, it’s hard to worry about cholesterol when you’re starving, eggs are an excellent source of protein. It’s not like people were clamoring for the government to do something about egg prices. While they weren’t particularly cheap they weren’t prohibitively expensive either and they were plentiful. Seems like a good balance of relevant factors. Well, we can’t have that now, can we?

 At that time Maduro, who has never had anything close to a positive approval rating (last we heard it was about 5%) felt he needed to do something to boost his popularity. Since he ruled by decree (and still does) due to the emergency powers he granted to himself he needed no approval and impose any conditions he wanted. If you were looking for an example of the kind of ideas you get when there is no one in the cabinet with an understanding of economics and the president (dictator) has no experience in business or economics this is a good one.

 When Maduro went to bed the price of a flat of 30 eggs was 1,200 bolivares and the cost was 800. In the morning he announced that he was going to lower the price and stressed that he came up with this idea himself and no greedy capitalist could influence him. He was doing this for the people of Venezuela! Effective immediately the price of a flat of 30 eggs, including those already in stores, would be 400 bolivares. Viva la Revolucion!

 I’m sure you already know what’s coming. The retailers, with no other choice, sold off what they had in stock, took the hit, and didn’t order any more eggs. The wholesalers and producers weren’t interested in doing business at a loss either since no subsidies were announced. Almost overnight eggs disappeared from the stores. It did, however, add another product to the inventory of the “bachaqueros”, as the black marketeers are called.

 The producers produced less but commanded a higher price. Those that could afford it paid the higher price charged by the “bachaqueros” so they were OK. The wholesalers and retailers redirected their efforts so, after taking the initial financial hit, they were OK. As is so often the case with “Socialismo”, who love price controls, those most hurt are those they are supposedly trying to help.

 This is just one of many examples of failed price controls during the Chavismo era. Strangely enough, no matter how many times it fails, they keep coming back to the well of price controls. The reason, it sounds good and plays into the ideology. They can always fall back on the excuse the socialists always trot out there. It would have worked if not for those greedy capitalists.

 Despite it’s failures the number of items subject to price controls grew over the Chavista years reaching 250. Since the government couldn’t afford to subsidize everything once all the oil revenue and the money from loans dried up, whatever didn’t receive a subsidy made a second list, the shortage list. Until I lived in Venezuela I had never heard of such a thing. Fedecameras, the Venezuelan equivalent of the Better Business Bureau or Chamber of Commerce, keeps track of this as the government would never expose how many things they had forced to disappear. While there were always some items in short supply in Venezuela it became completely out of control…Even products that were available morphed from high-quality brands to very low-quality products due to a number of factors we’ll get into later.

 More tomorrow….



©Copyright 2021 all right reserved.