Obama spending, and lessons from Venezuela

Faced with shortages of food, building materials and other staples, President Hugo Chávez is intensifying state control of the Venezuelan economy through a new wave of takeovers of private companies and the creation of government-controlled ventures with allies like Cuba and Iran.

The moves come just months after voters rejected a referendum to give the president sweeping constitutional power over the economy and public institutions, leading to new accusations that Chávez is more interested in consolidating power than in fixing Venezuela’s problems.

And while he has argued that aggressive action against the private sector is needed to correct social injustices and fight soaring inflation, his critics say his moves are instead compounding those troubles.

Above are excerpts from an Int’l Herald Tribune article – Chávez tightens reins on Venezuelan economy – just a month ago. It has some disturbing rumblings of familiarity… most especially that final sentence.

Obama, the likely DNC candidate, has tax incentive proposals on his possible Oval Office desk for $50 billion into energy venture capitalist funds, $150 billion for more biofuel issues, doubling existing science and research for clean energy products, doubling existing federal funding for research on job creation, more federal workforce training programs, distressed home owners funds, quadrupling Early Head Start funding and increasing existing Head Start funding, $5 billion for transitional jobs for the low income, and creating an Affordable Housing trust fund.

And… oh yeah, all of rural America should have high speed internet. Hasn’t he heard of Directway?? And is he proposing we put a new satellite in orbit for those that those who do not have a shot at the southern skies?

Then of course, we can’t leave out the most overt large scale government creation – universal health care.

The above programs are merely a drop in the bucket for a President Obama spending frenzy, in conjunction with his merry bank of progressives leading the House and Senate. It has to be obvious even to the blissfully oblivious that Obama will be one expensive President to maintain. With cronies in charge of Congressional purse strings, what way is there to stop America from becoming a total welfare state, such as Cuba or Venezuela?

We hear little of the big spending Obama plans in the media. Instead, mesmerized by his appealing baritone, we’re to get all a’twitter about a middle class tax cut. So do we get the new x% tax cut on the amount we’re at now *with* the Bush tax cuts? Or will Obama increase our taxes by letting the Bush cuts expire, *then* give us our x% cut? Makes a difference, don’t you think? We might just come out in the wash with it all. But it sure makes for good campaign fodder amongst the true believers.

Reality is Obama’s cuts won’t mean much difference in the large scheme. The taxes to be added on for all his desired programs have yet to be tallied for the public. By the time he’s done with his socialist program reforms we will have redefined a large portion of America’s economic class – combining raised lower classes with the lowered middle class, and creating a newer, larger lower-middle class. Whether that’s good comes from where you are sitting now.

Reading thru a President Obama’s plans of a socialist USA on his website, I have to wonder just how long will it be before we see excerpts, like above, about the US and Obama instead of Chavez and Venezuela? The propositions of both leaders are eerily parallel in substance and end goals. They share the belief that the fix all for economic problems is by government seizing profits – whether by de-privatization, or by taxes – and redistributing to the masses. And certainly Obama’s youthful adulation of Frank William Marshall is just one more troublesome association to add to his other collection of raging pastors, US terrorist bombers, sleazier than usual real estate investors, and a magically, squeaky clean mortgage CEO from the financially troubled Countrywide Mortgage.

Before we step hastily into an Obama socialist quagmire, we would be wise to observe, in real time, some serious lessons from Venezuela. Chavez – despite serious financial woes – is not abandoning his Marxist dream. Instead, he continues to consolidate ultimate state power by going after productive private businesses. Even using his own version of the US’s “eminent domain” by offering some, if not low, compensation.

Still, Chávez is pressing ahead with the takeovers of companies big and small. These include Sidor, a large, Argentine-controlled steelmaker; cement companies owned by Mexican, Swiss and French investors; more than 30 sugar plantations; a large dairy products company; and a sprawling cattle estate on the southern plains.

Chávez has avoided outright confiscations of private companies, by offering some compensation, but the terms of these deals are growing increasingly contentious, with the president threatening to withhold payments. In Sidor’s case, the company had asked for up to $4 billion in compensation; Chávez is giving it $800 million.

Needless to say, Venezuelan business owners aren’t feeling comfortable these days. Even small business are feeling the pinch. From an AP article just two days ago:

Mirina Kakalanos has been forced to double prices at her family’s shoe store in the last year. Customers turn away after browsing the pumps and sandals, but Kakalanos says she has no choice.

“There is less money coming in, and more costs to cover,” said the 40-year-old mother of three, whose Greek immigrant father opened the shop after moving to Venezuela in search of a better life. Now she barely makes enough to get by.

Like most oil producing countries, the gas is cheap in Venezuela. Most consider that their birthright. But before you get too envious, that’s only a part of the story. Or, as Rory Carroll, reporting from Caracus, put in in his Jan 2008 article in the Guardian:

Venezuela, a major oil producer which introduced the subsidy as a populist measure in the 1940s, is probably the most extreme case of a gas-guzzling dream becoming a policy nightmare.

A lack of rigs and other problems has reduced the output of the state oil company, Petróleos de Venezuela, just as domestic consumption has soared to 780,000 barrels a day. The subsidy costs the government around £4.5bn annually. It also encourages a brisk trade in contraband petrol across the Colombian border, where prices are higher.

snip

Some economists call the subsidy “Hood Robin”, because it steals from the poor and gives to the rich by favouring relatively wealthy car owners above the poor who rely on public transport.

Oil revenues to the state has tripled since 2004 to $63.9 bil, and account for 50% of the nation’s budget. Chavez has also taken over the electricity and phone utilities in the name of the state. There is no doubt the palace is awash in govt cash. This should be good for a socialist nation, right?

Wrong. What Chavez didn’t pump of govt cash into his neighborly FARC terrorists, political buds, and other similar human scum, he funneled into welfare/social programs. Fresh with “free money”, the population went into a spending binge and banks increased lending… all atop the booming new car purchases (500,000 sold last year alone, population of 25.5 mil)

But time has marched on, and the fruits of socialism are coming home to roost. With massive govt constraints and constantly morphing laws, business foreign investments have fallen to record lows. There’s food shortages, high unemployment, and serious inflation. Six years after Chavez came to power, the nat’l poverty level still was standing at 37%. Historically poor, it’s not hard to understand Venezuelan’s ran amok with free cash in fist.

In a desperate attempt to fix what is, and was inevitably going to, go wrong, Chavez’s govt giveaway of oil money continues. Last month Chavez increased the minimum wage 30% (about $372 US). Still, only half of the Venezuelan’s will see that raise in wages. Including a woman selling vegetables in an open market. Yorbelis Suarez says she pays three times what she did just two months ago for her stock.

Now Chavez plays with the currency to gain the upper hand.

As prices now climb again, Chavez’s government has tried to tame the trend – issuing US$4 billion in bonds in April to absorb excess cash, enforcing price controls on basic foods and holding the currency to a fixed exchange rate. It introduced a new monetary unit in January to boost confidence in its sagging “bolivar,” and changed the way inflation is measured, incorporating data from smaller cities with less cash on hand.

The Central Bank embraced a more traditional anti-inflationary measure in March, raising interest rates on credit cards to 32 percent and on savings deposits to 10 percent to slow consumer spending.

But inflation is galloping, with rates of roughly 30 percent after running at nearly 20 percent a year earlier. And some of Chavez’s tactics have backfired.

Price caps have caused sporadic shortages, as some food producers sought other, more profitable work. And foreign exchange controls make it harder for businesses to get dollars to buy imports, driving them to buy the U.S. currency on the black market, where it has sold at times for twice the official rate – further inflating prices.

Investors complain that these restrictions – not to mention the fear that their lands or companies could be taken over by the government – are making it harder to do business in Venezuela.

It’s no historic secret that communism/socialism/Marxist regimes are short lived failures that lead to poverty for unpriviliged masses. But still some leaders persist in bucking history.

Stanford’s Terry Karls says oil booms always results in rapid growth… until they reach what she calls “absorption crunch”.

You just can’t absorb that huge influx of money properly,” Karl said. “You get problems with your prices, you get problems of supply. … All those bottlenecks slow down growth and eventually create inflation.”

And so it comes down to the very real economic unstability of socialism – internally and externally. It is a concept that only works in smaller, personal units, and where the resources are boundless. But the catch 22 is they have created a state where there is no incentive for foreign investment, and the production of Venezuala’s wealth – oil – slows. There is no incentive for private enterprise from within to increase the govt socialist network. Much easier to sit back and “take”. So the money supply is dwindling, and the consumption is rising.  As in previous historic models, the gap will only widen until ultimate failure.

If socialist principles can not work in a country with 16% of our population, and one of the 10 largest oil reserves in the world, how can we expect a socialist America to survive with our consumption, our advanced technology, and our out of control immigrant population? Especially when you consider the largest percentage of our exports is commodities like transistors, aircraft, motor vehicle parts, computers, telecommunications equipment? All of which require importing of oil to manufacture.

And so we come to see what well be America’s future under a President Obama, as reflected in Venezuela under Chavez’s govt giveaway policies – or perhaps better described as life in Obama’s proposed United States Socialist Republic.