How to Ruin an Economy 101

No doubt muirbot thinks that "Hugo the Wise" has every right to tell Toyota what cars to make for "the people".

"Wanna take bets on what will happen to private foreign investment in Venezuela?"

To my knowledge, except for oil, most foreign (and even domestic) investment already has drawn back or left completely. If they haven't I would say they're taking extreme risks with their capital. My sister used to live in Venezuela and worked for an international oil company. She was there for a couple years and left just before Chavez started pushing the garbage he's been pushing for the past few years.

Over the past ten years, he's effectively ruined their currency to the point he had to create a new one (the "strong" Bolivar which removes 3 decimal points from the "old" Bolivar,) instituted price controls on 400-500 separate food products that created shortages, denied anti-Chavez TV stations broadcasting licenses making state-run TV the only source of news, and expropriated golf, ranch, and farm property for worker run communes. He's also nationalized entire industries: electrical power, steel, telephones, cement, as wells as separate food, paper, and tire manufacturing plants. What legal avenues left for legal trade are hampered by poor infrastructure and stupid/bad regulations. Many of the larger leftover enterprises are organized under co-management agreements with "worker's council's." Smuggling and black markets for products under price controls are met with active police and military response.

Most of the business people that my sister knew from her time there have sold (or lost through expropriation) their property and left the country. The infrastructure has degraded with roads water, and power are plagued with problems. To my knowledge, industrial output has fallen on a regular basis and oil production in particular has dropped.

Current conditions are the result of socialist democracy in full. Much of Hayek's Road to Serfdom stuff can be seen there. You have a strong man that has ratcheted up controls and centralized power. It isn't a police state (yet) but you do have voices of dissent being put down via bureaucratic means. Venezuela pre-Chavez was not perfect by any means, but the current reality is far worse.

In short, it's a complete mess.

Venezuela ya está sobre el camino de la servidumbre que lo conduce a una guerra civil. Ese es su trágico destino.

Venezuela is already on the road to serfdom that leads to civil war. That is his tragic fate.

Its time for just one Manufacturer to stand up to this guy. They are going to take a hit anyway, It's time to quietly pull as much capital as they can out of the country,send their workers home, and blow up their own plants. Leave a message behind explaining that they are leaving it as they found it.

No it's time for everyone to pull out and let the Commander's economy and country implode under it's own weight. Then start over from scratch, preferably with El Commander doing his best El Duce impression from the gallows.

I have not read the full article (blocked to non-suscribers) but when I do I will most probably agree with it.

That said let us put the Venezuela and automobile industry issue in its real crazy perspective. In Venezuela, even though inflation has been rampant he who likes to be known as the Commander has not dared to increase gas prices for over a decade and so gas is currently “sold” for about 8 US$ cents a gallon, not even covering the costs of distribution.

On top of that because of the foreign exchange controls that exists in Venezuela, fx at preferential rates has been awarded for the import of cars over the last seven years. Result? Just in 3 years little Venezuela imported more than a million cars and now everyone is stuck in a traffic jam and, because of a lack of local refining capacity, oil rich Venezuela has now to import gas.

And so… do you really need this example to show how precarious the commander’s knowledge of economy is?

Yep that'll do it. Sad though

Wanna take bets that the local Veneuelan muirgeos will blame the crises-to-come on some type of deregulation?

Most certainly! I expect our own Yasafi to chime in and defend Oogo.

After all, Chavez was democratically elected, and Chavez is a progressive, so he must be pure as (receding) glacial ice.

"Wanna take bets on what will happen to rural Venezuelans’ access to automobiles and other automotive products? Wanna take bets on what will happen to private foreign investment in Venezuela?"

I'd love to take those bets. I'll take the short side. What sort of odds are you looking for?

If I was one of those companies I would do what Dagney Tagart did in Atlas shrugged when she saw the way the financial winds were blowing in Mexico oin that book. She pulled out everything of value and left only the oldest equipment, only what was needed to allay suspicion so that when the country nationalized- ie, siezed and stole all of her property she didn't lose very much. Get out NOW Toyota, Fiat, GM, etc!

Venezuelans' access to automobiles will disappear, just as foreign investment there, but that's precisely what the Venezuelan voters deserve.

Misery is the best medicine for the gullible voters of Venezuela. Reality will teach them that there is a price to pay for casting a vote for a lunatic. The worse the misery, the better the lesson.

And yes, the mindless US voters are on the same learning path.

Weird, I thought the pink-o's hated 4x4s.

and golf.

http://www.flickr.com/photos/aparejador/3840714...

Help me settle a debate I've been having between friends over this article:

I am arguing that the legislative action threatened by the US Congress regarding the dealership closure procedures (see http://bit.ly/5wRIvp ) is not fundamentally different than the threats made by Chavez above. While different in degree, I don't see the difference in kind.

Their counter argument is that the US federal government is a legitimate shareholder in the US auto industry, entitling them to a degree of control over those companies. My counter to that was: Ok, then Congress should be addressing its grievances with the US auto companies via normal shareholder mechanisms, not through a legislative act.

Am I on the wrong side of this one?

I agree. I would start with the assumption that the US government is about a 40% owner in all US corporations -- and their interest goes up from that baseline. Historically, the US has observed a balanced restraint to prevent the slaughter of the golden geese. Their restraint is currently a little less balanced. Not a good time to be a goose.

Streetwise, I'm not a US citizen, could you elaborate on that assumption you mention?

He's talking about the US tax rate. The corporate tax rate currently maxes out around 35% for corporations, plus there's the second level of taxation on dividends and capital gains received by the ultimate owners. There are also a lot of corporate deductions, so perhaps 40% is a good estimate between the two layers of taxation.

Guess I'll get in now and apologise for the bleary-eyed lack of coffee, SheetWise!

In this article, "knock down manufacturing" was mentioned. I wikipedia'd the term, and the reason for knock down manufacturing is usually sell cars in a country with high tarrifs on the importation of finished cars.

I also came across this article in the WSJ, which I found rather amusing. http://online.wsj.com/article/SB125357990638429...

panel vans are partially assembled in the US because of the 'chicken tax'