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Archive for the ‘Inflation’ Category

I’ve written a couple of serious posts about the death panels at the VA’s government-run health facilities.

I think it’s particularly important to understand that the problem has nothing to do with funding levels. Instead, it’s about the chronic inefficiency of government.

But sometimes mockery is more effective than analysis, and this Remy video, produced by Reason TV, is definitely worth sharing.

Enjoy.

By the way, if you like the Remy videos from Reason TV, here’s one about Sandra Fluke and the birth control mandate, one about the TSA Hokey Pokey, and two more Christmas-themed songs about the TSA (here and here).

But I want to spend the rest of today’s column celebrating the fact that America is not Venezuela. No matter how much we complain about the inefficiency, waste, and corruption in Washington, things could be worse.

Much worse.

Here are three stories to give you an idea what total statism produces.

First, I’ve written about how government intervention is causing toilet paper shortages and food shortages in Venezuela (also in Cuba). Well, there’s also a shortage of water, as reported by Bloomberg.

The rationing of tap water amid a drought and a shortage of bottles because of currency controls are forcing people to form long lines at grocery stores and bottle shops as soon as deliveries are made. …a government-mandated water rationing plan in Caracas and hot weather are fueling demand as supply shrinks. “I haven’t been able to find 5-liter bottles of water in the supermarket for the past two weeks, and there haven’t been half-liter bottles this week,” Maria Hernandez, a 36-year-old secretary, said in an interview in Caracas today. “I have four at home, but I’m afraid that they’ll run out and that I won’t be able to find more. They ration water at my house on Wednesdays.”

Though maybe water rationing is a good thing. At least when you live in a nation where the water that does (sporadically) materialize is contaminated.

Some areas of the city receive water service only three days a week, with most neighborhoods going without water at least one day a week. When water does flow, few residents dare to drink it because of contamination.

So why is there a problem? Because the government doesn’t let the market operate.

Regulated prices for bottled water have not been raised since November 2011, industry association Anber said in a May 19 statement. Since then, consumer prices have risen 110 percent, according to central bank data, while the bolivar has lost 87 percent of its value on the black market, according to dolartoday.com, a website that tracks the value on the Colombian border.

Our second story also comes from Bloomberg. It’s about the one thriving sector of the Venezuelan economy.

The arrival of a Liberian-flagged freighter with Ukrainian, Arab and Filipino sailors spells one thing for Elena — dollars. And greenbacks are king in Venezuela, the 32-year-old prostitute says. …Prostitutes more than double their earnings by moonlighting as currency traders in Puerto Cabello. They are the foreign exchange counter for sailors in a country where buying and selling dollars in the streets is a crime — and prostitution isn’t. Greenbacks in the black market are worth 11 times more than the official rate as dollars become more scarce.

Indeed, some women may be turning to prostitution because the government is doing so much damage to the economy.

Prostitution has become the only boom industry in Venezuela’s biggest port. …“Before I was working to support my kid and my mom; now I support my entire family,” said Paola, a prostitute who like Elena comes from Zulia and declines to give her real name. “Dollars are the only way to get by. The bolivar wages of my uncles and cousins barely mean anything now.” …“We can make more in two hours here than working in a shop in a month,” said a prostitute who calls herself Giselle. …For women like Giselle, Elena and Paola, prostitution for dollars has become a lifeline keeping them from poverty. “We haven’t studied, we have no education. What would we do now if we stopped?” said Giselle. “Work for a minimum wage that doesn’t even pay for food? If we wouldn’t be here working the scene, we would be living on the streets.”

Amazing. Venezuelan women are famous for their beauty, but the economy is such a mess that they earn twice as much money by trading currency. Way to go, big government!

Last but not least, our third story shows that government intervention is even making death more difficult. Here are some excerpts from a report in the UK-based Guardian.

…even in death, Venezuelans are afflicted by shortages. Coffin production has dropped between 20% and 30% this year for lack of materials, forcing funeral and burial delays… Pedro Navarro, former president of Venezuela’s funeral parlor association, has blamed lagging production at the state-run foundry Sidor. …Demand for coffins has grown in recent years. Venezuela has one of the world’s highest murder rates. People have been coping with shortages since 2006, long before the death from cancer last year of the pro-socialist president, Hugo Chávez.

The moral of the story is that government interventions such as price controls and government policy mistakes such as inflation have very negative consequences for ordinary people. It’s not just shortages of water and a prostitution-encouraging desire to escape the local currency.

The entire economy is a mess.

Empty shelves in shops and long queues have become a fixture of the daily hunt for staples such as milk, cooking oil and flour. Pharmaceuticals and medical supplies are also scarce. The anti-government street protests that began in February by an emboldened opposition have grown with the shortages.

So when someone tells you that big government is good for people, ask them for an example of successful statism.

And if they’re open to rational evidence, show them this chart. It shows that Venezuela used to be twice as prosperous as Chile.

But Venezuela has stagnated because of statism and Chile has boomed because of free markets. Kind of hard to argue with these facts (though Chile’s current crop of politicians apparently don’t like success and are seeking to expand the burden of government).

Let’s close with some very accurate humor. This poster nicely summarizes the difference between capitalism and statism.

Or the parable of the two cows also does the job.

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This is an easy question for me to answer. To be honest, I have no idea.

If I knew such things, I could time the market and I’d be rich beyond my wildest dreams and relaxing on the beach in the Cayman Islands instead of sitting in my kitchen in chilly Virginia.

Heck, I don’t even know whether the Fed’s policy is wrong or just worrisome. It’s possible, after all, that the central bank has provided appropriate liquidity and it will soak it up at the right time.

I don’t think that’s the case. I fear Bernanke is in over his head and that the Fed is engaging in the monetary version of Keynesian economics.

And if that’s true, something bad will happen at some point. If there’s too much liquidity out there, it presumably will show up at some point as either rising prices or an asset bubble.

Then again, we know banks are keeping more than $1 trillion of excess reserves parked at the Fed and maybe it will stay that way forever. In which case the private sector is inadvertently protecting us from bad monetary policy. Thomas Sowell has suggested that something like this is happening.

I can say for sure is that we wouldn’t have to worry if we were in a libertarian fantasy world and the private sector was responsible for money.

You may think that sounds crazy, but that’s the way it used to be, as explained in this short video.

John Stossel has made the same point about competing market-based currencies.

And if you want to see how well money has maintained its value since the Federal Reserve took over, this link has an excellent video.

P.S. I often get asked about the gold standard. It’s good in theory, but the real issue is whether governments can be trusted to operate it prudently and honestly.

P.P.S. Since Christmas is just two days away, we can all wonder whether we will get this present from Ben Bernanke. And if you still have some last-minute shopping to do, here’s a Bernanke t-shirt for your liberal friends.

P.P.P.S. For some laughs, check out Ben Bernanke’s Facebook page.

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I’ve been worried for quite some time that the European Central Bank was losing its independence, thus undermining the long-run prospects of the euro.

Well, yesterday’s announcement that the ECB would buy the dodgy debt of nations such as Spain didn’t make me feel any better.

Central banks should not be bullied into creating too much money simply because politicians are too corrupt, venal, and short-sighted to control spending.

Here is some of what Allister Heath of City A.M. wrote earlier today. He begins with a wise warning about moral hazard.

There is nothing markets love more than a good dose of monetary activism, especially when they detect a hidden bailout, so it is no wonder that traders and investors reacted so positively to Mario Draghi’s bond buying plan. …Yet generally speaking these days, the more the markets like a central bank intervention, the more I worry. This is because all too often investors are trying to get central banks – and ultimately, the taxpayer – to monetise debt to protect themselves, or because they believe that there are monetary solutions to real, structural problems. I disagree on both counts: excessive debt needs to be written off, with the cost born by the creditors, not redistributed to the taxpayers of more prudent countries or inflated away. It is right that investors should be able to make a fortune if they make a correct bet – but it is equally right that they should lose their shirt when their investment goes sour. This habit of quietly enjoying the former but loudly refusing the latter is one of the main reasons why the City’s reputation is at such a low ebb.

He then explains that the ECB shouldn’t try to mask reality.

…there is a perfectly good reason why the yields of peripheral Eurozone nations have shot up over the past year. It is because the markets have finally started to price risk properly. Higher yields on Spanish or Greek debt reflect the reality of deeply troubled, structurally uncompetitive nations… The market is sending a clear and precise signal, and warning the world that there is a major problem that needs resolution; buying vast amounts of bonds to try and distort or even entirely eliminate that signal and pretend that nothing is wrong with Europe’s weaker economies would be an absurd act of delusion.

I’m not as optimistic as Allister is in this next section, largely because the supposed conditionality will lead to the kind of fiscal gimmicks and moving goal posts that we see in Greece.

…while there are many problems with Draghi’s plans, he is actually being relatively sensible. He will not help Portugal, Ireland and Greece until they are able to access bond markets; even more importantly, Spain and Italy will need to ask for European bailout fund support, and accept the ensuing conditionality, before ECB bond-buying starts. It will theoretically be unlimited in scale but Draghi only wants to “do whatever it takes” as long as politicians toe the line. Given that they won’t, and that many countries will soon be borrowing even more, the crisis will soon flare up again. The simple reality is that the Eurozone in its current form is doomed. Draghi’s plan will buy some time, and his next one even more, as will the one after that. But eventually the size of the fiscal and competitiveness crisis, combined with voter anger in both Northern and Southern countries, will overwhelm all of his attempts at papering over the cracks. It’s just a matter of time.

But I obviously agree with his conclusion. Unless European politicians decide to reduce the burden of government spending, the continent is in deep trouble.

Last but not least, the problem in Europe is not the euro. It is the welfare state. I’m not a huge fan of the single currency, but it is way down on my list of reasons that nations such as Spain, Italy, and Greece are in trouble.

P.S. America will be in the same boat at some point in the future if we don’t reform entitlements.

P.P.S. Allister is the author of this great article explaining why tax competition and tax havens are so important and valuable in the global economy.

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To put it mildly, the Federal Reserve has a dismal track record. It bears significant responsibility for almost every major economic upheaval of the past 100 years, including the Great Depression, the 1970s stagflation, and the recent financial crisis. Perhaps the most damning statistic is that the dollar has lost 95 percent of its value since the central bank was created.

Notwithstanding its poor performance, the Federal Reserve seems to get more power over time. But rather than rewarding the central bank for debasing the currency and causing instability, perhaps it’s time to contemplate alternatives. This new video from the Center for Freedom and Prosperity dives into that issue, exposing the Fed’s poor track record, explaining how central banking evolved, and mentioning possible alternatives.

This video is the first installment of a multi-part series on monetary policy. Subsequent videos will examine possible alternatives to monopoly central banks, including a gold standard, free banking, and monetary rules to limit the Fed’s discretion.

One of the challenges in this field is that opponents of the Fed often are portrayed as cranks. Defenders of the status quo may not have a good defense of the Fed, but they are rather effect in marginalizing critics. Congressman Ron Paul and others are either summarily dismissed or completely ignored.

The implicit assumption in monetary circles is that there is no alternative to central banking and fiat money. Anybody who criticizes the current system therefore is a know-nothing who wants to create some sort of libertarian dystopia featuring banking panics and economic chaos.

To be fair, it certainly might be possible to create a monetary regime that is worse than the Fed. That is why the next videos in this series will offer a careful look at the costs and benefits of possible alternatives.

As they say, stay tuned.

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I have a column in today’s New York Post, where I pull no punches as I comment on how the rest of the world is increasingly worried about Obama’s policies of easy money and deficit spending. I note that other nations often are guilty of the same mistakes, but that’s no excuse for America sinking to that level.

Along with countries such as Germany, Brazil and South Africa, China’s worried that President Obama and Bernanke will destabilize the global economy by dumping too much money into the system. This distorts trade, creates bubbles and may prompt other nations to engage in similar devaluations. The fact that China is probably guilty of the same thing doesn’t change the fact that America is on the wrong path. …The monetary move is isn’t the only Obama policy causing unease around the globe. Having seen the destructive impact of too much deficit spending in nations such as Greece, Ireland and Spain, policymakers worldwide increasingly recognize that countries need to reduce the burden of government spending to prevent a spread of sovereign-debt crises. Nations such as Germany and the United Kingdom haven’t approached this issue in the best way. Too often, they’re using the fiscal crisis as an excuse to raise taxes rather than make long-overdue reductions in bloated budgets. But at least they recognize that the time has come to back away from the abyss of too much red ink. The United States, by contrast, is on a spending binge of historic proportions. …Some of these fears are overblown. Yes, the Bush-Obama years have dramatically boosted the burden of government, and one obvious symptom of this fiscal excess is a much bigger national debt. But America’s red ink, as a share of GDP, is lower than the comparable levels in many European nations, as well as Japan. But that’s hardly an excuse. We all tell our kids that their friends’ misbehavior is no excuse for them to the wrong thing as well. This is a good rule for the global economy. If China is keeping its currency artificially weak, that doesn’t mean we should do the same thing. If European nations have bigger governments and more debt, that doesn’t mean we should copy their mistakes.

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