It’s probably Milton Friedman’s most famous saying: “Put government in charge of the Sahara desert and in five years you’ll have a shortage of sand.”
What sand is to the Sahara, petroleum is to Venezuela. Venezuela has the largest oil reserves in the world. More than Saudi Arabia. It has proved reserves of 297 billion barrels.
But now Venezuela, an oil exporter for almost a century, can’t even meet its domestic oil needs.
Venezuela has begun importing oil.
|Venezuela, the country with even more oil than Saudi Arabia, has begun importing oil.|
It’s a familiar story. Like most states, Venezuela is a stranger to fiscal and monetary prudence. It has failed to make the necessary capital investments in its oil industry. Venezuela, having nationalized the industry and seized the assets of joint venture partners like ExxonMobil and Conoco, now finds that others are unwilling to risk investing in production deals there.
So Venezuela has to import oil now from places like Algeria and Russia. The money to pay them for oil to make an exportable crude blend will soon run out, too. Then gasoline will join the list of Venezuela’s other shortages like soap and shampoo, rice and milk, coffee and sugar, and even toilet paper.
I write occasionally about events in places like Venezuela and Argentina because they are like laboratory experiments in crazy policies and crackpot economic theories.
Despite the consequences there for all to see, we are busily implementing variations of the same policies here.
What does it mean to “put government in charge” of desert sand or of oil? It means central economic planning by boards and bureaucrats. It means price interference and controls by politicians. It means cronyism.
Just like putting government in charge of American health care.
Putting the government in charge means that production or supplies go down. And costs go up.
Investor’s Business Daily reported that in revamping Obamacare’s notoriously expensive website, healthcare.gov, two weeks ago, the administration chose to withhold premium prices from the site until a week after the elections!
Now does that sound like the most transparent administration in history to you?
The hypocrisy of the state in mandating disclosures by others while it routinely conceals pertinent but inconvenient information about itself must be noted. It is duplicity so pervasive that makes laughable the idea of the state as a means of the reform or mediation of social and commercial relations.
There is guile behind the strong third-quarter GDP numbers released last week as well. The 3.5 percent growth rate is the result of a sudden jump in defense spending just in time to make growth look rosy going into the election.
Does that seem overly cynical?
Then take a look at the precedent two years ago during Obama’s re-election campaign.
In the second quarter of 2012, GDP was up only 1.3 percent. But when the third quarter numbers were released the week before the election, GDP was reported to have jumped to 2 percent.
The president’s supporters told us things were on the right track.
But the improvement was the result of a big bump in government spending. National defense spending rose 12.9 percent in the quarter.
But in the next quarter, the fourth quarter, reality prevailed and national defense spending decreased 22.2 percent.
It’s clear that defense spending was pulled forward into the third quarter to goose the GDP numbers and boost the president’s re-election prospects.
Now the same play has been run again.
As Lily Tomlin once said, “No matter how cynical you are, it’s never enough.”
If higher costs are concealed from the people to manipulate their voting, if government growth numbers are goosed to sway elections, just whose interest is the state serving?
The question answers itself.
If good news in unreliable, if bad news is suppressed, investors are being misled about economic conditions, deluded about things like present growth and future expenses.
We have put a transparently self-serving institution in charge not just of healthcare, but of American prosperity itself.
Should we be surprised then that the Fed is doing to our prosperity what a government in charge of the Sahara’s sand would do?
It is doing to our prosperity just what Venezuela has done to turn a country with the world’s largest petroleum reserves into a country without toilet paper.
Just as the administration has pulled military demand forward from one quarter to another to make things look better for the election, the Fed’s zero interest-rate policy pulls present consumption forward, leaving the future to worry about the resulting debt.
In other words, the interest rates that were made possible by QE were good for the Fed’s Wall Street cronies. They helped the money center banks restore their balance sheets. They enabled financial speculation and stock buybacks. For those lucky enough to get near zero-rate money, they were a windfall.
The rates also enabled the fiscal authorities to continue their borrowing and spending ways. To the governing classes, two-year Treasury rates of 25 to 50 basis points is as good as free money.
But what it has done to debt levels!
U.S. national debt wasn’t even $10 trillion when Lehman Brothers declared bankruptcy six years ago. Now it’s $18 trillion. The debt is now 105 percent of GDP.
Dallas Fed President Richard Fisher said the other day that we will not know for some time whether Quantitative Easing, “the Grand Experiment in Modern Monetarism, is a smash hit or a bomb or something in between.”
They don’t know. Like some South American banana republic, they have been playing roulette with the value of the currency.
These things usually end badly. That’s why I’m glad to see gold and silver prices lower.
And unless you have all you want, you should be glad too.