Tag: Venezuela

Cortez Embraces Zimbabwe-Economics

Answering the question of how she’ll fund the cradle-to-grave welfare state programs she desires for America had been a question that Alexandria Ocasio Cortez shied away from on the campaign trail. As Congresswomen, she’s at least conjured up one idea – taxing incomes above $10 million at 70% per year – though even taxing all incomes above $1 million at 100% wouldn’t pay for a quarter of what she wants to fund.

So what is a socialist to do? Simple – just ignore that debt has consequences.

In an interview with Business Insider, Ocasio endorsed Modern Monetary Theory (MMT), an economic theory that deficits don’t matter since money can also be printed to pay off that debt (hello Zimbabwe and Venezuela). Because the government can print at will, not only do deficits not matter according to MTT, the only purpose of maintaining a level of taxation relative to government spending is simply to regulate inflation and unemployment. As quoted in Business Insider:

She [Cortez] said she was open to Modern Monetary Theory, a burgeoning theory among some economists positing that the federal debt is not an economic restraint for the US. She said the idea, which holds that the government doesn’t need to balance the budget and that budget surpluses actually hurt the economy, “absolutely” needed to be “a larger part of our conversation.”

Ironically, I agree. With our national debt nearing $22 trillion, it absolutely needs to be a larger part of the national conversation, just for the opposite reasons that Ms. Cortez thinks. As you would expect, deficits (and debt) do indeed matter.

More Debt, More Problems

Larger debt (relative to the size of an economy) depresses the size of that nation’s economy. A famous study by Harvard economists Kenneth Rogoff and Carmen Reinhart titled “Growth in a Time of Debt” concluded that once a nation’s debt exceeds 90% of GDP, growth turns negative (on average) by -0.1%. In what was widely publicized in the economics community at the time, several issues were uncovered in the study that challenged the notion that growth turns negative once debt exceeds 90%. However, the same trend held, that more debt depresses growth.

Note that the difference between an economy growing at 3.1% per year and 2.2% year is the difference between one that doubles every 22 years vs. one that doubles every 33 years.

The same trend holds true when it comes to the size of government as a percentage of GDP. A review in the Research Institute of Industrial Economics examined all the existing literature on the relationship between government size and growth since 2000 in rich counties and concluded that ” The most recent studies find a significant negative correlation: An increase in government size by 10 percentage points is associated with a 0.5 to 1 percent lower annual growth rate.”

And a study by economists from Duke University and Wheaton College which examined OECD nations found the same trend: more debt, less growth.

Debt and Income

Given the effects of massive debt on the economy, it’s only natural that it’s the American taxpayer ultimately bearing the burden. New estimates from the Congressional Budget Office found that reducing our nation’s debt-to-GDP ratio to its historical average within three decades would increase incomes by $6,000. An extra $6,000 per year could certainly help the average American pay for many of the “freebies” that Cortez wants to fund through government.

By CBO’s estimate, every $1 increase in deficits reduces private domestic investment by 15 to 50 cents and increases foreign holdings of American assets by another 20 to 25 cents. Under current law, CBO projects that real Gross National Product (GNP) per capita – a proxy for average income – will grow from $63,000 today to $92,000 (in 2019 dollars) by 2048. If policymakers simply stabilize the debt at today’s high levels of 78 percent of GDP, CBO projects per-person income will rise to $96,000. That’s a $4,000 (4.3 percent) increase in income per person, per year.

Likewise, if we rack up the tens of trillions of dollars we’d need to fund Cortez’s socialist pipedream, Americans can expect the exact opposite effect on their incomes.

At least we’d all be equal in poverty.

Debunking Socialist Damage Control on Venezuela

Authored by: Matt Palumbo

In just a single year from 2016-2017, nearly 75% of Venezuelan’s lost weight, averaging 19 pounds in total.

They weren’t on a diet by choice.

Food shortages have become common in Venezuela as their economy continues to dwindle. Electricity and water are being rationed, unemployment tops levels higher than the peak during America’s Great Depression, and inflation is in the thousands of percent per year.

In response to the disaster, TeleSur, a Latin America socialist propaganda network funded by the governments of Cuba and Venezuela (among others), has played the denial game. Admittedly, the justifications for their denial would be hilarious, if it weren’t for the grim reality of what they’re denying. “The facts are clear — Venezuela does have a food crisis,” reported TeleSur, after acknowledging the “19 pounds lost” statistic. According to them, it’s “right-wing U.S.-backed opposition forces” that are intentionally sabotaging the economy, but encouraging supermarket owners to hoard food, all as an attempt to make Venezuela’s socialist government look bad.

Well, that’s certainly one (insane) theory.

The only remotely sensible argument I’ve seen from a socialist is that Venezuela’s problems have more to do with declines in the price of oil than socialism, given that about half of Venezuela’s economy is dependent on oil exports. One can only then wonder why the citizens of Saudi Arabia (of which 40% of their economy comes from oil) aren’t starving in the streets too.

And for that, blame the incompetency of Hugo Chavez.

Chavez decided to nationalize the nation’s oil industry, and the nation’s largest firm, PDVSA, comes as Exhibit A in the follies of socialism. In protest of Chavez during 2002-2003, workers went on strike with the goal of forcing a new election. In response, Chavez firing half of PDVSA’s workforce, 20,000 workers in total. Opposition was strongest among top management, 80% of which were fired (which also included engineers, and the firm’s research arm).

Replacing those employees with others equally knowledgeable about the oil industry proved impossible – and were replaced by political allies of Chavez. In fact, it was company policy during Chavez’ reign that only his supported would be hired – regardless of competency. While PDVSA produced 3 million barrels of oil a day before being taken over, they now average only 2 million a day.

But here’s where things get truly incredible. This is despite the fact that PDVSA has since seen their workforce explode from the pre-nationalization 40,000 employees to an incredible 150,000 employees today. Yet despite that massive increase in employment, the decline in barrel per day production has declined in percentage terms by what the nation saw during the 2002-2003 worker strikes. In other words, 20,000 striking (competent) workers caused as much damage to PDVSA’s production as the hiring of an additional 130,000 socialist workers. The workforce is up almost fourfold, yet production is down a third.

Perhaps Venezuela wouldn’t have to worry about low oil prices, if it wasn’t for their socialist government mismanaging the industry into oblivion.

November 20, 2017: Ep. 594 Dear Socialists, Do You Have a Heart?

Hooray for capitalism, your Thanksgiving dinner is getting cheaper thanks to free markets.

So Trump gets this man’s son out of a foreign prison and then he attacks Trump? Is he insane?

This government housing policy is causing more problems than it is solving.

This study found that masculine, wealthy, men are the most attractive. Snowflakes must be losing their minds.

The media must be kidding with their take on the Rand Paul attack.

Is bitcoin overpriced?

November 16, 2017: Ep. 592 The Democrats are Playing With Fire

What is “regime uncertainty” and why should it matter to you? This excellent piece explains why.

Why are the Democrats and the mainstream media turning on the Clintons now? This piece offers a strong explanation.

The Obamacare tax penalty is becoming a political football and, as is often the case, the CBO is providing misleading data. This piece debunks some of their assertions.

Here’s a brief but powerful explanation of why socialism destroys economies.

If you support a Balanced Budget Amendment then you should read this.