So, let’s see if we can work this out

Venezuela on the brink: a journey through a country in crisis
The oil-rich South American nation should be prospering. Instead it stands on the edge of an economic and humanitarian abyss

I’ve not actually read the piece yet so I’m wondering whether he will in fact give us the correct answer. Idiot economic policy.

The increasingly secretive central bank does not reveal how much it costs to print each bill, but based on international parameters, José Manuel Puente, an economist and professor with the Institute of Higher Administration Studies, estimates that the cost of paper, ink and printing of each note is about 20% more than their face value. “They are not worth what they cost. It’s a joke. But that’s the way things are,” he said.

I actually checked with a bank note printer. They wouldn’t reveal actual prices of course, but did say that the above was about right.

The government’s tendency to subsidise many products below the cost of production is a major reason why the economy is in such a mess.

Well, almost.

When Hugo Chávez came to power in 1999, he took this way of thinking a step further and used petrol dollars to subsidise essential products such as rice, sugar, toilet paper, sanitary towels and medicine.

It was an altruistic, populist move that allowed the poor to finally share in the nation’s oil wealth. But it also stifled incentives for producers and created a system of dependency and black-marketing that was already causing economic problems before Chávez died in 2013 and the global crude market collapsed the following year.

Well, no, that’s not quite right. Proper subsidy of something increases producer incentives. What Chavez and Maduro have done is price fixing which does kill incentives. But, you know, this is The Guardian, they might have the economic details wrong but they are at least insisting that the problem is idiot economic policy. So, Hurrah!

52 thoughts on “So, let’s see if we can work this out”

  1. It’s all the fault of the nasty oil industry not that nice altruistic Chávez who was some kind of saint, you know (cont. p.94)

  2. If the price of printing a 1 bolivar note is 1.2 bolivars why is the cost of printing a 1000 bolivar note 1200 bolivars?

  3. From the comments in CiF………………

    “The Chavez victory will be felt far beyond Latin America. Popular support for Venezuela’s revolution shows the growing space for genuine alternatives in the 21st century” – Seamus Milne.

    And the cabal who have taken over the Labour party still think this is a viable model, many obviously do, there silence says it all.

  4. It isn’t. But the cost of a 100 bolivar note is more than 100 bolivars. And they refuse to print larger denominations.

  5. So Much For Subtlety

    The Guardian is proving Robert Heinlein right yet again:

    Throughout history, poverty is the normal condition of man. Advances which permit this norm to be exceeded — here and there, now and then — are the work of an extremely small minority, frequently despised, often condemned, and almost always opposed by all right-thinking people. Whenever this tiny minority is kept from creating, or (as sometimes happens) is driven out of a society, the people then slip back into abject poverty.

    This is known as “bad luck.”

    That some bad luck them there feckless Latins are having.

  6. Do they still print the notes on both sides?
    One-sided printing was done to reduce costs in 1923 Germany.
    (According to “When Money Dies”.)

  7. I guess you could forge them, but there’d be no point cos it would cost you more than the face value :p

    If you could even get the paper…

  8. So Much For Subtlety

    At what point does it become cheaper than toilet paper?

    Assuming, of course, the Venezuelans can find any toilet paper.

    In passing, it turns out that in private Hollande is pretty much Donald Trump. And Hillary is a low-rent George W but without the charm and intelligence. I wonder what Maduro is saying in private. You think he blames a Jewish and/or Black people for being lazy?

  9. What is the obsession with the cost of printing notes or minting coins? They are not meant to be used only once and thrown away.

    Evidently the VEF 100 note still has some value, as the article indicates they are still being used rather than being brought en masse into Brazil to be turned into toilet paper. At least you can buy a reasonable quantity of petrol with a single note even if you need a suitcase to buy food.

    Similarly it doesn’t matter if a €0.01 coin costs 2 cents to make. That is not a valid reason to get rid of the coin if it is still being used, provided that the metal value + cost of melting (including risk premium if melting is an offence) remains lower than the face value. Germans still use them so the coin is kept in Germany, however Finns and Irish appear to actually have used them only once and thrown them away hence they are no longer used there – but the cost of production is irrelevant.

  10. @John

    The point is that the government is losing money by creating them – and the government is already in a bit of a tight spot.

    There are numerous coins that are minted despite costing more the make than they are worth, but overall creation of money is a net positive for the government.

  11. It-s true – I have a one-sided German bank-note.

    “Altruistic” ffs. Spending other people’s money fucking up the economy so you can be re-elected is not altruistic.

  12. “That some bad luck them there feckless Latins are having.”

    SMfS, on feckless latins, again.

    There’s plenty of politicians in the UK would take the country the Chavez/Maduro route. Particularly if it would get them altruistically elected And enough of the electorate would vote them into power. If the current mob fvck up Brexit badly enough, you could very well see this happening.
    On relative economic fecklessness, the difference between Venezuelans & Brits is probably down in single figure percentage points..

  13. If a state-owned petrol company sets low petrol prices under government instruction, is that “subsidy” (albeit not one that incentivises production) or “price fixing”? Or both? Obviously a big part of the problem has been fixing prices of eg retailers (followed by increasingly extreme measures to ration purchases and prevent exports). But when goods and services provided by the state are fixed at a low price (as happens in eg Nigeria), I’m sure I’ve heard this called a “subsidy to the consumer”. Is that inaccurate?

  14. So Much For Subtlety

    bloke in spain – “SMfS, on feckless latins, again. There’s plenty of politicians in the UK would take the country the Chavez/Maduro route.”

    Sure. But they don’t get elected. The Conservatives were the Party of Power for the 20th century up to Blair. The Left was full of people only too happy to prostitute the economy – and occasionally they got elected – but by and large they were in opposition.

    “On relative economic fecklessness, the difference between Venezuelans & Brits is probably down in single figure percentage points..”

    Look, I get it. People like a strong horse. The British loath themselves too much. Your girlfriend’s country does not. Naturally you are only too happy to identify with them. But you really have to ignore all of Venezuela’s history, and all of Britain’s, to insist there is no distinction between the two countries. Venezuela has an absurd political history in a continent with an absurd political history. Britain, less so.

  15. @MyBurningEars
    If a state-owned petrol company sets low petrol prices under government instruction, is that “subsidy” (albeit not one that incentivises production) or “price fixing”? Or both?
    Subsidy – government is losing money so consumers can gain. Price fixing only applies if they are forcing others to use these low prices.

    …when goods and services provided by the state are fixed at a low price (as happens in eg Nigeria), I’m sure I’ve heard this called a “subsidy to the consumer”. Is that inaccurate?
    That’s accurate. Price fixing is when the government tries to force private companies to adhere to price limits (making some goods unprofitable and thus limiting their availability). Government choosing to sell stuff to consumers at a lower price than the market would suggest is a subsidy (govt is losing money).

    The complication arises where the govt competes with private enterprise (e.g. production price of petrol is $5, govt sells at $2. Private companies can either compete with govt and lose money or have higher prices and sell very little – either way they’re in trouble). I don’t know if that’s the case here, but it doesn’t sound like it.

  16. @RA

    That was my impression – though that kind of consumer subsidy isn’t one that encourages production (unlike eg subsidising environmentally-friendly cars made by private manufacturers).

    When I was reading the thread header here my inclination was that Timmy hasn’t quite got it right either.

  17. SMfS
    My girlfriend’s country is the one with the thriving economy with growth rates Europe can only dream of. Venezuela is one of other parts of the historic Grand Colombia, with pretty well the same population make up, next door.

  18. Honestly Tim, do you really think the Guardian recognises the Economic Policies are wrong. Planning works; we just need to plan better next time. Really: Next time we’ll get it right

  19. Great comment below that article:

    The very mantra “from each according to his ability, to each according to their need” is a charter for the enslavement of the honest and able, by the corrupt and manipulative.

  20. @BiS

    ‘My girlfriend’s country is the one with the thriving economy with growth rates Europe can only dream of.’

    From what base?

    Not saying I buy into SMFS’s caricature of Latin Americans, but you need to look at long terms trends and stats to argue this point, I’d have thought.

  21. “Is owning a quarter of the world then giving it away an absurd enough political history?” It had to go: we weren’t rich enough to afford it any more.

  22. Is owning a quarter of the world then giving it away an absurd enough political history?

    Given the circumstances, it was actually pretty rational in hindsight. IMHO we might have had a better outcome in some former colonies if we could have delayed it for a while, but to do that the government would have had to become a lot nastier, and dare I say, competent?

  23. @ bIs
    I totally welcome the recovery in Colombia but I think that most of the enviable growth rate is simply down to the abandonment by FARC of its attempt to take control of the country by military force, terrorism and blackmail. Colombians being allowed to produce coffee (and good coffee at that) for the likes of you and I to drink instead of coca for FARC to process into cocaine to kill teenagers is a GOOD THING.
    Colombia is reviving and withn a range of agricultural and other natural resources will prosper if the communist terrorists allow it to. However it is not yet as prosperous as Europe – the nice young Colombian couple who live in the flat above my mother-in-law are beneficiaries from, as well as a benefit to, the UK economy. They add more value than they consume but also have a higher standard of living than they would have in Colombia.

  24. Well quite, Interested. They’re hauling their asses up from a pretty low base. But they are doing it. Now I’d suspect Bogota possibly got a bit of good old Yank entrepreneurial advice from Uncle Sam. Whilst Caracas was being guided by our ever helpful Guardianistas on falling down from a higher one. But we are talking about essentially the same peoples. It’s the governments are different.
    And are they so different from us? All politicians are shits. Just some, not so much. You get to vote between what’s available. UK returned the Blair/Brown disaster, three times running. In preference to the Tory no-hopers. And as I said above, wouldn’t put it past it to give Corbyn a try, if the current useless bunch of cvnts excell themselves in cvntishness.

  25. @Maritime Barbarian,

    I can confirm the hyperinflation notes were printed on one side only – I have a couple in my collection. One 1,000,000 Mark note, and one higher denomination, which if memory serves has a similar very simple design and a face value of 50^9 Mark.

  26. @Charlie Suet,

    If your banknote actually only has one side please send it to the Nobel committee.

    [/pendant]

  27. @bis,

    As far as SMFS is concerned the fact that it took white people 2,999,850 years from evolution to sailing ships to darkest darkieland is proof of his personal superiority to darkies. And to the feckless latins who took 2,999,750 years to make it to a slightly less darkieland.

  28. I got vouchers to buy a school uniform. I dont remember the school uniform market collapsing. Perhaps because the school uniform manufacturers were paid the full price for their products, instead of being forced to sell them at a price we could afford.

  29. My neighbour – an accountant – maintains that Venezuela would have been fine if the oil price had not fallen. Socialism only fails because of markets, you see. To him, spending oil revenues on equaliteeeee is more important than using those funds to develop infrastructure to attract international business. …

  30. Bloke in Costa Rica

    Bloke in Germany: 50⁹ Marks? 1953125000000000 is a very strange denomination for a banknote.

    <pendant class="arithmetic-bloopers" />

  31. BiS,

    Now I’d suspect Bogota possibly got a bit of good old Yank entrepreneurial advice from Uncle Sam.

    From what I’ve read the current success of Columbia is due to the Colombians listening to us Yanks less. Specifically on drug policy.

    Theophrastus,

    Tell your friend that high oil prices wouldn’t have made it rain filling the reservoir for the main hydroelectric dam. Venezuela has plenty of problems more money won’t solve.

  32. “your banknote actually only has one side”: brilliant, the Möbius strip banknote. 3D printing here we come.

  33. Think of the cost savings possible with currency produced with just one side. Halve the cost of producing it immediately.

  34. Liberal Yank
    It’s not worth arguing with him. And the shortage of rain would only convince him that the next socialist experiment will have more luck…The dream never dies for such folk.

  35. The problem in Venezuela is that some officials are paid by Goldman/JPM to advise the Government.

    If you look at the value of product exported and the value spent on stuff to make the Gov popular there is a big hole, 30% in kickbacks, 70% to financiers.

    Idiot revolutionaries financed then raped by bankers is an age old story, presumably the previous establishment defaulted.

  36. @Theo,

    “My neighbour – an accountant – maintains that Venezuela would have been fine if the oil price had not fallen.”

    Have you moved to Ely?

  37. Bloke in Costa Rica

    “Idiot revolutionaries financed then raped by bankers is an age old story”

    Ah yes, the old “saboteurs and wreckers” line. Those crafty sods, managing to hoodwink the Comrades every time.

  38. The problem in Venezuela is that some officials are paid by Goldman/JPM to advise the Government.

    So how come Pinochet didn’t end up putting Chile down the rabbit hole then? The “Chicago Boys” got to run far more of Chile than any similar ones have in Venzuela.

    Every South American country is corrupt. Most of them very corrupt. However when they stick to free markets they gain wealth, despite the corruption, and when they go Socialist they fail even if the shoot the corrupt (e.g. Cuba).

  39. “Ah yes, the old “saboteurs and wreckers” line. Those crafty sods, managing to hoodwink the Comrades every time.”

    I guess the Comrades just can’t be that bright then?

  40. “Have you ever met an intelligent socialist?”

    Loads. And a lot of friends.

    It’s a genuine mystery to me, how otherwise perfectly intelligent people… (seriously)

  41. ““Have you ever met an intelligent socialist?”

    Loads. And a lot of friends.

    It’s a genuine mystery to me, how otherwise perfectly intelligent people… (seriously)”

    Intellectually intelligent maybe, but practical intelligence? I doubt it. Intelligent socialists are the sort of people who have degrees up the wazzoo but never change the oil in their car (or indeed have any idea how to), ie the sort of people who if they didn’t have the State backing them up with its monopoly on violence would be cold hungry and very soon dead.

  42. Jim,

    With one or two exceptions, you’re pretty warm in terms of those I know.

    But, because I know they’re bright, it doesn’t stop me being irritated / annoyed and all that.

  43. Theophrastus, one thing I often say to people who complain about markets is that no matter what you do, you can’t eliminate them, you can only change the “product.”

    Any socialist government that destroys markets must by definition create new ones in the process — and unfortunately the new markets aren’t for oil or foodstuffs. They are for political influence. Even the dimmest of our fellow citizens ought to see the problem with that.

  44. @ Bloke in Wales
    Yes!
    Lots of dishonest ones who profited from socialism, but putting those on one side, the top mathematician in my year in my college who was a professor last time we met (presumably now an emeritus professor); one of the brighter of my wife’s college friends (also now a professor) – she went to Trinity Cambridge, that place that claims to have more Nobel Prize winners than France; various others.
    It is quite possible for an honest person to form in childhood views that society is unfair and seek to change society to remedy that. Since we have never had true socialism we cannot prove to them that it would not have worked – and if we were all St Francis of Assissi, it might work.
    OTOH, my wife despairs of the *brightest* of her year’s mathematicians who is now right-wing and most of the bright guys I know are to the right of Cameron, frequently regretfully so.

  45. It is quite possible for an honest person to form in childhood views that society is unfair and seek to change society to remedy that.

    Indeed. In my case those views didn’t survive the 4 months exposure I got to the “real world” between school and starting basic training.

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