Previous posts in this discussion:
Post6 December: 20 Years of Chavismo (Nigel Jones, -UK, 12/06/18 2:16 pm)
I would like this report on the current situation in Venezuela to be read by anyone still dumb or deluded enough to think that socialism works. It is devastating.
Please note that the report appears in The Guardian, one of the last refuges of such fantasies in the British media.
JE comments: Twenty years is the better part of a generation, and Venezuela, by all measures, has become a basket case. The Guardian (above) reports a poverty rate of nearly 90%, and inflation approaching the incomprehensible level of 1,000,000%. (That's a million.) One of our dearest colleagues, José Ignacio Soler, is on the front lines of the events in Caracas. Nacho, can you tell us how Venezuelans are observing the anniversary?
Chavismo probably won't see its 25th birthday, although many of us doubted there would be a twentieth.
Twenty Years of Chavismo
(José Ignacio Soler, Venezuela
12/07/18 3:29 AM)
In response to John E's question regarding how Venezuelans are observing the twentieth anniversary of Chávez's rise to power (6 December), the answer is easy: unnoticed and with total indifference. There were no special official celebration events or parades, not even any mention on the news.
It seems there is nothing to be happy about. In fact, the drama described by the Guardian article is only a small portion of the actual situation.
JE comments: The Guardian describes Venezuela's "slow-motion catastrophe." Can anything at 1,000,000% (as in inflation) be described as slow-motion? If you missed it yesterday, click below for the article forwarded by Nigel Jones:
Nacho, hang in there, and please accept the gratitude of all WAISdom for keeping us abreast of Venezuelan affairs.
Twenty Years of Chavismo; More Questions than Answers? (from Gary Moore)
(John Eipper, USA
12/08/18 11:44 AM)
Gary Moore writes:
Thanks to our insightful moderator for re-posting the link to The Guardian's epitaph on Venezuela.
I had meant to read yesterday's post from Nigel Jones with the original link--where he commendably
points out the article's importance--but the email blizzard somehow buried it in my queue. JE seemed to
sense that the historic, iconic nature of this article deserved a repeat posting, all the more iconic with
Nacho Soler's WAIS observations from the scene.
As Nigel said (I've now dug it out of the blizzard), the
solemnity here skyrockets in the fact that this autopsy on 20 years of chavismo appears in The Guardian,
which can scarcely be accused of right-wing bias. Would President Maduro and his lingering apparatchiks
see The Guardian, too, as part of the "media war" that their classic anarchist denial mentality blames for
reality failing to be magical? Reading the Guardian article, every single sentence seems to be worth pondering,
as each presents a glimpse of the big picture of the "slow-motion catastrophe." However, the Guardian
also made an understandable decision about space and breadth: there is little discussion of how and why
a powerhouse nation, in 20 years of shouting and demonizing, turned into an astonishing ruin.
WAIS Posts from José Ignacio Soler have provided some deeper glimpses there, but it seems that that coffin nail should
also be driven home somewhere, somehow, with the precision offered by The Guardian in its mere
certification of the necropsy. From many sources, we know now that Chávez's colossal failure, like Castro's,
may have little deterrent effect on future Pied Pipers and their followers, wherever they might spring up,
but there is a world of puzzled possible sympathizers that might be edified.
Aside from bad breaks on oil prices,
in what mix did simple thievery combine with economic blindness on arcana like balance of payments?
And if no one knows the answers to these questions, that still-more-dismal verdict should be marked, too.
Google seems deficient in demystifing the Venezuelan fall. Can anyone point out some material that will summarize
the hows and whys, in the way that the Guardian did with the what?
In the meantime, The Guardian's reporter, Tom Phillips, would seem to deserve a third reprise:
JE comments: As a parallel riddle, how is it that some oil-blessed nations become filthy rich (Norway, the Gulf States), while others (Venezuela, Nigeria, even Mexico) seem "cursed" by the resource?
Nineteen Keys to Understanding Twenty Years of Chavismo
(José Ignacio Soler, Venezuela
12/11/18 6:12 AM)
On December 8th, Gary Moore asked the following about Venezuela, "how and why did a powerhouse nation, in 20 years of shouting and demonizing, turn into an astonishing ruin?"
The answer could be a case study for a social science graduate course in any respectable university. Nevertheless, for years on WAIS I have been trying to explain Venezuela's hows and whys, as much as the whats. To explain what is happening is easier, mostly because it is based on measurable facts, observations and anecdotes. It is obviously harder to dig into the causes and development of things.
Venezuela of course is a complex problem, involving social, political and economic factors. They interact in many ways beyond my limited understanding. But for the sake of Gary and other interested WAISers, I will try to summarize these questions as I see them, more or less in chronological order:
1. From 1958 to 1999, after many years of an incipient democracy and a full dependency on oil exports, prosperity was reached by many sectors of the population and the country had the highest rate of social mobility and the lowest racial prejudice in the region. However, Venezuelan society also developed great inequalities and social injustices. An economic crisis, the ruling political party's corruption and a complicit bourgeoisie created a fertile ground for the rise of a new populism led by Chávez and other mid-level military officers. There was a temporary crisis, but nothing that could not be overcome with economic, social or political reforms.
2. Chávez's first attempt to reach power was his failed military coup d´etat in 1992. During his years in jail he worked for a reformist political platform against the status quo. Imprisoned for two years, he was eventually reprieved and released to start a rising political career as a candidate for presidency.
3. The rising populist star accepted a run for president in 1996 in a democratic election. With personal charisma, great rhetorical skills and demagogic speeches, promises and messages full of grievances and resentment against the political and economic elites, Chávez presented himself as a tough ex-military capable of saving the country from its crisis, but in reality he was a bully, a swindler, pretentious and megalomaniac, a religious provincial religious "macho." It seems there are no successful con men who are not also charismatic.
4. In 1999 he won the elections without yet declaring himself socialist or sympathetic towards the Cuban regime. He immediately received great support from all social sectors, but particularly from the lowest and marginal social classes. Chávez described his reforms as a Bolivarian Revolution, later on called "Socialism for the 21st century" when he explicitly declared himself a socialist.
5. Based in his social resentment (he came from a humble family), he promoted his populist reforms under this very emotional premise, which eventually proved to be nefarious and turned into hatred and hostility among the social classes. Accordingly, Chávez proposed a new constitution, fundamentally progressive, with legitimate social grievances but also giving almost unlimited power to the president. The constitution was approved in a referendum by a small margin just after Chávez´s election in 1999.
6. From 2000 to 2007, supported by high oil prices, the new government launched populist programs to directly subsidize the population, price controls, currency controls, economic control of the private sector, numerous expropriations and so on, all of which increased lower-class support and enthusiasm for the new government. These programs also contributed to the ruin of private-sector economic activity and productivity.
7. The new regime supported by the new constitution immediately took over all state institutions, and through a series of apparent "democratic processes" that legitimized and manipulated voting events, the opposition was left with little room, if any, for maneuver. However the opposition still was able to spontaneously arrange in 2002 the "National Oil Strike," which for 90 days paralyzed the country.
8. Chávez never declared himself a socialist before being elected, though it was clear he had sympathies for Castro. Only after Chávez reached power did he declare himself a socialist. Cuba actively started programs in the educational, health, military, propagandistic and strategic sectors, to support the Venezuelan regime in exchange for oil at low prices and advantageous credit conditions.
9. Chávez's basic mistake was to fire personnel in high governmental positions and the state-owned oil industry, as well as public employees, experienced bureaucrats, skilled administrators, well-prepared technicians and managers. They were replaced with incompetent, poorly educated and inexperienced people loyal to revolution and himself, including many unskilled military in civilian jobs. The result of these decisions started to show up quickly, as bad policies designed and applied with inefficient administrations, corruption and political abuse. These decisions created a patronage culture and social parasitism in the population, typical of a society with a revenue-based model of production. The most dramatic effect was PDVESA, the state oil company, which had a production of 4 million barrel/day when Chávez came into office, to less than one million today.
10. Chávez was a psychopathic character, a narcissist and megalomaniac, lacking all understanding of economics. He never admitted to any mistakes, recurrently blamed third parties for all the problems produced by his decisions. He continued to make bad populist decisions one after another to aggravate the decay process and to concentrate absolute power in his dictatorship. This situation was "legitimated" by numerous manipulated voting processes.
11. In the decade of the 2000s, all was going well for him politically, and he was still popular among the poor and marginal populations. His popularity was supported by high oil prices, despite the decreases in oil production and local private sector production. He continually used huge amounts of resources from oil and an increasing external debt to promote his popular programs called Misiones (direct subsidies), or to obtain international support, and to export the Bolivarian Revolution to other countries in the region, following strategic direction from Cuba.
12. All Chávez´s actions, in spite of growing discontent among the middle class, an incompetent opposition, massive public demonstrations, the famous oil strikes and some international opposition, were possible for many years due to his policies for accumulating power, repression and to "bribe" the population with the Misiones, and internationally, by giving away money and cheap oil to other countries, what was popularly called a "Política de chequera" or bank-check policy). He even gave away oil to some poor people in Manhattan, New York.
13. Despite the huge amounts of money from oil exports and the enormous public debt during Chávez's years, the Venezuelan economy faced continuous devaluations and increasing hyperinflationary pressure, due mainly to bad monetary policies, an excess of liquidity, capital flight, corruption, a lack of local productivity, the expropriation of industries, and controls on interest rates, currency exchange, and prices of products and services. Moreover, there was fiscal pressure and more controls on private economic activity and insufficient and inefficient public investments. As an immediate consequence for the population, black markets and smuggling arose, and prices escalated on goods and services. There was frequent scarcity of basic goods. More imports were needed, or as one economist called it, an Economía de Puertos (Port Economy) was established with insufficient resources to support it. There was also decay in public or private services and infrastructure, employment decreased abruptly, etc. The ruin of the country started.
It seems the strategy behind this was to eliminate the private industrial and business sectors, considered enemies of the Revolution.
14. During these catastrophic years, the government's only response for the rampant inflation was to recurrently devalue the local currency and to impose more price controls on economic activity.
15. Adding to economic and productivity problems, a new social class arose, protected by the government, corruption, and allegations of drug traffic or smuggling. This new class, popularly known as "Bolichicos," is now dispersed around the world, with immense fortunes, in the US and Europe, with many of them still in the country enjoying and harbored by government impunity in public positions or under diplomatic protection.
16. One might ask how and why has so much corruption become possible in the Chávez regime. But it is easy to imagine a person, perhaps a humble person with low education or unscrupulous and educated, with low moral and ethical values, in a position where billions (not millions!) are going through his hands with scarce controls and abusive power. The temptation would be difficult to resist.
17. The problems dramatically aggravated when oil prices dropped almost 50% and Chávez died of cancer in 2013. He left a country in deep crisis, with scarce resources, very low international reserves, an immense public debt, a huge fiscal deficit, a GDP progressively decreasing over the last five years, hyperinflation, collapsing institutions, suspended investment, lack of productivity, international funds cut off, a lack of real economic policies, dramatic growth of unemployment, etc., with most of his promises unaccomplished and in the hands of an incompetent and illegitimate heir, elected by a supposedly "free" election won with only a 2% margin. This is hard to admit, but compared to Chávez, the successor is worse in every aspect, though he still follows the Havana´s directions and continuous Chávez's policies and doctrine.
18. Currently the crisis seems to be critical and dramatic, with collapsed institutions and millions of Venezuelans (10% of the population) emigrating to other countries. These emigrants are sending remittances in order to help their families and siblings survive.
19. Critics and intellectuals who have studied this revolutionary process say that the impoverishment of the population respond to a strategy directed by Cuba, which has been successful on the island, to control the population and their response against the regime, and in this way to stay in power. Whether this is true or not, I am not in position to say, but it seems possible considering the facts and their practical consequences. If there is weakened population, almost starving, fully dependent on the government to survive, it is hard for them to rebel against it.
Concluding this long exposition, it could be said by loyalists that Chávez´s intentions were generous and made in good will, and that some of the policies could be considered beneficial for the country... perhaps. But the reality, the consequences of his policies and egomania surpassed all expectations. Whether he was a true socialist, a communist or had any other political ideology is not easy to assert, as some detractors have said he was a socialista caribeño (Caribbean socialist, a mockery) with a potpourri of intellectual and religious concepts all mixed up in a twisted way.
This description of the hows and whys does not fully describe all the causes and the process of the nation's drama, but maybe it will help Gary M. and other WAISers to understand it better. I hope so.
In a future post I will lay out my predictions on the immediate future of the Venezuelan crisis.
JE comments: Bravísimo, Nacho. A masterful analysis, which I hope WAISers will share with interested friends and colleagues. This post will go in the #1 spot on our homepage banner (waisworld.org or wais.stanford.edu)
In Praise of Nacho Soler's "Nineteen Keys" (from Gary Moore)
(John Eipper, USA
12/12/18 3:51 AM)
Gary Moore writes:
José Ignacio Soler's magnificent itemization (December 11) of the doom factors that
led to ruin in his native Venezuela--during just 20 years of chavismo--is surely
a landmark, rightly bannered by JE on the WAIS homepage.
Credit also goes to John's moderator wizardry in shepherding this subject to succinct summary,
like a fire bell for the world, and especially for Latin America: Don't do it this way!
Nigel Jones started this much-needed autopsy thread by flagging The Guardian's
brilliant Dec. 6 anniversary story on the 20-year disaster (Hugo Chávez came
to power on Dec. 6, 1998). And Cameron Sawyer's fact-packed counter-itemization,
on Scandinavia's alternative way via judicious economic freedom, drives home the
There is so much in Nacho's list of 19 points that I'm going to need some
time to understand each one, because they peer into the obscure heart of political
disaster: economics and personal psychology--the great unknown lands that
post-Enlightenment inquiry has only thought it had systematized. The list uses the
only linguistic tools we have: "personal charisma," "in reality he was a bully, a swindler,
pretentious and megalomaniac," while pointing out that "charisma" fits well with the
term "con man."
Did Venezuela meet its pie-in-the-sky Bernie Madoff--with questions
to be debated ever afterward about the precise mix of sincere generosity, bewildering
power hunger, grandiose denial and sociopathy? Our almost-superstitious psychological
terms mix still more elusively with Nacho's other lexicon: balance of payments, currency
controls, productivity--and "Socialism for the 21st Century."
Just here, in this detailed
post-mortem, is the tantalizing cautionary roadmap for Latin America's future. But the
paths lie jumbled by our limited knowledge in a jigsaw maze (though Chile, Colombia,
and Costa Rica might say they've figured it out). As globalization careens forward into
the unknown (in technology, climate, population, competition, and bursts of rage),
each insightful answer like Nacho Soler's becomes indispensable as a further doorway,
its answers now aiding us to at least phrase the deeper questions, which stand right
before us, but somehow still leave us in the dark.
JE comments: The more I think about it, the more I see parallels between Chávez and Perón. Both were charismatic military officers who came to power with massive popular support. Both made great progress in eliminating poverty until the national cookie jar ran out. Both channeled populist rage against a vaguely defined "oligarchy." And Chávez became a martyr of sorts, like Evita.
What conclusions can we draw from this? Chavismo, like Peronismo in Argentina, will forever be a "movement" within Venezuela, although (happily for the Venezuelans), the chavistas will also have to learn to give up power from time to time.
Did you miss Nacho Soler's Nineteen Keys? If you did, shame on you. Visit the WAIS homepage (waisworld.org), and click on the top banner.
Comparing Hungary 1956 and Venezuela 2018
(Istvan Simon, USA
12/13/18 2:48 AM)
I agree with Gary Moore that José Ignacio Soler's analysis of Venezuela's descent into total economic ruin from a relatively prosperous country in 20 years, together with the Guardian article of December 6th, are cautionary tales of what not to do.
I'd like to add a few thoughts on this subject.
A while back I argued on WAIS that the fate of Maduro should be dangling from a lamp-post, as was the fate of secret police officers who shot unarmed people protesting communism during the Hungarian revolution which I witnessed as a child. (I did not witness the actual hangings--I witnessed the revolution.)
I observed that the conditions in Venezuela are much worse than they were in 1956 Hungary. Venezuela is experiencing hunger, with a total collapse of everything, no medicine in hospitals, people not being paid for months. In any case, there is little difference between no pay and being paid with money that is worth less than soiled toilet paper, because of hyperinflation predicted to soon reach a million percent a year. None of these conditions were present in the Hungarian revolution. The protests that started the Hungarian revolution were due not to such extreme economic ruin but a suffocating lack of freedom, a regime of slogans and lies coupled with arbitrary arrests, political persecution and repression, political murder. These same conditions are present in Venezuela--and I might add, in every communist country. In Venezuela they are aggravated by the economic collapse caused by total incompetence and mismanagement of the Chávez-Maduro governments.
So, from my point of view, the relevant question is why this has not yet happened in Venezuela? The Guardian article gives a glimpse into this, with the "opinions" of die-hard supporters of Chávez who apparently continue to believe Maduro's slogans and lies, in spite of the overwhelming evidence to the contrary in front of their eyes. These people are apparently completely immune to logic, and seem to lack even minimum critical thinking skills. The same happened in Cuba, where Fidel survived despite a similar collapse of the Cuban economy when the Soviet Union's demise eliminated the subsidies that were sustaining Fidel's horrible regime. Why is it that the same constant propaganda did not turn the Hungarians' brains into mush, who were able to see through all the lies?
Another factor sustaining Maduro's corrupt and incompetent regime is paradoxically the 10% of Venezuela's population who voted with their feet and left the country as refugees. They send money to their relatives left behind, and this in turn helps the Maduro government remain in power, by making the economic collapse a little more bearable by the recipients of their aid.
Cameron Sawyer called the democratic socialism of the Scandinavian countries a myth. I think that a myth is the wrong word to use for these countries. Cameron is right that there is economic freedom and capitalism in Sweden, Norway, Denmark, and Finland, which he included in the same group, even though Finland is not Scandinavian. But he also acknowledged the socialism that he had called a myth. The welfare state of socialized medicine, education, and myriad other state-provided high quality services that genuinely help the lives of all, rich and poor, in exchange for high taxes. We might as well call this the good socialism, to distinguish it from bad socialism or communism of Cuba, Venezuela, Soviet Union, East Germany, Poland, Czechoslovakia, Hungary, Romania, Albania, Yugoslavia, Pol Pot's Cambodia, Allende's Chile, Ho Chi Minh's Vietnam, Mao's China, and North Korea.
I contend that the crucial difference between bad socialism and good socialism is genuine democracy, free elections which are respected, in which there is more than one candidate to vote for, and in which the results are respected. Lula and others have argued that Venezuela had democracy because there were elections during Chavismo. But elections by themselves are insufficient for having a genuine true democracy. Chavismo was a fake democracy, in which the results of elections were not respected.
When Chávez lost the referendum to the opposition, he called it una victoria de mierda (a shit victory), and refused to abide by it. He simply increased the bribery of his electorate by giving away refrigerators, TVs, etc, to the "poor" and repeated the very same referendum until the result was what he had wanted. Vote-buying should not be confused with genuine democracy.
Chávez treated oil, this gift of enormous national wealth and resource, that had always sustained Venezuela, as if it were his personal wealth to distribute any way he saw fit. He gave subsidies to Cuba, and other Latin American countries to buy regional influence. He bought votes from the "poor" to sustain his megalomania. And of course he was corrupt and enriched himself and his family as well.
People called Chávez charismatic, which seems completely inappropriate to describe his antics. I called him the clown of Latin America, a lightweight demagogue, with boring interminable hours-long ideological garbage monologues, spewed weekly on his unhappy listeners, broadcast by state-owned media. This garbage he borrowed and perfected from Fidel Castro's interminable speeches of likewise ideological verborrheic ruminations.
Back to José Ignacio Soler's analysis. All his points are well taken, but I would like to add that they are not independent. Most are just inevitable consequences of the root cause of all the rot, which is dictatorship. The concentration of power in the hands of one man, the lack of an independent judiciary, the lack of free press, state-owned media, inevitably lead to all the rest.
A dictator surrounds himself with sycophants, in which all opposition is demonized and suppressed, and once this happens, the result over time is inevitable catastrophe. When bad news happens, the sycophants are afraid to tell the bad news to the dictator. Data is falsified, bad news presented as good news, the truth masked in euphemisms. It is obviously impossible to act in a competent way if all the sensors feed false data and a fantasy to the man at the helm. Though dictators are rarely benevolent to begin with, even if they were benevolent, they cannot possibly take sound decisions if the data they are fed is false. I claim that this phenomenon occurred in Hitler's Germany, Stalin's Soviet Union, Mao's China, in the Chávez-Maduro disintegration of Venezuela, and in many other examples.
JE comments: How long does it take to turn your brain to mush? The Hungarians in 1956 were rebelling against a system in power for barely 11 years, although the pre-1945 system wasn't any better (just different). José Ignacio Soler made the convincing argument that 20 years of chavismo have created a new privileged class, which will do everything it can to maintain its privileges.
It would be interesting to contrast Venezuela and Cuba. The latter nation, despite its crushing poverty, has safe streets and virtually no inflation. Tomorrow morning, by the way, I'll be waking up in Cuba. Look for an instructional post today on how to reach me, but be sure to direct your WAIS correspondence to the following e-mails: email@example.com or firstname.lastname@example.org.
- Is Socialism to Blame for Venezuela's Plight? (Tor Guimaraes, USA 12/07/18 11:56 AM)
I agree with Nigel Jones (November 6th) that the situation in Venezuela is absolutely horrible, but I think it is ideological nonsense to blame it all on Socialism. There is social, political, and economic disaster and decay everywhere.
We capitalist pigs, enamored with profits. We'd better watch out or the ghost of Karl Marx will come back to haunt us. There are numerous countries around the world under the mentorship or the jackboot of the US government. Several raging civil wars never seem to end under the greedy eyes of profit-oriented weapons manufacturers. Their situation is just as bad as, or worse, than Venezuela.
Then we have super-capitalist countries like Colombia and Mexico when the profit from drugs run the country. There is a lot of money sloshing around, but the level of violence is incredible.
Who or what should we blame? Socialism, Communism, Capitalism, imperialism, terrorism, rampant drug consumption in wealthy nations, drug dealers fighting for profits?
JE comments: And then we have the quasi-socialist nations of Scandinavia, which are among the wealthiest and happiest of the world. Perhaps it's time for new term, "dysfunctionism"? It's the "ism" that guarantees a given country is, or soon will become, a shambles.
Are We on the Verge of a Recession? From Ric Mauricio
(John Eipper, USA
12/08/18 4:48 AM)
Ric Mauricio responds to Tor Guimaraes (7 December):
Capitalism is good, until greed takes over. Socialism can be good, until people try to take advantage of it. Religion can be good, until the powers that be attempt to control the minds of the people. Exercise can be good, unless you overdo it. In other words, balance is the key. Extremes are not good.
But let's turn a page in history here. On June 17, 1930, the US government enacted the Smoot-Hawley Tariff Act. It raised US tariffs to record levels on more than 20,000 imported goods. This populist legislation sounded appealing at the time--America First, right?--but it helped create and worsen the Great Depression. Foreign governments retaliated by shutting out US exports. International trade ground to a halt. The world economy contracted 25%. And a quarter of Americans were thrown out of work--and into bread lines. Is this something we want to emulate? Earlier this year, self-proclaimed Tariff Man President Trump said trade wars are "great and easy to win." Hmmm.
The biggest question I am being asked lately? Are we headed towards a recession? The talking heads point at the inverted yield curve. It's inverted between the 2 year and the 5 year. But that inversion has never predicted a recession. It's the 2 year vs. the 10 year, and that has to be in effect for a quarter before it becomes a true recession indicator. Yes, by feeding the public through the media that because we have the start of a possible inverted yield curve, the brokerage firms and their lapdogs are trying to get the public to sell their stocks, so that they can buy cheap.
Does that mean we are not heading towards a recession? No, but the indicator doesn't yet signal that. With the Tariff Man steadfastly holding to that thought, I believe we will eventually head into an inflationary recession as more and more fiat currencies are digitized.
Already, my supplies at the gym have jumped 25%. That, folks, is inflation.
JE comments: One of Ric Mauricio's many day jobs is that of gym owner. So what do other WAISers think? Is the recession looming? Has it already begun? One look at my retirement portfolio is enough to answer in the affirmative. Yes, securities are now on sale. But who buys at a 10% discount when you believe that next week the markdowns will go to 20% or higher?
Are We Headed for Recession?
(Tor Guimaraes, USA
12/10/18 9:29 AM)
I think my favorite intellectual sparring partner, Ric Mauricio (December 8th), is right stating that nothing will work long term when people try to take undue advantage of other people (lack of respect for people) and by not balancing the extremes. The only exception might be searching for the truth on everything, without which we won't know what is going on, how some people are taking advantage of others, and how to balance things. That is basically why I believe in God the Universe.
Ric asks the question, "Are we headed towards a recession?" Here I break my own rules and look at financial markets statistical evidence and heuristics with a large grain of salt. Trends are also very important in some cases, like today's economy and stock market (two very different things). To me the real economy is the people's standard of living, so our economy (the world's for that matter) has been sick and getting worse for a long time.
Since Bill Clinton's administration listened to Greenspan and ripped off the boundary between consumer banking and investment banking, the stock market has been on drugs; and short term the budget deficit was wiped out and the economy felt rosy for a while. After that under the Goldman Sachs administration (Bush/Cheney/Obama) the financial system blew up and the economy has suffered since, even thought the stock market has recovered due to massive doses of free or very cheap money.
The problem has been a much lower standard of living for the majority of the people, coupled with an unsustainably high stock market. The economy was so weak that the Fed did not have to worry too much about inflation so it let things ride. Lately, as the Fed noticed that inflation raised the price of Ric's gym supplies, it had to act and introduced a gradual interest rate increase to fight off inflation. If it slows the rate increase, inflation may accelerate as the economy recovers. If it raises rates too high or abruptly (they know better), we have recession. I guess our capitalist system it is all about money now.
A few days ago I was depressed to find out that China now is producing more research (new knowledge) than we are. That spells long-term problems, because knowledge from research (not organized religion) leads to new technology, new products and processes, jobs and economic growth.
JE comments: Today we have yet another grim day on the stock market. At least no one will accuse it of being unsustainably high. My question, are we headed for recession, or does it just feel like we are? When greed turns to fear...
Is a Recession Looming?
(Istvan Simon, USA
12/11/18 2:46 AM)
Responding to Ric Mauricio's question, I do think that we are headed to a recession.
The American economy has been on a 10-year uninterrupted expansion, the unemployment rate is at 3.7%, and inflation is low. So, Tor Guimaraes' sweeping generalizations and enduring pessimism about the American (and the world) economy seem grossly exaggerated and probably unwarranted.
But, if so, why do I think that we are headed to a recession?
There are several reasons. First, we are due one simply by the cyclical nature of our economy. Ten years of expansion is unusually long, and so something is bound to go wrong, sooner or later, which tends to cause recessions. But there are further reasons for concern. The economic policies of president Trump are in my opinion all wrong. He has done nothing to help the economy along, and has done a lot of things that will tend to stall the economy. The tariffs and his trade war with China are stupid and counterproductive.
The United States has some legitimate complaints about some of China's trade policies and economic behavior. For example, China's tendency to ignore intellectual property. But the way to go about this is not Trump's "elephant in a china shop" (no pun intended) approach. There is no evidence that any of his tariffs have been helpful to the American economy, and plenty of evidence that they have been harmful. As I predicted in these pages, China did not blink, nor changed any of its trade practices, and entirely predictably retaliated.
It is stupid to put tariffs on steel and aluminum. It increases costs, and therefore contributes to inflation, and it makes American manufactured products less competitive, worsening the trade deficit rather than helping it. Since steel is used in mostly everything, it increases the costs of everything where steel is used. The number of jobs lost because of this is vastly superior to the number of jobs saved in the American steel industry. Similar considerations go for aluminum. Furthermore, because China retaliated, it caused the loss of billions of dollars in exports of agricultural products, and loss of market share to American agriculture in world markets. These effects are going to be long term, and persist even after Trump's policies are eventually reversed. The consequences of this Trump-manufactured crisis in the farming sector necessitated a $15 billion bailout to farmers, to try to placate them. It is 15 billion dollars that we do not have, so this just increases the national debt further. Likewise, the increase of over $160 billion in the defense budget was unneeded, and once again increases the national debt. The tax cut for the super-rich as predicted did not result in added growth, as the GOP claimed it would, and therefore once again just exacerbated the deficit. In 2 years the Trump administration grew the national debt by over 2 trillion dollars. Paraphrasing Everett Dirksen, $15 billion here, $160 billion there, and soon it adds up to real money.
It should be said that increasing the deficit during a robust economic expansion is imbecilic. It is Keynes turned on its head. It causes long-term pain with larger and larger burden of interest payments, without much economic benefit. So all these policies of the Trump administration are ill-conceived and causing real harm to the economy. Until recently this was masked by the generally good performance of the economy, which continued on its same upward path inherited from the Obama presidency. But the trade war with China and some of these other factors I mentioned above turned a vigorous bull market into what appears to be a bear market now.
I disagree with Tor Guimaraes that the rise in the stock market was caused by "cheap money." The stock market predicts future profits, and while not always right, generally does that pretty well. That is also what caused the rise in stocks so far, and it has been mostly justified. Profit growth has been healthy, and so stocks rose.
Conversely, the recent reversal of markets seems also sound. Add to this that markets do not not like uncertainty, therefore the constant zig zags of the Trump administration do not help. Neither do the constant lies which are soon contradicted by the actual facts.
JE comments: One silver lining of a possible recession is the unlikelihood it will bring about a collapse in housing as in 2008. Having just procured a mortgage, I can assure you the banks won't cough up a penny unless you're solvent and can prove it with forest-killing reams of documentation.
A recession is formally defined as two successive quarters of negative growth. We haven't had one of those yet--but the fourth quarter of 2018 feels very shaky.
- The "Goldman Sachs Administration" (David Duggan, USA 12/11/18 4:32 AM)
Richard Rubin, chairman of Goldman Sachs, was Clinton's second Secretary of the Treasury, succeeding political hack Lloyd Bentsen in 1995. Of course, Lloyd Bentsen beat George H. W. Bush in the 1970 Senate race in Texas, but was the 1st mate on the Titanic of the Michael Dukakis's presidential campaign of 1988. Maybe there is karma after all.
JE comments: David Duggan writes in response to Tor Guimaraes's reference to the "Goldman Sachs Administration" of "Bush/Cheney/Obama." David reminds us that Bill Clinton was a GS acolyte, too. And what about Europe?
Who can answer this naïve question: why are political leaders so enamored of Goldman Sachs?
"Senator, you're no Jack Kennedy." Hack or not, Lloyd Bentsen left us with one of the most memorable quotes of the decade, perhaps the century.
- There are No "Happy Socialist" States (Nigel Jones, -UK 12/08/18 6:56 AM)
Both Tor Guimaraes and John Eipper (7 December) are wrong in attempting to exculpate the utterly discredited and murderous doctrine of socialism for the catastrophic situation in Venezuela.
Twenty years of dictatorial socialism has reduced what was once one of the most prosperous states in Latin America to the abject condition described in the Guardian report I posted. This was not right-wing propaganda but a rare instance of honesty in that leftist rag.
Nor, as John claims, are Scandinavian countries happy socialist states. John may not have noticed, but these countries have long since abandoned socialism and populist anti-left parties are on the rise there as they are all over Europe.
JE comments: Tor and I weren't trying to exculpate socialism. Tor's point was that it (socialism) does not have a monopoly on dysfunction and murderousness.
David A (Bert) Westbrook also wrote in to tell me that I'm not current on Scandinavian politics. Let's turn this into a "teachable" moment. I'm aware that the Right is gaining more political power in Sweden. What about Norway? Or Denmark? Is the welfare state being dismantled? I hope Paul Levine can send an update from Copenhagen.
- Is Socialism to Blame for Venezuela's Plight? Yes, but Not Entirely (José Ignacio Soler, Venezuela 12/09/18 4:38 AM)
Tor Guimaraes wrote on December 7th that it is ideological nonsense to blame Venezuela's current drama entirely on socialism.
I agree partially with him.
In the Venezuelan case, it is true that there are other factors such as corruption, drugs and weapons trafficking, and a sophisticated form of political dictatorship, but it is also true that the basic ideology that inspired all this current state of affairs is 21st-century socialism, a new form if you will of the most radical expression of socialism supported by the Castro regime. Everything that socially and politically is happening here has been carried out in the name of the Social Revolution.
For sure there have been other regimes inspired by other ideologies around the world in the past with similar results, ruining the country to levels never before experienced, but this has likely never happened in peacetime.
JE comments: Has another nation in history gone from such wealth to such poverty? Probably not, although there might be a few rivals to Venezuela, such as Zimbabwe and tiny Nauru, which ran out of guano. It's time to write a sequel to Adam Smith: The Poverty of Nations.
- The "Goldman Sachs Administration" (David Duggan, USA 12/11/18 4:32 AM)
- Is a Recession Looming? (Istvan Simon, USA 12/11/18 2:46 AM)
- Are We Headed for Recession? (Tor Guimaraes, USA 12/10/18 9:29 AM)
- Is Socialism to Blame for Venezuela's Plight? (Tor Guimaraes, USA 12/07/18 11:56 AM)
- Comparing Hungary 1956 and Venezuela 2018 (Istvan Simon, USA 12/13/18 2:48 AM)
- In Praise of Nacho Soler's "Nineteen Keys" (from Gary Moore) (John Eipper, USA 12/12/18 3:51 AM)
- Nineteen Keys to Understanding Twenty Years of Chavismo (José Ignacio Soler, Venezuela 12/11/18 6:12 AM)
- Twenty Years of Chavismo; More Questions than Answers? (from Gary Moore) (John Eipper, USA 12/08/18 11:44 AM)